What makes September 1st a special day?
Motorists are apparently 'counting down the days' until cars with the new 57 number plate go on sale. But, given that it's a sure-fire way to lose money, why are we obsessed with buying new cars? asks Merryn Somerset Webb.
This article is taken from Merryn Somerset Webb's free weekly personal finance email, MoneySense. Click here to sign up now: MoneySense
What makes September 1st a special day? The fact that it is the day when new cars will first get the 57' registration plate, says The Financial Mail on Sunday. Many motorists are apparently "impatiently counting the days" and more than 400,000 orders for new cars that's around 20% of all annual car sales will be made in the next few weeks for delivery on the big day.
My heart sinks every time I read this kind of thing. Why? Because it means that 400,000 people are definitely going to lose money, and if past experience is anything to go by several hundred thousand of them are going to take out criminally expensive financing deals in their bids to do so.
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A new car loses 20% of its value as soon as it leaves the forecourt and will be worth 30% less than its list price within three months. A few examples...
If you had bought a Citron Xsara Picasso 1.6 SX in 2004 it would have cost you £14,100. If you'd tried to sell it eighteen months later you'd have got (according to What Car?) around £6,000 for it. That's a loss of over £8,000 or 57%.
You'd have lost a similar amount on a Ford Kaa 1.3 hatchback (£5,000 or 52% of your cash) or a Saab 9-3 1.8 four-door (£9,250 or 45%). On the Saab you're losing about £17 a day. On a really expensive luxury car you could be losing £100-plus a day.
This doesn't make any sense at all. Why would anyone throw that kind of money around just to drive a brand-new car? Particularly as a new car turns into a second-hand car as soon as you drive it off the forecourt. Some say they just like to have a car that no one else has ever driven. But there's no such thing. How do you think your new car got to the showroom? It didn't just drive itself off the lorry someone else's bottom has always sat on the driver's seat at some point.
Some say they like that new car smell'. And maybe they do but if that's the case they could amuse themselves by putting a plastic bag over their heads and ripping up £50 notes. The final effect would be roughly the same as that of buying a new car.
Some say that with a new car they know that nothing is likely to go wrong. They also know that if it does they have a guarantee to ensure peace of mind. This too is nonsensical. If a car has been on the road for five years and been properly serviced there's no more reason why it should break down than a new car. And if you buy a second-hand car from a reputable dealer of any kind you can get the same kind of guarantee you'd get with a new car anyway.
As for the often voiced concern that if you buy a second-hand car you could end up with one that has been in an accident and been reconditioned, this really isn't a big deal either you can get any car checked any time by your own mechanic or by the AA before you buy it for a matter of £100 or so.
The final reason people give (when pushed) for buying a new car is that it shows off their relative wealth and status. I'm not going to start on the stupidity of this except to point out that anyone who really thinks that driving a new Picasso gives them more status than driving a year-old one probably has bigger problems than I cope with addressing here.
If you are very rich and status is very important to you then go ahead, buy all the new cars you like (there's nothing wrong with it as a hobby if you can afford it), but if you aren't and it isn't take yourself down to your nearest car supermarket next time you need a change of car. Then put the ten grand you save in a pension. You'll thank yourself later.
And whatever kind of car you buy whatever you do don't let the dealer lend you money to pay him. He'll charge you double what you'll pay for an ordinary personal loan from a bank 12-13% rather than the 6-7% you might pay for the better personal loan deals out there at the moment. Click here for details of the best deals on the market today: Best deals. You wouldn't buy a car from a bank so why buy a loan from a car dealer?
The other thing to do if you live in a city might be to ask if you really need a car at all. I own one bought at a car supermarket in White City for £4000 including a full guarantee but I'm beginning to think I shouldn't. I use it about once a month, if that (no one who lives in London likes to move their car do so and you lose your parking space much better to take the bus). And that makes each trip I make pretty pricey.
According to Sainsbury's Bank the average motorist spends about £2,000 a year on car expenses insurance, fuel, parking, tax, servicing and repairs. Halifax puts the number at more like £1,500, but either way owning a car clearly isn't cheap. Include depreciation, says the RAC, and that number goes up to around £5,000 a year and higher for real gas-guzzlers (a Porsche Cayenne will cost its owners going on £19,000 a year, according to the RAC's figures).
Better might be to join a car sharing scheme of some kind. Join a car club and you can order up whatever kind of car you want whenever you want it, without the bother of tax or maintenance and for a fraction of the price of owning your own car. You pay a monthly fee to the club and are then charged based on how long you have the car for on each outing and on how far you drive. Carplus suggests that driving this way will save you around £1,0001,500 a year as long as you drive less than 6,000 miles a year. Carplus is a charity set up to promote car clubs so its numbers aren't exactly unbiased, but I don't think they are that far out either.
Car clubs aren't a perfect replacement for owning your own car (there is the inconvenience of having to walk to a nearby parking bay to pick up your car rather than having it waiting for you directly outside your door) but, given the savings on offer, they're a pretty good one. If I could be bothered to take the baby's car seat out of my car and keep it in the hall for transfer to a car club Golf once a month I'd certainly join one. Car clubs include www.citycarclub.co.uk, www.mystreetcar.co.uk and www.whizzgo.co.uk.
If you have any comments about this piece, please email editor@moneyweek.com
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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.
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