

The Real Cost of Owning a Car - bluebit
http://www.startupceo.co.za/2010/05/23/millionaires-dont-have-great-cars/

======
philk
Not a good article at all.

a) Nobody has ever confused a car with an investment.

b) "Assuming a modest 10% return". 10% after taxes and inflation is not a
modest return by any stretch of the imagination and I'd be _thrilled_ if I
could achieve that consistently. If he hasn't factored inflation and taxes in
then all his sums are wrong.

c) "Here, look, my $4000 student car costs more than $4000 in running costs
and depreciation over three years" is not a useful example in the context of
luxury vehicles. With luxury vehicles your running costs will be a much
smaller fraction of the original outlay. (Although I admit depreciation will
still be a big factor. Probably best to get one second hand that's a couple of
years old.)

d) It's just a generalization of the general truism that millionaires have
often become millionaires because they're frugal.

e) If you've got, say, five million dollars, you can cheerfully drop a hundred
grand on a car and it's only a small fraction of your wealth. Not a sensible
idea, but not fatal either.

f) In the second paragraph he essentially says "Millionaires often drive cheap
cars except when the drive luxury cars". This is not a particularly impressive
insight.

~~~
bradleyland
The entire premise of his title is dead wrong. "Why Millionaires Don't Have
Great Cars" is a failed assumption. The zip code across the river from me (on
the southeast coast of Florida) has the highest concentration of ex-CEOs in
the nation. By consequence, there are a disproportionately high number of
millionaires driving around on the beach side of town. It is a rare occasion
that I see one of these people driving a Toyota Yaris. Most of them drive some
form of Lexus, BMW, or Mercedes, with lots of Porsches thrown in the mix, and
the occasional Ferrari, Masseratti, or other exotic.

Millionaires drive what they want. If they don't "want" a nice car, they won't
drive one.

------
thesethings
I really, really recommend reading The Millionaire Next Door (I have no
affiliation with it. It's kinda old-school, but in no way out of date.).

Almost the entire book is about how luxury goods are NOT consumed by rich
people, but by semi-struggling middle class people. (BMW's, Rolex, premium
liquor, etc.) (Or at least people who have to go in to debt to consume these
things.)

(It's also about how rich people DO live, choose to buy stuff, negotiate,
etc.)

Everybody in this thread who's saying, "duh, cars aren't supposed to be an
investment," are technically right. And everybody should indulge in things
that really make them happy. If cars are your thing, go on, do your thing.
It's all good.

But in the Millionaire Next Door, it goes over how cars are an especially
precarious purchase for most people, as they just really eat up a lot of money
over time. For most people, even non-luxury car purchases require a loan.

Cars might be more dangerous for us than say Rolexes, because most of us think
"well either way I have to have a car, might as well get a _____."

Anyway, maybe this article wasn't the most persuasive case, but it is true.
Most rich people don't have fancy cars, or probably fancy anything.

(In the Millionaire Next Door, it says we get confused by this because there
are a famous outliers who show off their wealth, so we incorrectly associate
wealth with luxury, when they're rarely related.)

~~~
vaksel
i think the big issue, is that there is rich and "rich"

real rich can afford to spend $100K on a car w/o really impacting their income
too much. i.e. 100K = 5% of their yearly income($2mm/yr)

the "fake" rich, still make $300-400K a yr, but they think they are "rich"
rich, so they also buy the $100K car. But for them that $100K is a much higher
% of their income.

personally I feel like 5% of your income on cars, is more or less living
within your means. If you keep your car for 4-5 years, that's only 1% of your
yearly income going towards cars.

Granted if you are a car enthusiast and cars are your only hobby, it's ok to
bump that number to 10-15%

------
Goladus
Yes cars are extremely expensive. But for many the ability to live within
driving distance of work is worth it. I know people who don't have cars. They
really miss them. I can drive 250 miles to see my family on a whim. It takes
4-5 hours. Taking public transit requires 7-8 hours, and only gets me within
25 miles of my parents' house (which is pretty good compared to much of the
US).

And something like reliability is difficult to quantify. The difference
between a $20,000 car and a $4,000 car is often that the $4,000 car is more
likely to fail on you unexpectedly. You'll wake up one morning to find the
battery dead, or you'll be halfway to work and your brake lines will rupture,
or maybe it's just that the door sticks and is a minor subconscious annoyance.
Eventually the amount of money you have to sink into a clunker to keep it
running will be as much as it would have cost to buy the newer car.

