I’ve been struck a few times recently by the inclusion from industry executives, consultants and journalists in presentations, blogs and media interviews of the oft-quoted ‘fact’ that buying a new car is the second largest transaction in your life.
It clearly refers to private buyers, which is only a minority of the total market in most places, but the underlying message is that this is why people take their time and retailers should support them along the way.
I don’t have any issue with either of those points, but I do question whether the message is actually correct. I heard it last week from the head of an NSC and from a young consultant, and could almost anticipate what was coming up, given the context of what they were saying.
For those who are in the fortunate position to be able to buy their home, or even for those who are forced or choose to rent, there is little argument with the suggestion that where you live is likely to be your single biggest monthly expense or asset in your life.
If you have any sort of work-life balance, it is where you spend the bulk of your life, and in many cases it is where you are going to bring your children up so has implications for their schooling, their opportunities to make friends and to socialise in a safe environment. Whether you are paying a mortgage or a rent, it is a huge commitment, and one that it is difficult to extract yourself from once committed.
However, in today’s environment, does the car really come in at second place in terms of cost?
A significant proportion of retail buyers (probably 90%+ in the UK) buy new cars on finance, with the majority of used car buyers (at least for young to middle age cars), also getting a loan for at least part of the purchase value.
Whilst the sticker price of the car is likely to be in tens of thousands of pounds/euros/dollars, the monthly payment will be measured in hundreds.
It’s not simple to walk away from a finance agreement within months of starting, but it can be done, and your friendly car dealer will sort out the settlement with the bank whilst setting you up with your replacement car.
No lawyers, in most countries no up-front taxes, and something that can be done in a few hours once you decide to change. The depreciation will hurt, particularly if you’ve changed your mind on a new car, but it is still a fraction of the total value.
If we look simply at the cash outlay, then for many people, their car purchase will not be the second biggest outlay in their budget.
(I’m setting aside running costs which ICDP research shows is grossly under-estimated by most car owners, but would broadly be the same if they chose a different car).
If we said that a new car on a competitive finance deal cost four hundred pounds/euros/dollars per month, there any many other areas of spend that will compete with that.
If you take two holidays a year with the family, then the annual expenditure is quite likely to cost the same or more, and unlike a car, you can’t test it first.
If you made that decision alone (which would be very brave) your family will be very vocal in telling you what a dreadful resort you picked, how awful the airline is, and so on. If you choose to have private medical insurance, the cost is going to be similar, and you might – even hope – that you do not get any value from that other than peace of mind. If you’re supporting a child through school education or university, then the annual costs are going to be even higher – supercar level higher in some cases.
There are also multiple other everyday expenses that might not individually cost the same as a car, but collectively they might exceed the cost, such as mobile phone and satellite TV contracts, gym and golf club memberships, and the like.
I would therefore argue that the importance of the car is not related to the cost – or at least not entirely so.
The importance is more emotional and how the rest of your life is to some extent influenced by your car.
I have talked in the past about ‘the car as a washing machine’ meaning one that simply fulfils a need and is bought for entirely rational reasons.
Perhaps there are some buyers who do have that frame of mind, but even for them, qualities such as reliability, safety and how easy it is to live with, must be factors.
They may not get a rush of blood to their head when they see it, but they certainly will if it is uncomfortable, noisy or unreliable.
What I see now with my car dealer hat on at Auto West London is the emotional element of buying a car.
Regardless of the price point, emotion is a powerful factor. Some are buying cars as a gift for their partner or child.
For others it is their first brand new car and they relish the ‘new car’ smell. Some are disabled in some way, and the car represents their opportunity to have some independence, to visit friends or family, or even have a job that requires a commute.
There are probably as many motivations as there are car buyers, but for everyone, emotion is a powerful factor.
That is why the car purchase ranks alongside house purchases as demanding careful thought and consideration, why pure online buying journeys are unpopular, but also why car dealers have a key role to play in supporting buyers through the last stages of their purchase journey.
Steve Young is managing director of ICDP
