Let’s Talk Cars

I love great looking cars that also drive well. This shouldn’t be confused with a love for how cars work. I wouldn’t tell what a radiator is if it hit me on the face, but I know a thing or two about money issues surrounding car ownership, and that’s the gist of this post. If your interest is the technical side of a car, talk to Motogari. 

Car  ownership in Nairobi is considered one of one’s greatest milestones after employment. After you land a job, the next question from all and sundry is: “When will you buy a car?”.  A car is a status symbol. For that reason, most of us throw prudence to the wind when planning for and buying a car, such that by the time we’re 35, the car is really the only piece of ‘real estate’ we own. But is a car really an investment?

Is your car an investment? A car isn’t an investment, unless you’re going to use it to generate additional income. This doesn’t mean we should all buy pick up trucks (though I’d love to own the one above), it just means car ownership should increase your earning power in some way, for it to be considered an investment. When I bought my car, I had just won a 1 year consultancy that I wasn’t going to manage alongside my regular job if I didn’t have reliable transport. Its fair to say for the first year, my car was an investment.

If buying a car won’t increase your earning power in any way, then consider it an expensive convenience tool.  Instead of buying a car to beat the chaos that is our public transport system, you might want to just  live closer to the work place, because the additional rental payments could be cheaper than owning a car. More about associated costs later in the post.

How much should you spend on a car? Very rarely are we objective about car ownership. We want the leather seats, the sun roof, turbo (never mind the fact that in Nairobi, getting to 60KPH is a dream). The one thing that kept some of us going through school is the dream that one day we’ll own a car. It’s very hard to be objective about this, and for that reason, the car’s the most expensive ‘asset’ we own. My mentor gave me a rule of the thumb when buying a first car. It’s value should be at most 50% of your wealth. This percentage reduces for additional cars. This means, for you to buy that Vitz (Kshs 750,000), you should have another Kshs 750,000 in real investments. Your phone and laptop in this case aren’t real investments. Shares, a piece of land etc are.

Should you take out a car loan? I think that’s quite obvious so far. A car ins’t an investment, for that reason it’s not very sensible to take a loan to buy one. In addition to interest payments on the loan, owning a car is expensive, yet the car is a depreciating asset (it’s sale value decreases with every passing year). A little math explains this better. Assume one takes a Kshs 800,000 loan for 3 years to buy a car. On average, the following are the annual expenses (I’ve used my experience in car maintenance for the other figures):

Average loan Interest      70,840.67

Insurance                              60,000.00 (7.5% though with subsequent years you can get a no-claims discount)

Servicing                                48,000.00 (once a quarter at Kshs 12,000 average)

Tyres                                       11,000.00 (tyres are replaced on average every 2 years)

Total                                        189,840.67

This means on average, the car costs you Kshs 15,000 per month, excluding fuel, major repairs and minor accidents (which sometimes you have no control over). This is why it might be cheaper to move closer to your work place and walk, instead of buying a car.

Those three are the biggest financial questions one should consider when buying a car. A couple of additional tips once you have it on your parking lot:

• Drive carefully. This seems obvious, but you need to observe drivers on the road to see it isn’t. Reckless driving is costly. Driving over ‘kerbs’ and speeding over potholes will cost you in terms of your suspension. Drunk driving or over speeding (or both) will cost you in bodywork repairs and could cost you your life.
• Cheap is expensive when it comes to mechanics. It’s better to pay a little premium for a good mechanic than to later suffer due to fake car parts. I’m told some mechanics will even take out your genuine car parts  and replace them with fake ones. Its a win win for them, as they will wait to sell the genuine part back to you.
• Service your car regularly. It will save you a lot in the long run.
• Buy to keep. In the Kenyan market, it’s more about perception and number plate. A very well maintained KBA will sell cheaper than a poorly maintained, but good looking KBP. Disposing cars frequently will cost you, buy a car you can keep for as long as possible, after all, you’re spending a lot maintaining it.
• DIY. I’m told it’s possible to service your own car, all you need is some basic knowledge and a tool box. The second sentence of this post disqualifies me from speaking any further on that.

All the best as you buy a car and remember, just like gadgets, there will be a better, more good looking model of your car in a year or two. 🙂

For the readers who have walked the car ownership path, what has your experience been like? Was it a wise financial decision? Do you regret buying your first car?