When I was a teenager, I can recall my grandmother sadly waiting for a tow-truck to come to pick up her beloved 1970s Volvo that she drove into the ground (she got $150 for it!)

 

Maybe that helps explain why every car I’ve ever owned; I’ve essentially driven into the ground before replacing.

 

Like many people, I have a love/hate relationship with cars. I love them of course, but the financial advisor in me hates the notion that 25% of its value depreciates the moment if goes off the dealer’s lot. The maintenance, gas, repairs, winter tires, insurance, car washes, the occasional parking ticket (and speeding ticket)… Aside from the fact that we need to get from A to B, they are expensive depreciating assets that require lots of cash flow. Maybe that’s why many choose to drive them to the ground, and/or balance the cost of maintenance and repair as they get older vs. buying a new one.

 

So, last week, I returned my 14-year-old car with almost 200,000 kms on it (which I drove with the orange warning engine light for at least the last 6 months!) As I was cleaning out the glove compartment, I came across some CD’s, and forgot that I had a CD player…

 

Whenever we do financial planning with clients, the cost of their vehicles is always something we consider. There is no “right” answer, rather a question of choices and trade-offs.

 

Some of my clients lease their car because they are able to write off some or all of the cost, don’t have any maintenance expenses, and lease a new one when it comes up for renewal. Others see cars as a luxury that they want to indulge in, and will buy new ones every 5-7 years, before the depreciation really ramps up, and they can’t wait to get the newest model with all the fancy technology. Others buy 1–3-year-old used cars, (often coming off leases), reasoning that some of the depreciation has been paid for by the previous owner. Then there are “lifers” like me who drive them into the ground.

 

When planning, these are important considerations, and I enjoy examining the merits of one way or another. For what its worth, over 80% of new cars are bought using financing: either a lease or a loan. With relatively high current rates on many new vehicles, this can amplify the cost of driving that depreciating asset.

 

Its interesting, in Canada, the average age of cars on the road is just over 10 years, while it is almost 13 years in the US. Perhaps some of this is explained by the less harsh climate in much of the US.

 

As a new car owner, I can certainly confirm that the technological innovations compared to 14 years ago are astounding. Full disclosure: this will be the first car that I don’t drive into the ground. After going through my own planning process (and consulting my accountant), I leased an electric car. Guess what, it didn’t have a CD player... It drives by itself on the highway if I so choose. All these technologies and AI as investment considerations as they pertain to the auto industry is for another post. As is the “dynamic insurance pricing” that I signed up for, where AI will be tracking my driving and rates my driving, giving feedback with an app that assesses insurance premiums.…

 

No predictions this week: I think some weren’t impressed with my Leafs call last Friday…