Johannesburg - It’s an age-old conundrum for motorists - should you upgrade to a new car more often so that the old one is still worth enough to count towards a strong deposit, or hold on to that older car for a longer period in order to let the depreciation level out?
While it’s a difficult calculation to make, and one that can never be done with complete accuracy, Colin Morgan from car retailer getWorth has crunched a great deal of numbers to give us an estimate of how much money could be saved by buying older cars, instead of newer ones, and by keeping them for longer.
In fact this research went to the extreme by making a calculation over a 50-year working and driving life, based of course on today’s money as that’s what you and I understand best and because tomorrow’s inflationary pressures are impossible to accurately forecast.
Morgan created three fictitious car owners and tracked their projected costs over a 50 year period, from their first car at age 22.
Each of them drives small hatchbacks such as the Toyota Yaris, priced at around R250 000 new.
Owner 1: Insists on buying brand new because he likes having the latest and greatest, and then trades each car in on another new one three years down the line. We all know Owner 1.
Owner 2: Is a little more pragmatic. ‘She’ (and yes, we’re quoting the research here!) buys used cars that are around two years old and keeps them for five years before repeating the cycle again.
Owner 3: Is severely allergic to depreciation and only buys five-year-old cars and basically holds onto them for as long as they’ll go - which is a further 10 years for the purpose of this research.
This is what each owner spent on cars over 50 years:
Owner 1 - R2.6 million, R51 500 per year
Owner 2 - R1.8 million, R36 100 per year
Owner 3 - R1.1 million, R21 100 per year
As you can see, there are some serious savings to be made by settling for older cars, and bear in mind that these sums are in today’s money - as inflation occurs over the years you’ll obviously be dealing in far bigger numbers.
But that’s neither here nor there as inflation cancels the bigger numbers out, the real head-turner is the potential compounding interest that you’ll earn over the 50 year period if you invest the money you would have spent changing your cars more regularly.
“An after-inflation return of 5% each year can roughly quadruple the difference in today’s money,” Morgan points out.
Morgan’s research took into account parameters like depreciation, transactions costs (including what the car’s sold for upon trade-in), average inflation, interest and maintenance cost.
The study also factored in R60 000 per car for out-of-plan maintenance for Owner 3’s older vehicles. It must be borne in mind however, that older cars carry a higher risk of catastrophic failures that could end up costing the owner more than that amount, such as needing a replacement engine. So you will need a little luck on your side. Notwithstanding the dangers posed by being stranded on the side of the road.
What the calculations don’t take into account are costs such as insurance, fuel and consumable parts such as tyres as they should be broadly similar for all three - assuming that the lower insurance rates for older cars are balanced out by higher fuel consumption.
"Newer cars depreciate faster - so it’s a good idea to rather buy second-hand. It’s also important to buy cars (new or second-hand) that hold their value well. Also make sure you buy and sell at fair, market-related prices,” Morgan says.
“Cars are a cost rather than an investment. If buying a certain car means that you can’t invest money for the future, rather look at a cheaper model.”