But yeah, anything more than that, unless you need the car to impress clients,
is pure luxury. If I had to blow $50,000 on a luxury, it would not be a car.

~~~
reitzensteinm
Anecdotally, for the first time in 6 years I don't have a car and I'm loving
it. I'm living about 10 minutes walk from the CBD. To visit anyone I'd fly
anyway, and the airport is only 15 minutes away by bus.

Walking everywhere is much more satisfying, and not having to worry about
breakdowns, oil changes, registration - not to mention the cost - is very
nice. On the occasion that I decide to take a road trip, I can rent a car, for
a small percentage of the annual cost of ownership.

It probably helps that I live in a dense, pedestrian friendly city though
(Wellington, New Zealand).

~~~
shadowsun7
You're truly blessed to be living in such an ideal location. I'd kill to be
able to be 10 minutes away from _both_ the CBD _and_ the airport.

~~~
jodrellblank
You'd kill, but you wouldn't move?

~~~
Periodic
The market for hitmen is currently saturated, so even if he works overtime and
does a few extra hits on the side under the table, he still isn't going to
make enough to move into the more expensive, more central neighborhoods.

Plus, there's all those fees to keep your contract-killer's license up to
date.

------
vaksel
quick notify ferrari, lamborghini, porsche, maserati, aston martin, jaguar,
bentley, audi, cadillac, morgan, rolls-royce, bugatti, TVR, volvo, spyker,
saab, land rover, lotus, bmw, mercedes, lexus, lincoln, maybach, pagani,
gumpert, koenigsegg, acura, infiniti, weismann, mosler, ascari, mclaren, ssc
aero,..that they are in the wrong business.

First of all a luxury car is not an investment. A person doesn't buy a
Ferrari, thinking it'll appreciate, they buy it to show off their wealth, and
at a certain point, the 200K for a Ferrari is only a small portion of
someone's income. And since high end cars tend to hold their value really
well, they don't depreciate as much as regular ones.

Second of all, the lost opportunity cost is just the cost of owning a car.
Live a little, you don't get to take the money with you when you die.

Finally, there are only a few types of millionaires who don't own a nice car.
1. those who lease the luxury car with their companies. 2. those who are
always traveling for business, and who pay the $30K/yr to belong to those
super car rental clubs. 3. those who see a car as just something to take you
from point a to b.

~~~
againstyou
well, you forgot some brands on your list like: hennesey, saleen, caterham,
ariel, ultima.

~~~
vaksel
tuner, tuner, kit car, maybe, kit car

------
blackswan
Owning an expensive car is actually not as bad as the author suggests. Once
you get beyond around $80K cars depreciate at a much slower rate than other
cheaper cars. One reason for this is that the more exotic a car is the lower
the mileage it is likely to carry becomes. Another strong factor is that when
you are paying more than $80K for a car you are paying a lot for the brand of
the car and this is likely to be evaluated later at an emotional rather than
mechanical level. A 5 year old Aston Martin is still an _Aston Martin_ ,
whereas a 5 year old Honda is basically a commodity to be evaluated on its
mechanical merits.

In terms of this argument the worst car to buy would be something like a BMW 5
Series - its not expensive or rare enough to ensure it would be evaluated on
its emotional appeal when you are selling it - but it is still pretty
expensive.

~~~
ahoyhere
I love it when somebody makes an intelligent distinction in an overarching
argument. Thanks.

Especially when it's something I can use to talk my husband out of his
delusion of getting a BMW as our first car, when we'll drive it 10 hours a
month. In Europe, where BMWs are twice as expensive... and four times as
common.

~~~
binarycheese
BMW's are twice as expensive in Europe? You lost me there. I currently on
vacation in Europe, and you won't believe some of the deals (on both brand new
and used) BMW's I've seen.

~~~
ahoyhere
Where are you?

In Austria, a Toyota Yaris (different name) costs 15,000 - 16,000 euros.
That's around $19,000+ even with the weak euro right now. A BMW X3 SUV starts
at 41,500 euros. That is $52,000 now but, before the colossal euro drop, it
would have been more like $62,000.

Last I checked, a Yaris costs $12k in the US and an X3 starts around $37,000.

So you're right, it's not double, but it's close enough for me. Especially as
soon as the Euro gains its strength again, or the US dollar drops down.

That amount of money for a car is ludicrous to me. When I spent 10 hours a
week in the car, I had a Toyota Matrix and it was perfect. When I plan to
spend 10 hours a month in a car, it's beyond ludicrous. :)

EDIT: If you're looking at export deals, you might be looking at prices
without the 20%+ VAT and additional luxury taxes.

