Beware: a car will cost you even if you don’t drive it

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

17 April 2016

An interesting question came to me from reader by the name Gacao: “Have you calculated the average cost of owning a car in Kenya for 3 years? What’s the figure?” It is interesting because Gacao did not ask the more popular one of running costs.

Gacao is asking how much it costs to simply own the car; even when you are not driving it. Now you might think that the answer is zero, but you would be wrong! First of all, there is insurance: it does not depend on how far or how often you drive the car. The premium depends on the car’s value.

The major cost, however, is depreciation. This is difference between the price you pay for the car today and what you are likely to get for it after three years. This also depends mainly on the value of the car.

Since the value of a car depends on its make, it turns out that the cost of owning it is heavily dependent on the brand you choose. A joke is told of a man who fainted after buying a brand new Mercedes Benz. He had paid Sh7 million for the car and when he went to pick it from the showroom, the salesman asked him to sign some papers then said: “From this moment, the car is now yours. If you change your mind about it, we are ready to buy it back from you at Sh3m”

Imagine that: by a simple stroke of the pen, the buyer lost Sh4m…and fainted! That’s the power of depreciation. Unfortunately, even though it is such a major cost, it is not easy to calculate. Most people simply wait until the day the want to sell their car and incur the cost.

Suppose you buy a car for one million shillings today: how much do you think it will be worth in three years’ time? There is no sure way of telling because, it also very much depends on how you drive it. But you can make a fairly good guess by looking at the current market prices for similar cars that are three years older than the one you bought.

I went to one of the popular local used car websites and searched for the Toyota Probox. The median price of those manufactured in 2010 is Sh850,000 while that for those from 2007 (three years older) is Sh660,000.

Thus one can generally expect that if you pay Sh850,000 for the car today, you can sell it at about Sh660,000 in three years’ time. That is, it will cost you Sh190,000 to simply own it – even if you don’t drive it at all!

If you are able to sell it for more than Sh660,000, then you will have made a “profit” – accountants call it “capital gain”. If you sell it at less than Sh660,000, then you will have incurred loss due to “wear and tear” – indicating that your drove it and/or maintained it badly!