It may not look like it, but what you see above is not a military vehicle doing recon work in a ravaged part of the world. It is actually, in fact, a photo of a $150,000+ Land Rover Defender SUV juxtaposed in front of an older, residential building in Guatemala. I like this photo for many reasons, and am a big fan of how the Defender looks. Heck, I'm a big fan of how the name sounds (tell me a vehicle name that sounds better to be picked up in)!
This photo also represents the focus that society has placed on these internally-combusting moving-machines. If I had a dollar for every time I've driven through a lower-income neighborhood only to see a BMW, Cadillac, Mercedes, Acura or Lexus sitting on a driveway, I'd go buy that Defender! Wait, what did I just do there? That thing where I associated wealth with the vehicle I drive? Yeah, that! This is how ingrained this association of expensive motor vehicles with wealth is. A recent earnings release by auto-parts manufacturer Magna International (TSE:MG) has even shown that profit has risen more than expected in Q2 2016 due to increased auto sales, despite the precarious global economic environment we are currently in. This tells me that even with job loss, stagnant wage growth, increased food prices and lower investment returns, people are still willing to buy a brand new vehicle.
You might be thinking, what if those people just value their vehicles more than their residence, isn't that their choice? I would say yes, but it isn't the best choice if they want to become wealthy. The reason being, a car is a depreciating asset, and it depreciates faster than almost anything except electronics that go obsolete within a couple of years. You may require a car for your commute and daily life, but here are a number of variable costs to consider before buying a vehicle:
- Gas - Extra $100/yr for each 1 mpg (mile per gallon) decrease in fuel economy (you would spend $700 more on gas each year by owning a 2016 Dodge Charger instead of a 2016 Fiat 500)
- Insurance - Extra $300 - $1000/yr for a car expensive enough to add collision coverage to (very dependent on exact car, experience, deductible, etc.)
- Maintenance - Extra $100 - $1000/yr for luxury/unreliable cars (JD Power does an annual dependability study on 3-year old vehicles)
- Depreciation - You immediately lose $3000 - $12,000 on a non-luxury vehicle by buying brand new instead of used
Still not convinced? Keep in mind these are just EXTRA costs based on the vehicle you choose. You still have your "base" gas, insurance and maintenance in addition to tires, registration, car washes, parking and tolls.
A CAA study looked at the total cost of car ownership, and it shows that we love our cars so much that we are willing to spend, on average, $9,500 on just a sensible compact car (Ex: Toyota Corolla or Honda Civic) every single year. Just to give you a sense of how much this is, you could alternatively rent a cheap studio apartment, basement suite or room near your workplace for under $800 a month to stay in on weekdays!