Tom's Life Bits

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// WallStreet Journal//
===== You Can't Take Car Envy to the Bank =====

//Sunday April 20, 11:07 pm ET//
==== 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.

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?

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.

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.

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