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Cost of car ownership skyrocket in Singapore.

Monday, July 17, 2017

Dave Lim, a reader who seems to be to be quite the expert on car ownership in Singapore, weighs in on my last blog on the subject:


Dear AK,
Appreciate your post on car ownership and bringing up some noteworthy points of consideration before one buys a car. You never fail to be honest and wise.

However, being a former hardcore car enthusiast (well, a folly of my younger days – a story for another day), I find that I’m “morally obligated” to call out the glaring factual inaccuracies as evinced in the blogpost by Bullythebear (http://bullythebear.blogspot.sg/2014/03/whats-good-about-owning-car.html#.WWpZFIiGPIV), who doesn’t seem to be too well-versed about cars.

- In order to give decent meaning to numbers, a proper calculation of annual car expenses should take into consideration the depreciation of the car, and not merely the sum of instalments one chooses to pay. It is absolutely futile to discuss car expenses without delving into the interplay of depreciation, COE, OMV and ARF – concepts which the blogger himself were probably unfamiliar with. To add insult to injury, the foregoing discussion was, ironically, featured in a financial blog educating readers about numerical fluency.

- The blogger had grossly oversimplified the types of car expenses. His monthly “running costs” had conveniently left out items like ERP expenses, road tax, car grooming, car inspections, provision for traffic summons and accidents/repairs, and regular wear-and-tear items like tyres, brake discs/pads, mounts, bushings, etc. A total “running cost” of just $500/month ($6,000/yr) is unbelievably optimistic, especially when the estimate is made by a supposedly prudent financial blogger.

- Do we really believe that the total cost of owning a bread-and-butter ride is merely $860 a month? And that of a “flashy car” is just $1,200 a month “all in” as asserted by the blogger? Based on the numbers provided by the blogger, the depreciation cost of his Mazda 2 is already about $6,000/yr ! (*total purchase price of $34,000 incl. interest paid, for 4.8 yrs, assuming a PARF rebate of $6,000)

- I noted that the blogger purchased his ride sometime in early 2012, back when car prices (specifically that in the second-hand market) were still somewhat palatable (https://bullythebear.blogspot.sg/2013/05/reflections-on-owning-car-for-1-yr.html#.WWtU64iGPIU). 

As we know, the environment has changed radically ever since. 

It first began with the drastic cooling measures on vehicle financing introduced by MAS in Feb 2013, which changed the entire playing field. 

Next, in Feb 2014, the new COE categories turned the market topsy turvy. Second hand dealers called the shots in the market, and in 2014, countless numbers of Toyota Vios and Honda Fits started changing hands at $11,000 to $12,000 depreciation. 

Given the high COE (hovering at $70,000 in year 2014), most brand new Korean/Jap models were priced above $11,000 depreciation, excluding interest payable. 

Was anyone still able to purchase a Mazda 2 at $6,000 depreciation in the year 2014? – the odds are almost next to nought, unless we are talking about a lemon sale.

Given the foregoing context, I question the blogger’s intention in writing an article in 2014 to recount his purchase in 2012, and to use it as a premise for telling his readers that he “really think it's affordable for people who wants to get a car.” 

For the avoidance of doubt, the blogger was silent about the cooling measures and changes in COE in his article. At the time of writing his article (Mar 2014), the COE was also at a high of $78,602. (http://www.sgcarmart.com/news/COE_past.php?YR=2014&CAT=a). 

While it is arguably forgivable for him to miss the news about the cooling measures/COE changes, I find it inexcusable and morally irresponsible for him not to check up market prices before telling his readers that is “affordable” to buy cars.

However, to think on the flip side, I could well be wrong about the blogger. He could be a car expert himself, completely au fait with the MAS cooling measures, the COE system and the market prices. The article might then have been written blindly, to reassure and rationalise his buying decision retrospectively. Whatever the reasons behind penning the article, and regardless of how uninspiring his reasons for buying a car might be, it is imperative to highlight the perilously inaccurate and irrelevant contents in his article to avoid misguiding the masses. 

