Sunday, April 20, 2008

You can't take car envy to the bank

By Douglas R. Sease

Here's the question: How many people do you admire or respect because of the car they drive?

Note I said "admire or respect," not "envy."

No one, huh?

So now that we've established that you don't care what someone else drives and that no one else cares what you drive, let's get serious. The fact is that for most of us after our houses and maybe college educations for the kids (at a really, really good college) cars will take more of our money than anything else. And Detroit (and Nagoya and Stuttgart) want as much of that money as they can possibly get.

Hence all the expensive advertising trying to convince you that you'll feel better about yourself -- and others will feel better about you, too -- if only you drive a particular car.

What hogwash! Get past the marketing and advertising and when you buy a car you're buying something very simple: a steel box with wheels that contains about 150,000 miles. You can buy an expensive box of miles, a mid-priced box of miles or a really cheap box of miles (read "used cars") and you'll generally get the same thing: 150,000 miles (less, of course, the number of miles a previous owner put on a used car). The only difference is how much you pay to go each one of those miles.

Hidden Cost

But here's the real catch: any one of those cars winds up costing you a lot more than you think. Sure, there's sales tax and operating costs and insurance, all of which take an additional toll on your wallet. But what I'm really talking about here is opportunity cost: every additional buck you spend on that box of miles is a buck that you no longer have to invest and watch grow in value for years to come.

If you save $10,000 by buying a Toyota Camry instead of a BMW and invest that $10,000 in stocks with an average annual return of 10%, at the end of 10 years (about when your Toyota is coming up on that 150,000-mile mark) you'll have $25,937.

At that point, save another $10,000 by buying a less expensive car, invest it, and the combined savings on those two cars will, 10 years from that second purchase, be worth more than $93,000. (That's $67,275 from your initial $10,000 investment 20 years ago and another $25,937 from your latest $10,000 savings.) Can driving a car that is $10,000 more expensive than another really be worth nearly $100,000 to you?

More Than Money

Now there are certain criteria that a car has to meet if you're going to drive it 150,000 miles. Over the years I've found that the things that are important to me, in descending order, are reliability, safety, efficiency and comfort. Reliability might not seem that important in the overall scheme of things -- most people would initially choose safety -- but the fact is you won't keep a car that's unreliable for 10 years.

The real point, though, is that all four criteria are important, and you'll have to make some trade-offs. You can't have the most efficient car while still having the right balance of safety and comfort. That's why over the past 30 years I've invariably wound up driving a Honda or a Toyota. Cars from those manufacturers consistently get high ratings for reliability, safety and efficiency.

When I was working in The Wall Street Journal's Detroit bureau many years ago, a very, very high-ranking Ford executive told me off the record that the challenge facing his company was to be able to build a car as good as Honda's Accord. From everything I read today, Ford still hasn't accomplished that goal, nor have Chrysler, GM or various other global manufacturers.

Sure, the car freaks may find Toyotas and Hondas boring, but for $100,000 in savings over time I'm willing to be really bored, as long as I have reliability, safety, efficiency and comfort.

Replace That Box?

Having said all this, I acknowledge that there may be circumstances in which you shouldn't keep a car for 150,000 miles. The advent of antilock brakes and air bags were such significant strides forward in safety that they made it almost imperative that you get out of a car without those features and into one that had them.

We may be approaching another such threshold in terms of efficiency when the major auto makers begin offering plug-in electric vehicles a few years from now. We'll have to wait to see how reliable, comfortable and safe they are. But plug-ins will be a significant step beyond today's popular hybrids, which so far seem to be more expensive than they're worth in terms of overall fuel savings.

Still, the bottom line remains this: Every dollar you spend on a car (or anything else that costs more than a few hundred dollars) is a dollar that you're not saving and investing for tomorrow.

Article from the Wall Street Journal.

* * *


Hundreds of you wrote to tell us you'll miss Jonathan Clements and the "Getting Going" column. I'm with you. I'll miss him, too. Jonathan's counsel and unique voice spoke to me not only as a fellow journalist, but as a reader, like you, trying to manage my family's money.

You'll notice, however, "Getting Going" remains, even if Jonathan doesn't. That's because the column really is the heart of The Wall Street Journal Sunday. It's what we are about -- prudent saving, spending and investing.

That's certainly the message I get from this morning's column by Douglas R. Sease, a longtime Wall Street Journal writer. And it's a message that will be further explored in coming weeks by other "Getting Going" writers.

I hope you'll keep reading. And tell me what you think. Write: david.crook AT wsj DOT com.

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