~~~
matwood
I don't know how it is in the EU, but in the US it makes very little sense to
buy a new luxury car. Many people who like luxury cars also like owning the
newest one. This means they lease and/or buy them and only keep them for 1-2
years. If you look in the used luxury car market you can find great deals. So
great in fact that I'm amazed anyone buys one new, but that's what people like
to spend their money on I guess.

~~~
ahoyhere
I'm from the US. Here's why I previously bought a new car (the high-end trim
level Matrix, not luxury though):

I wanted a low mileage car because I had owned several high-mileage, but
reliable, used cars, and calculated that I spent at least $200/mo over the
year on routine repairs and maintenance.

A low-mileage (sub-30K) late year model, otherwise identical used car cost
only $2,500 less than the new car.

The interest rate on a no-downpayment loan for the new car was 0% for 12 mos
and 3.9% after. The interest rate on the no-downpayment loan on the used car
was 13% from the start.

On the new car, I wouldn't have to pay for the first major service for about
18 months. On the used car, it was coming up in a matter of months. (The 30k).
Not to mention it would soon need new tires, brake pads/rotor turning, and it
was the half-life for the struts and major transmission services, too. (That's
$1000 right there.)

You have no idea how the used car was treated in the breakin period and early
oil changes, etc, and by only 30K miles, the damage won't have shown itself
the way it will have by 80K miles. So when buying a low-mileage used car,
sometimes you're actually making a greater gamble.

As you can see, all the logical points added up to buying the new car. It
would actually cost less because of the financing and repair bills I would be
less likely to pay during ownership.

Additionally, I was able to buy it right away, without having to hunt around,
because the first few used ones I found with the trim level I wanted were
safety cone yellow. Ugh.

Moral: BUYING USED ISN'T ALWAYS A SMARTER DEAL.

I love splurging on things, but not when the splurge comes back to haunt me
month after month. ;)

EDIT: I agree with you about the luxury car, period, and also I wouldn't buy
one used. That's why I'm trying to talk my husband out of a BMW, period. IMO
the cost difference between a low-end BMW and a high-end VW isn't worth it.

~~~
matwood
Where are you banking that your used car loan is 13%?! The one I have now is
6% and bank rate lists current used car loans for 48 months at 6.38%. You need
to find a new bank :) I really hope you're not using dealer financing...ugh.

I agree that buying a used car does take a bit of leg work. The last one I
bought took me almost 3 months of looking. At the time I bought my last car
the dealership wanted $33k for the base trim new. I bought the 1 year old
version with 12k miles and higher trim level for 24k. The car was a 4-Runner,
not exactly luxury, but a nice reliable car. I'm looking at Range Rovers now
and the price difference between new and 1-3 years old is amazing.

I also get a mechanic to check out any car before I buy it. Luckily I have
multiple mechanics in my family.

Oddly enough I have bought 1 new car in my life and it was the car that gave
me the most problems. I had it in the shop every other week because of some
computer/vapor exhaust issue. When I finally sold it, the engine light had
been on for about 3 of the years I owned it.

------
dzorz
> How much would I have after three years? Assuming a modest 10% return per
> year

Is 10% really a modest return?

~~~
jdrock
No, it's not. If you're steadily earning a 10% return on your investment, year
over year, you are doing amazingly well and should stop doing whatever day job
you have now.

~~~
a4
Not in South Africa. Look at the rates on South African government retail
savings bonds: <https://secure.rsaretailbonds.gov.za/ViewHistory.aspx> .

~~~
dedward
Statements like that generally assume that that's an investment adjusted
against inflation or devaluation......looking at the interest rate alone on a
currency is meaningless without the rest.

------
barrkel
I find it difficult to believe that a Ferrari would consume 100x on all of
fuel, fines, insurance and licensing costs.

But I would rather consider your choice of car beyond basic requirements as
consumption, much like food. I'm sure one wouldn't consider fine cuisine a
good investment either under these circumstances, but that doesn't justify
living off ramen your whole life.

~~~
pmccool
True, but I bet the servicing costs are terrifying. I once saw an ad for a
used Ferrari that featured the words "engine-out service". That can't be
cheap.

------
jonasvp
It depends on where you live. In the States or outside a fair-sized town,
there's (so far) no alternative to owning your own car out of sheer necessity.
In the city, especially here in Europe, it's a different story. The usual rule
of thumb is the cheapest car costs you _at least_ 300 €/month (taxes,
depreciation, not counting gas money)!

When my son was born this made it easy for me to decide to buy an Xtracycle
(<http://www.xtracycle.com>) for my bike instead of a car. The Xtracycle
covers 95% of my transportation needs and 300 € buys a lot of trips by taxi
whenever that's necessary.

