Cost of ownership - could it be lower on a new car?

We’ve all had it taught to us over the years that the canniest motoring purchase is a good second hand car, one to keep for a few years before selling it off before it hits the bottom of its depreciation curve and has a relatively low cost of ownership. New cars are seen by many as an extravagance, something to have only if a company is footing the bill. But here’s a question; can a new car actually save you money?
New car sales in Ireland continue to struggle. While the 132 number plate has given July’s results a lift it’s clear that car manufacturers are still finding it difficult to entice consumers onto the forecourt and harder still to persuade them to leave in a brand new car.
It’s not as if we’re not buying. Last month over 50,000 used cars changed hands, the majority of which were bought and sold in the Republic and we’re still seeing a steady stream of used cars coming in from the UK (over 4,000 this month alone).
It looks like we, as buyers, are just not as impressed with the “new car” as we once were. Despite the continuing squeeze on credit it isn’t access to finance that’s the problem. Many of the manufacturers have their own banks up and running in Ireland now with attractive interest rates and innovative finance deals, while others have secured solid deals from banks and finance institutions.
It isn’t a shortage of supply either. There are hundreds if not thousands of cars sitting in storage at the moment around the country and on forecourts just waiting that elusive new owner to take them home, and dealers and importers alike are keen to do deals.

Image Problem?

Perhaps it’s something altogether different? Maybe it’s the ‘optics’ that buyers have a problem with. Is the message a new car sends out right for the times we live in? Have things gotten so bad that there’s now a stigma attached with buying a new car? Do you look at a 132 number plate on your neighbor’s driveway and hear it shouting “Hey look at me! You know all that stuff about recession and hard times? Not me! No Sir – I’m happy to flash the cash and indulge myself in a new car. Isn’t life sweet!!”
A friend told me today how he was recently asked to move his 132-registered car further up the road and away from his next-door neighbor’s house. He just didn’t want people (or passing crooks for that matter) thinking that he had splurged out on a new car.
It’s true that buying a new car has always been seen as a bit of a luxury. A typical used car buyer shudders at the thought of ‘depreciation’ and how much a new car loses once you drive it off the forecourt, etc.

Changing Perceptions

But what if car manufacturers were able to show that buying a new car was actually the frugal and sensible choice? That by investing today in a new car that gives great fuel consumption, cheap road tax, low maintenance costs and up to eight years warranty you could actually save money over the life of your vehicle? Would this change people’s perception of a new car and take away some of the negative sentiments mentioned above?

Cost of Ownership The Carculator from Renault is a nice tool for teasing our your TCO.
The Carculator from Renault is a nice tool for teasing our your TCO.

‘TCO’ or Total Cost of Ownership as it’s referred to in corporate parlance is something that influences Irish Fleet Managers every year. They don’t choose cars by their handling, desirability or beautiful alloy wheels. Instead the decision about what cars make the company car list (or not) are based on sensible financial factors such as Residual Values, Whole Life Running Costs (WLRC), After Sales Service and Reliability. Is there a lesson in this for the private buyer?
If we took the time to examine all the obvious (and hidden) costs that our current car incurs, is it possible that a new car might actually come in cheaper?
What are the relevant headings that we need to consider? I suggest that we take a three-year view and jot down what you expect to spend under the following headings:

  1. How much do you think you’re car is going to depreciate over the next three years (tip - compare the value of your car today with one that’s three years older)?
  2. How many kilometres will you do in the next three years? What will your fuel bill be?
  3. What will the total tax and insurance bill be for the next three years?
  4. How many scheduled services will your car require? Jot down the cost of a minor and major service and multiply it up.
  5. How many NCT’s will it need to pass?
  6. Will you need to have your timing belt and water pump done?
  7. How many tyres are you going to need?
  8. Now have a think about the suspension problems that you may encounter. Will the shocks, struts or ball joints need attention?
  9. Now add all of the above for your grand total.

Once you’ve completed this ‘back of an envelope’ calculation you’ll have a good idea of what your current car's Cost of Ownership is. You will be in a great position to start comparing some of the popular service-inclusive PCP offers that are available today, and you may be surprised by some of the results. Buying a new car may actually be the money-saving option.
And then maybe, just maybe, you’ll be able to pass your neighbor’s house without wanting to chuck a brick at his new car.