An own car is never an asset!

Just a question, ‘Are you paying more towards a comprehensive insurance on your car than the premium that you pay on your Life insurance?’. No, I don’t want to use this punchline to hard sell Life insurance. But you would be surprised to find that many people are shocked to discover their misplaced priorities in life – often they never thought of it like that.

And so when Anand Mahindra made a poser about young people would rather access a car than buy it, it caught my attention. (I have produced the entire quote below as he saw it as a challenge for car makers to make an emotional connect with the consumer than anything else). It was a pet peeve of mine anyway – an own car is many things but it is never an asset.

It’s supposed to be one of our early loves in life – to have an ‘own’ car. (Follows the sequence of an ‘own’ bicycle to ‘own’ bike in one’s growing years). Often it is the first ‘asset’ bought by young adults who have started working and can manage to wangle a car ‘Hire-Purchase’ scheme.

For some reason my romance didn’t ever extend beyond my own bicycle followed up by my own bike. My heart was on having my ‘own’ house and I managed it before I turned 30. (There is of course another theory in the market on whether one should ‘own’ or ‘rent’ a house as well from a purely economic perspective).

I gave buying a car a miss though I have used them extensively over the past 15 years since I started working. I didn’t buy it when I could afford a ‘Hire Purchase’, I didn’t buy it when I could afford to buy it outright in cash, and of all wonders I didn’t buy it during my stint in Middle East where top brand cars are cheaper than in India and of course petrol is cheaper than water. Not having an emotional connect for it, I always ended up looking at it in pure economic terms and then it’s not easy to justify the cost.

To anyone who is not convinced on that front, I always like to give an example where people don’t even understand the ‘Total Cost of Ownership’ (TCO) of a car. Without any complicated working the bare elements include the following –

  • The price of the car – financed or self-funded – represents Capital and there is a ‘opportunity cost’ of not employing it for anything else. This can be computed on a yearly basis and gets compounded upwards if we were to think of putting this money in a Term Deposit.
  • The loss of capital itself – the car is a depreciating asset. It is worth less and less every year and that is a straightforward capital loss every year.
  • Running cost, maintenance cost, insurance, car accessories and nowadays parking charges (office and even at home) add up yet another packet to it. Insurance in particular is an important component that people miss valuing – as I mentioned I know of some who pay less on their own life insurance than what they pay towards car insurance.

In most cases today you will find it economical to just call a smart taxi and end up paying less in a year for all your trips than the cost I estimated above. Earlier all this was worth because an own car provided a great convenience and reliable transport. I think the ‘Smart Car’ revolution underway in our cities is changing that as well.

So it was interesting to read Anand Mahindra comment as follows, ‘Increasingly, why are people buying cars in a world where they can access cars? We’re entering an age of access. It’s frightening when you talk to young people and you say, ’you going to buy a car’, they say ‘no, I’ll use Ola, I’ll use Uber.’ So why will they buy a car? I’m not negative about them wanting to buy cars; they will buy cars they love. They will buy cars about which makes them say, ‘I want to buy this car. This has to be mine; it says something about me’ an emotive aspect.’

Well the emotional appeal as well as the prestige of owning a car is something else. But I learnt it early in life that one shouldn’t compare apples and oranges. And there are quite a few qualitative benefits as well – you save the effort of being a driver, managing traffic snarls, maneuvering for parking space, protecting your car during the rains etc etc. Last but not least about not owning a car, ‘I have never quite reckoned the time I saved in not chauffeuring my wife’s shopping trips. She just calls a cab and manages on her own’. 😉

Credit: Dan Kitwood Courtesy: Getty Images
Credit: Dan Kitwood
Courtesy: Getty Images
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