Be careful! Buying a new car could be a terrible investment

It is common to believe that the purchase of a car is an investment, but everything changes if analyzed from an exclusively monetary point of view

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Leer en español: ¡Tenga cuidado! Comprar un carro nuevo podría ser una inversión terrible

According to car appraiser Kelley Blue Book, a new car costs on average US $ 36,270. This average cost goes from the cheap segment B automobiles (average cost of US $ 16,353) to the most expensive luxury family cars (average cost of US $98, 368). Considering these prices, whenever someone is close to buying a new car you have to think carefully if such an expense is worth it.

For this reason, we must ask ourselves if a purchase like this can be seen as an investment. The personal finance specialist Miriam Caldwell, for The Balance, clarifies that a car is not really an investment, because its value decreases with time. Caldwell says that the value of most cars decreases by approximately US $ 1,500 after its first year of use and between US $ 6,000 and US $ 10,000 after the fifth year of ownership.

So, for example, if a person buys a new Mazda 3 2.0 Prime, valued by Carroya at US $ 19,900, after five years the car could be valued at half of its original price. This is contrary to the notion of investment, which consists in spending a certain amount of money, hoping that after a while they will receive more than what was initially invested.

Another reason why buying a car is not an investment is maintenance and insurance costs. Caldwell compares this case with the purchase of a house: while making arrangements in a property increases its value in the market, the same situation does not affect the value of a car, which will continue to decline over time. Luckily there are sites like Edmunds, FindTheBestCarPriceCars.com and other huge ones that have good deals on used cars.

The costs of a car compared to public transport

One way in which you could try to consider the purchase of a car as an investment is by comparing its price with the public transport expense. First, it is worth noting that public transport prices differ widely between different cities in Latin America: a ticket for the Mexico City subway costs MXN $ 5 (US ¢ 26), a single ticket for São Paulo metro costs R $ 4.49 (US $ 1.16), a single ticket for the Buenos Aires metro costs ARS $ 4.50 (US ¢ 16), a subway ticket in Lima costs S / 1.50 (US $ 1.37), and a Transmilenio ticket in Bogotá it costs COL $ 2,300 (US ¢ 81).

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If the prices of public transport tickets are averaged in these five Latin American cities, a US ¢ 75 per passenger ticket is obtained. If a person pays two daily tickets at that price, including weekends, he would have paid on public transport what a new car costs on average (US $ 36,270) after 24,180 days, that is, a little over 66 years.

We must remember that it would be necessary to count the corresponding to insurance, gasoline, and maintenance expenses. In any case, in purely monetary terms, the purchase of a car could not be considered an investment if it is compared with public transport.

Can you convert a car IGNORE INTO an investment through carpooling?

Another way to convert the purchase of a new car IGNORE INTO an investment is through the use of carpooling. This practice consists in sharing the car with people, sometimes unknown, who have a common destiny with the driver. In this way, the costs of gasoline and (sometimes) parking are reduced, to be divided among the people who are sharing the trip.

An article published on Telemundo considers three situations in which the savings that carpooling could mean are noted:

  1. If a person shares his car with a coworker two days a week and divide the fuel costs, there would be a saving of approximately US $ 249 per year, assuming the journey is about 32 kilometers (30 minutes).
  2. If the journey is about 72 kilometers (one hour) and the car owner shares it with a colleague for four days of the week, the fuel savings would be approximately US $ 1,610 per year.
  3. If the journey is about 104 kilometers (one hour and 30 minutes), and the car is shared with two people five days a week, the savings in gasoline would increase to approximately US $ 2,246 annually.

However, although certainly the option to share the car could correspond significant savings, these are only relative to some of the expenses after the initial price of the car. This means that even if carpooling is done, the purchase of a new car could not be considered an investment. As a Forbes article published in 2011 concluded: looking at it from an investor's point of view, buying a new car is a terrible investment.


LatinAmerican Post | Juan Diego Bogotá
Translated from “¡Tenga cuidado! Comprar un carro nuevo podría ser una inversión terrible”

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