Monday, March 4, 2013

The Car: a financial killer

car, high cost, financial killer, contrarian

When I look around at the people here in Germany plenty of them are following the classical trend of buying a new car, keeping it for 2 to 3 years and then selling it to buy a new car once again.
One blogger that I follow is Barry Ritholtz which are running the blog "The Big Picture". The guy is very reasonable when it comes to many things however last week in my opinion he was pushing the wrong things.
It must be mentioned that he is a car fanatic and loves all the new cars coming out. He even seem to have a passion for European cars. He was pushing that people should go out and buy new cars because it was possible to get very good deals. Yes, that might be true however buying new a car is the worst investment ever for an investor. Tying up your money in a house or apartment is pretty bad on its own but the general trend is at least that the prices go up besides from when the bubbles burst. A car however only costs you money and not even a small quantity.

As an example I took a high level family car here in Germany. BMW- 530i Touring. It is a great car, you can very relaxed travel long distances with it... and fast due to autobahn and the quality of the engine. You can even fit the big trolley in the trunk so it is also family oriented. If you would have bought this car new back in March 2010 you would have paid around 49.750 € give or take some 1.000 € for additional equipment. You then drove this car 40.000 km per year which is a fairly low distance and until todays date you would then have driven it a total of 120.000 km. Since its a BMW with high quality it will last you for at least 350.000 km without any hassle appearing but that does not matter for this calculation. You now decide to sell this 3 year old car with 120.000 km driven because there is a new much nicer car that you want to buy.

The price you will get from retails (I used an online calculation system) are 15.892 €. The car has depreciated with 33.858 €! If you calculate this per month and here I only mean the depreciation per month, it has nothing to do with insurance, petrol, maintenance, service etc. then the monthly cost became 940,5 €. I don´t even want to make the calculation with petrol, insurance etc. since that will just drive me even further up the wall! 940 € that is almost as much as I am able to save per month! This would mean that if I would have bought this car then I would not have been able to save a single dime.

So buying a new car is the one most idiotic thing a person can do to significantly decrease their financial power today and for the future. Are those three months of new car smell really worth that?

From the perspective of world consumption then it is great to buy a new car. There are so many industries involved in putting a car together which leads to many jobs and of course I want those jobs to stay I just can not afford, at the moment, to pay these high costs for them being able to keep their jobs.

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