Don’t be a new-car nitwit

published 22 May 2009

There is something I need to make clear. When I said a few weeks ago that my husband and I had bought a new car, I didn't mean a brand new car. I meant a nearly new car an 18-month-old VW Passat. I don't get the rationale for buying new cars. A new car turns into a second-hand car the instant your bottom touches the seat, losing an average 20% of its value in the process.

That's just the beginning. By the end of the first year it will have lost around 50% of its value. After that things slow down a bit. A Passat like mine goes for around £20,000 new (depending on how desperate your dealer is), £9,000 after a year, then around £8,000 after two years. That makes the case for buying nearly new pretty compelling you get a car in almost perfect nick for half the price paid by the nitwit who drove it off the forecourt in the first place.

So why do people buy new? Most of the reasons usually given (wanting to be sure it hasn't been in an accident and so on) should evaporate if you buy from a reputable dealer and get a proper guarantee. Indeed, about the only thing we didn't get with our Passat that we'd have got with a new one is that wonderful new car smell. I regret this mildly, but, as I've said before, you can recreate this new car' sensation simply by popping a Sainsbury's bag over your head and ripping up £50 notes. If you'd like to see the full horror of the effect of depreciation on your own car, visit Whatcar.com and check out the depreciation calculator.

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This is something anyone considering taking advantage of the government's cash-to-scrap scheme might like to do first. The scheme allows anyone owning a ten-year-old car or van to trade it in for a new car with a £2,000 discount. But what's £2,000 to a new car buyer? Buy the average £20,000 car and you'll lose at least that on the trip from the forecourt to your driveway. And your brand new car will be more expensive to insure than your ten-year-old one.

And don't think you're doing the planet a favour with your shiny new status-mobile: 40% of the emissions from the average car over its lifetime are created during its manufacture, so many feel you are better off sticking with your old car than being responsible for the building of a new one. So much for cash to scrap.

Now, as regular readers will know, we are a bearish lot here at MoneyWeek. But that doesn't mean we don't tip stocks too. In one of our February cover stories (How to plug into America's $4.5bn energy upgrade), Eoin Gleeson and Jody Clarke tipped smart meter maker EnerNOC (Nasdaq:ENOC), General Cable (NYSE:BGC) and Ener1 (Nasdaq:HEV). They've gone up around 113%, 148%, and 115% since which is nice. So it's time to take profits on all but Ener1, which Eoin still thinks is worth holding as the best long-term play around on the electric vehicle market.

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.