Planning to buy a Car?

Hi every one. I had sent this mail more than a year back and thought of sending this again.

What has changed in the last one year.

  1. Aggregator  like OLA, UBER have established themselves and we can now option to hire car for a point to point drop.
  1. More vehicles on the road and hence more traffic and chaos.
  1. More pollution and more mental stress.
  1. Mr. Anand Mahindra’s Speech during the launch of the new vehicle, prompted me to refresh this mail.

Read this again and decide before buying the car.

Simple Guideline you can use.   This is generic and may or may not apply to every one.

  1. Monthly distance travelled ———————— Option sugested
  1. Less than 400km                                 —-    Use Ola / Uber or any other as applicable.
  1.  400- 700 Km                                        —   Self driven , Petrol Vehicle  /  hire Cab

More than 700km ————————————Chauffeur driven diesel vehicle. / Hire cab

You can also consider Cab services for  2 and 3 and also for out station trips.

Please note that this is for people who want to have cost control.  This does not apply to people who are rich or who can afford the expenses. 

Are you planning to buy a car in the near future.   Just go through this mail and make an informed decision.

Alternative to buying a car is hiring one.  I have made a comparison of buying vs hiring

I have given the workings below

I have made the working for a particular car  as an example and can be used for other cars as well .

I have chosen, the new Honda Mobilio with a very good mileage of 24 kmpl.  I have assumed this theoretical mileage in my calculation, even though in practice, the mileage would be less than this

When we buy a car, we incur,

  1. Cost of capital
  2. Registration charges and these two are one time
  3. Insurance charges year on year, though it may come down due to no claim bonuses . It is assumed that you don’t have an accident.
  4. You engage a driver and use it so that, you are rid of tension and use thetime to commuting work productively.
  5. The driver charges are assumed to increase 10% year on year
  6. It is also assumed that the petrol prices remain the same for the next three years.
  7. Depreciation at 10% using straight line method is calculated
  8. That there are two scenarios.  One, it is bought and used only in a personal capacity. Two bought for the organization and used for the organization and you claim,  tax benefits.

While working out on the alternative of hiring a car, the following assumption are made

  1. The current rate of Innova @ RS 16 per km is assumed. Since it wont be point to point, I have added another 50% for waiting and other parameters so that it becomes a meaningful comparison.
  2. The charges of hiring a car, increases @ 10%  per km every year.
  3. Since it is a hired car, there is no insurance charges, maintenance charges, depreciation benefits etc.

It is also further assumed that

  1. In the alternative option of hiring, the cost of capital equivalent to the cost of the car, is invested in a fixed deposit at 9% per annum interest rate.
  2. This is positive cash flow and is set off against the expenses

If the car is used for 3 years and disposed off,  the total cash out flow is 6.38 lacs

Disadvantages of hiring a car:

  1. You need to sometimes wait for the car to come. Not if you hire from Anil Agarwal.
  2. You have to plan  a little bit.
  3. You cannot indulge in any activity at the time and moment you want.
  4. The driver could be a problem for you and spoil your party.

Advantages of hiring a car

  1. You could get to travel in new cars and literally in different cars every day.
  2. No dent, no scratches etc

Guidelines for making a choice.

  1. If you are not driving in your car, for more than one hour a day,
  2. If you don’t use the car for more than 500 km a month

Then the question is when should I buy a car?

You can buy a car, when you have

  1. When you have too much money and just not worried about this.
  2. If you want to make a style statement
  3. If you feel your image in the eyes of the society, friends etc., is dimished
  4. You are a lover of cars and enjoy using them.

Summary –

Automobile is a depreciating asset and invest in this class of asset carefully

If I have missed out anything, give me your feedback, so that I can correct this.

varadharajan

ckar.vsv@gmail.com

Hiriing a car
Honda Mobilio
model E-i-VTEC NA
Price 680000 NA
Rto & Ins 102000 NA
total cost 782000 NA
Mileage 24 kmpl NA
Assumptions
Monthly run in KM 750
Driver Salary in Rs. Per month 8000
owning a car hiring a car
3 years
Total km in a year 9000 9000 9000 27000 int @9% on capital 70380 70380 70380 140760
petrol consumption 375 375 375 1125 Charges paid to taxi
cost of petrol / lit 75 75 75 225 at Rs 24 / km 216000 237600 261360 477360
Fuel cost 28125 28125 28125 84375
Driver  salary 96000 105600 116160 317760
Depreciation @10% 78200 78200 78200 234600
Maintenace Yr 1 5000 7500 7500 20000
insurance 19000 17000 36000
total expenses in 1 year 207325 238425 246985 692735 total expenses 145620 167220 190980 336600
Disposal of car after 3 years.
sale price of car 500000
Net cash out flow 974735 336600
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