Karl examines research that claims rising property prices actually increases people’s propensity to consume.
Some interesting research came out recently that shows that when people’s houses go up in value, they’re more likely to buy a new car. Makes sense, right? Your home is worth a lot, so you may as well buy a car to match. But the most salient point is that this tendency to purchase a vehicle was linked to the property’s market value, rather than how much equity someone had available.
Think about it logically, and a purchase of a car ignoring your equity doesn’t really make sense. To someone who wields a pros and cons list, they’d realise that you need money to buy a car – and equity is effectively money in the bank. For now.
Equity is rather fickle. Depending on property prices, that money available can go up or down. Lately, property prices worldwide have been slumping, so the incentive to go out and buy a car has been melting away. And even if you do, a car that’s going to depreciate the instant your drive it off the dealer’s lot isn’t a hugely cost-effective way of purchasing.
So, there are two ways you can look at that machine sitting in your driveway. (1) Buy a new or demo vehicle and just before it goes out of warranty, usually about three years, trade up to a new model, meaning your car is always under warranty; and (2) Keep the car you have forever and simply fix it as anything goes wrong.
Unless you’re running a business, and using the depreciation as a tax write off, the money you lose on a car could be better spent elsewhere. Which is why option two makes a lot more sense.
Before I have every dealer banging down my door telling me I’m wrong, think about it properly. Over twenty years of ownership, and unless you’ve bought a Jeep, how many engines or gearboxes will you go through? Servicing is the roughly the same price, tyres and brakes will cost the same, and auto trimmers can fix any interior issues that arise.
Really, the only things that would differ majorly would be catastrophic failure of driveline components, but with proper servicing (not dealer services), these would be more than covered in the difference in cost for upgrading to the next model. And even if a car is under warranty and something goes wrong, you still have the inconvenience of being without your car.
Financially, you’ll be well in front if you just keep a car for a lifetime. But the real issue is whether someone is disciplined enough and humble enough to look after it and maintain it rather than keeping up with the Joneses.
A dealer I spoke with recently had a Rolls-Royce Phantom on their lot that was six years old and had lost exactly half its value. Think about how much that is per year and I can guarantee you that maintaining that vehicle for six years wouldn’t have cost anywhere near what was lost. But the owner wanted another car. Sure, they could afford to lose that money, but on a motoring writer’s wage, I certainly couldn’t.
That’s why, in twenty years, I’ll still be driving around in the same Toyota I’ve been maintaining for years. Sure, it’s not fashionable, but it’s mine...
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