Personal Finance Part 7 - Car

Tha latest news in the almost never-ending series on "inflationary" price increases includes new adjusted pump prices from Caltex for all three classes of petrol. Regular 95 now costs S$2.046 per litre, Regular 98 at S$2.12 and Premium 98 at S$2.286 per litre. As Singaporeans may know by now, there is a worldwide commodities "boom" which had led to prices of everything from steel, oil, pork and flour rising quite a bit. This has inadvertently resulted in an inflation rate of 6.6% which was recently reported in the news. Yet, when I recently passed by a car road show at Suntec City atrium (open area near Carrefour), there were scores of people literally lining up to purchase cars !

Well, this post is about cars and the cost, benefits and disadvantages of owning one. Readers should be aware by now that I do NOT own a car and have no intention of owning one in the near future. It is in my interest to evaluate the real cost of owning a car, both in monetary terms and social terms; and today's Business Times has a good article on the approximate costs of owning a car which I shall proceed to list down. Singapore is basically one of the most expensive places to purchase a car (yeah, even a second-hand one !), yet it is a fact that more and more Singaporeans are owning cars as the total car population has actually increased about 6%, such that the government has to resort to measures to limit the car population by increasing ERP charges on road usage. Sounds like a pretty drastic measure to me.....as I do not see a big problem with our current public transport system (I take buses all over the place), except for the occasional long wait and over-crowded buses.

Anyhow, let me break down the numbers according to BT and comment on them. According to the article, if you spend S$50K on a car with a 70% loan at 3% p.a interest for 7 years, then you will end up paying close to S$130K after 10 years. The breakdown is as follows:-

Cost of Car including COE - S$50K (assume a medium size car with average horsepower, though I think most families seem to like the MPV, while youngsters love the sports car variety with 2 doors)

Car Loan (70% of purchase price at 3% p.a. for 7 years) - S$7,350 >> I guess 3% per annum is a reasonable rate though I've never enquired.

Insurance (S$1,500 per year for 10 years) - S$15K >> This seems like a hefty cost to me because S$1,500 per year is S$125 per month which is quite a high fixed cost. Just to provide a comparison, my monthly transport bills come up to at most S$80 to S$100 using buses.

Road Tax (S$500 per yearfor 10 years) - S$5K >> This is basially the "cost" of using roads. It's something like a TV licence fee which you have to pay even if you don't watch the TV ! So take it that this is the tax you pay just to put your car on the road (not to use the road !).

Parking Charges for Home and Office (S$250 per month x 12 x 10 years) - S$30K >> Wow, another very hefty bill to pay just to park your car ! The problem with parking is that it can be a real nuisance when car parks are full, there are insufficient spaces or it's hard to maneouvre. I personally disliked parking when I took my driving test, though I never knew that season parking charges could be so high. The author assumes S$90 per month for HDB parking I guess, while the rest of the S$160 is to park at the season lots at your office block. If you don't drive to work (which sort of defeats the purpose in having a car eh ?), then you can just assume S$90 per month in car park charges, which means S$10.8K instead of S$30K after 10 years. Still a pretty large sum by any standards.

ERP Charges (S$3 per day x 240 working days x 10 years) - S$7.2K >> OK, maybe it's my imagination, but I think most people will spend more than S$3 per day to get to and from work, especially those using CTE tunnels and hitting MULTIPLE gantries. I think some people could end up paying as much as S$6 to S$9 per day if they are "unlucky". So this cost can balloon into something of a nightmare, especially since the government is considering implementing GPS-based ERP charging. This means that you can literally be charged per kilometre of travel instead of just passing through certain roads. A scary thought, and ERP will certainly be the bane of many drivers as time passes. This is the main reason why I do not own a car; the usage of the car per month (assuming S$5 per day in ERP) easily comes up to S$100 and that's not counting petrol costs yet.

Petrol Costs (S$200 per month x 12 x 10 years) - S$24K >> Now we come to the ultimate money-drainer, which is petrol costs. The author assumes a petrol cost of S$200 per month; but this cost may vary significantly depending on your frequency of use, model of car (whether it drinks petrol like you drink water) as well as, of course, oil prices. I would say that larger cars probably need about S$80 for a full tank and if the family/individual drives often, then he needs to pump once a week which comes up to about S$320 per month. Thus, using this figure, this expense may come up to S$38.4K in 10 years time using a pessimistic scenario.

Maintenance and Repairs (S$300 per annum x 10 years) - S$3K >> Somehow I find it hard to believe that one only spends S$300 per year servicing their car. I would think a regular spare parts check would cost at least S$50 to S$100 each time, and for the total to be much higher. But I shall leave the figure as it is for now.

The rest of the assumptions are for fines and accidents, which I assume one should and would not incur unless one was driving recklesly, or drink driving ! The BT article totals up the figures to give an approximate S$132,550, which boils down to about S$1,105 per month. If you take into account the "additional" potential extra costs, the cost per month is about S$1,360. Thus, for a person who takes home about S$3K (median income level per individual), this makes owning a car very challenging indeed !

To end off, all I can say is that if one forgoes a car, he can hope to achieve financial freedom sooner. But the material comforts and convenience of a car cannot be under-stated, and those who seek this or who require a car because of an infirmed member of the family or young children should ensure they work out the numbers as I had, to see if they have sufficient funds to sustain a car. As I always say, it's easy to own a car, but darn hard to maintain one !

P.S. - Comments are most welcome and I would like to hear from car owners as well as non car-owners to get more balanced views.

Note: Edited total for petrol costs to S$24K from S$12K as pointed out by Aspellian. Thanks !