Still, the point of the article as I see it is that most people underestimate
the cost of their car. That's a small problem. The big problem is that our
societies underestimate the external cost of private car ownership. When you
figure in loss of life and health through accidents, noise, and pollution,
loss of usable space in inner cities through car-only streets and on-street
parking, and general loss of quality of life - the private car becomes the
most expensive mode of transportation ever invented.

~~~
LeChuck
>The usual rule of thumb is the cheapest car costs you _at least_ 300 €/month
(taxes, depreciation, not counting gas money)!

These prices are hardly uniform across all of Europe. I live in a smallish
city in the Netherlands and you can probably own a car for 60 - 100 €/month
here.

~~~
jonasvp
They're not, that's true. Be sure to count all your car-related expenses,
though. Even minor repairs quickly cost over 1.000 € and you'll be racking up
a lot of those over the life of the typical car (if you have an older one).
For a new car, depreciation runs even higher.

------
gsaines
Found this very interesting, and especially so since I've been evaluating the
financial efficacy of owning a car a lot as of late.

I own a Green 98 Subaru Forrester with about 150k on it that my father gave me
on my college graduation. It's been a heap of problems, due mostly to its age,
but I've come to realize that owning it is actually not a bad value (it is of
course not an investment, but a consumable product). The problem is one of
cash flow.

My Forrester recently had a wheel bearing go out on the rear passenger side,
and it was going to cost several hundred in parts and labor to get it fixed.
Since the car is so old and I'm tired of fixing it, I decided to just let it
sit for a while and try out not having a car.

I started using a car sharing program (CityWheels), which requires you to pay
for each time you use one of their cars. Although the cost of operating a
rental car is higher and the use case is less flexible, it's not a terrible
deal.

What it has made me realize though, is that for the cost, owning a car isn't a
bad deal if (like me) you live outside of a huge city, there isn't a lot of
public transit, and you want to get around. As I mentioned above, it's cash
flow that gets in the way of realizing the value.

When you own a car, you pay for gas, insurance, incidentals and repairs, and
it's the last category that really gets you. Figuring up the cost of
ownership, I pay about $.27/mi to drive the Subaru compared to ~$.40 for the
City Wheels car, but the CityWheels car feels like a better deal because I pay
everything up front. If I need to drive 30 miles, I have to pay the $12 now.
If I drive my car 30 miles, I sometimes don't have to pay at all (if I don't
need to put gas in it). But then, about 2-3 times a year, I have to pay $400
or $600 all at once, and it makes me resent the thing.

I've heard it said that more millionaires own Toyota Camrys than any other
model, and it makes sense: as some of the commenters above mentioned, paying
for reliability and quality is worthwhile, but paying for an Aston Martin
should not be viewed as an investment, but as a consumable.

------
seltzered
The one thing worse than car ownership? Taking a loan out to buy the car:
[http://www.itulip.com/forums/showthread.php?t=634&pagenu...](http://www.itulip.com/forums/showthread.php?t=634&pagenumber=)
. I'm shocked at how we allow people to take 5 year loans for cars that
depreciate 30+% over that time.

I live in Texas where a car is required, and bought a "new-to-me" year old
used subaru a year after graduating college, with a couple years of warranty
left on it. It was mentally better than paying to maintain my previous car,
which needed thousands of dollars in repairs. I do all the easy maintenance
(oil/coolant/filter changes) myself, and hope to have the car overall for 10
years.

~~~
matwood
No, the worst thing is buying the car _new_. When you drive off the lot a car
gets hit with immediate depreciation. The first year captures a lot more of
that 30%. If you simply buy cars that are 1 year used you save a ton on the
deprecation to the point where a 3-5 year loan at 6%ish never puts you
underwater if you put a little money down.

~~~
dedward
Underwater? Viewed as an investment any car puts you underwater immediately -
it's a net loss.

If you borrowed money and are also paying interest on the vehicle, that's just
MORE cost... I don't get the rationalization.

Yes, a new-ish used car is a better value for money deal than a brand new car
- but if you have to borrow money, you are probably better off convincing your
ego to let you buy a cheaper model rather than borrowing money from the bank
to purchase something.

~~~
matwood
The general definition I use for 'underwater' is if I were forced to sell my
car today would I get enough money for it to pay off the bank? Nowhere did I
mention viewing a car as an investment.

There is no rationalization. Of course it's more cost but there is also cost
associated with reducing the amount of cash you have on hand. With that said,
a car is the second biggest purchase most people make. It would be great if
they all had the thousands of dollars to buy a reliable car with cash, but
many don't.

Personally the last car I bought was used and I got a 6% 5 year loan. I
typically make double payments on cars so the loan is almost over less than 3
years in. I did the math the other day and accounting for interest I've done
much better by buying the car on credit and leaving the rest of the money in
my various investments. Over 2-3 years 6% isn't much to begin with so it's
pretty easy to beat with other various investments.

------
mark_l_watson
The author makes a good point, similar to those made in the excellent book
"The Millionaires Next Door." My wife and I have make it a habit of saving for
new big ticket items like cars to avoid debt payments and it makes a
difference: both in saved interest payments and fewer purchases. I have worked
just part time my whole life making a good but modest living while my brother
owns two optometry offices, has lots of income, but not so great investments
and buys a lot of "toys." It seems really strange to me that I am ending up
with more assets than he has when I took it easy in my career and had fun.

------
jister
Technically, owning anything that is depreciating is a bad investment and that
includes cars.

~~~
blackswan
Only if the value you are getting from using the asset is not more than the
amount by which it is depreciating.

------
e40
I think the real title should be "why millionaires don't have great cars while
they are becoming millionaires." When they are rich, they can and do by nice
cars.

------
edw519
"If it flies, floats or fornicates, always rent it.. it’s cheaper in the long
run." - Felix Dennis

~~~
baha_man
So which of those three does a car do?

~~~
e40
None of the above. He's talking about planes, boats and women.

~~~
baha_man
I know that, what I don't understand is the connection to the article, which
is about cars. If you're very rich, joining a supercar club rather than buying
a supercar probably makes great financial sense. If you're on an average
income and want a 'normal' car, I doubt renting would work out cheaper than
buying.

~~~
mrtron
The article is also about large hidden costs, which the above mentioned 3
contain.

~~~
baha_man
Well, the article is pretty useless, as pointed out by philk above, so here's
some advice for everyone who's not a millionaire:

<http://www.banking.state.ny.us/brblc.htm>

"Leasing can be beneficial if you want the newest model car, plan on getting a
new car every two to three years, plan to drive fewer miles than the lease
limit and plan to take very good care of the car... If you plan on driving the
car for more than four years you are probably better off buying."

And for those with money to burn, here's a George Best quote:

"I spent a lot of money on booze, birds and fast cars. The rest I just
squandered."

------
maxniederhofer
It's hard to put a value on the freedom to, at a moment's notice, get up and
go wherever you please, without having to rely on anyone or anything. It's
what continues to attract people to individual transport.

~~~
jarek
... except for fuel.

------
jdrock
I have a fairly nice car. Have owned it for 7 years now. While there have been
minor problems like scrapes on the rims, trim peeling, etc., the engine,
transmission and all the real guts of the car have performed flawlessly the
entire time. The car has been paid off for 4 years.

I feel I could drive this car for another 5 years at least. That would be at
least 12 years without purchasing a car and 8 years without making a car
payment.

My car was expensive, but I feel it was engineered so well that it can last.
Quality cars last a long time.

~~~
blackswan
This is definitely my approach as well. I have a BMW and take exceptionally
good care of it - and feel that this is the best way to deal with the fact
that cars depreciate. Get a really well built car and use it for a long time.
Due to the "lemon" problem it is not possible to sell a car second-hand at its
proper value if you have maintained it well. But this isn't actually a problem
if you don't mind driving a slightly older car. My BMW has 60K on it and I
expect to drive it for at least 6 more years.

------
random42
I dont understand the comparison of cars with investment. Car is a utility
which makes life better, hence expenditure. You invest to make money to spend
on utilities which make your life better. :)

------
binarycheese
This is complete bull. Owning anything that depreciates in value is not a
smart investment idea. Most wealthy people don't go around in a Prius. Even if
they own one, they will always get a "safer" car for their family (at least)
such as a Volvo, Benz or Range Rover.

------
waivej
Sometimes it's a good idea to own a "desirable" item rather than go with the
masses with a commodity. When it's time to sell your old convertible, you'll
find a buyer. The old sedan is basically scrap metal.

------
ebiester
One thing this argument ignores is social signals.

If you're in sales, as one example, you may want an expensive car. This lets
clients subtly know that you are doing very well, and can serve as a form of
trust for some people.

If you have a small penis and no significant other...

------
mos1
Most of the wealthier people I know have reasonably nice cars. Maybe not
Zonda/Lambo nice, but Audi, BMW, MB, Infiniti, Lexus and Cadillac are the
norm.