I do not have any personal issues against the blogger and neither do I know who he is or follow his blog actively.

Fast forward to today, the average depreciation of an entry-level bread-and-butter car, old or new, is still $10,000 or more. Followers of the car market would recall that this same amount could get you a Mitsubishi Evo or an entry continental sedan just a few years ago. 

Ever since the blogger wrote his article, petrol duty has risen (an increase of around 20% in fuel price), parking rate has increased by 20%, and as most of us would know, emission taxes will be implemented over the next two years. 

Further and significantly, the financially savvy consumers would know that interest rates have risen – the average car loan interest rate is now at an obscene 3%, equivalent to about 5 or 6 % EIR!*

I will not dwell on details, but the current annual expenses for an entry level ride is about $20,000 to $24,000. Such information is everywhere on the web, in the online forums, and even on the government website – https://www.gov.sg/microsites/whatsyourplan/finances/can-you-truly-afford-a-car-in-singapore )


*AK says readers who are unfamiliar with this issue (i.e. EIR) might want to read this blog:
http://singaporeanstocksinvestor.blogspot.sg/2014/04/a-car-loan-is-different-from-home-loan.html

Thank you, Dave. For sure, staying prudent when it comes to big ticket consumption items like cars in Singapore is essential for most of us who are seeking financial freedom in a country which is known to be have one of the highest cost of living in the world.

For readers who are thinking of taking advantage of the relaxed rule for car loans, please read this:
http://singaporeanstocksinvestor.blogspot.sg/2016/05/what-new-mas-rules-for-car-loans-mean.html

Financing cost will almost double! 
Related posts:
1. Cooling measures for cars.
2. How much to spend on a car?

13 comments:

Cory said...

I think as a blogger, is just a blogger view. Read it as such. If every post bloggers write have to be ultimate expert in what we write or cater for individual preferences, blogging will no longer be just blogging. Blogger is not a judge. Is just a blogger view be it limited or incorrect. A reader may collect all information he has and made his own decisions. And own his own decision. Not the blogger.

AK71 said...

Hi Cory,

And that is why I have a disclaimer in my blog. ;p

That aside, I think Dave did bring up some pertinent points, for example, on financing cost which I chose to highlight.

Of course, how we want to live our lives is entirely up to us.

I am sure some people think AK is nuts as well. ;)

Kevin said...

Hi AK,

Companies do take into consideration the depreciation of plant and machinery in their cash flow statement and I do not see why a owner of a motor vehicle should not. ;)

AK71 said...

Hi Kevin,

It is not only prudent to do so. It is correct. :)

Dave Lim said...

Dear Cory,
Yes, I completely agree with you that a blogger “is not a judge or ultimate expert” and his blogger view could be “limited or incorrect”; therefore, blog readers should practice discretion and collect all possible information. On this note, wouldn’t you agree with me that it is even more imperative for subject matter experts to discern these mistakes and put forth objective facts to the readers out there? If we are not able to ask sceptical questions to interrogate social media influencers or bloggers who tell us that something is true, and to be sceptical of popular group opinions, then we are up for grabs for the next charlatan that comes ambling along.

Be that as it may, if the opinions expressed by a blogger weren’t of great consequences, I would have normally live and let live and “cut some slack”. However, in this case, the subject of car ownership in Singapore to me is no child’s play. It becomes my business when car prices in Singapore are the highest in the world; when average-income Singapore folks are spending half or more of their disposable income on this pointless Singapore dream; and when my fellow Singaporeans are working their socks off not for the financial security of themselves and their families but for a ton of cold, lifeless metal. The cold reality is that in Singapore, most drivers do not own their cars but gets owned by them instead.

Please do not be misunderstood that I am trying to teach anyone how to live their lives or spend their monies. After all, to apply Buffett’s quote in this context – “Price is what you pay, Value is what you get” – to which his own. My “moral duty” ends with identifying blog posts that are murky, and fleshing out the hard numbers ordinarily evaded by many car buyers with rose-tinted glasses.

Like it or not, a car is the biggest item in life most Singaporeans would buy. More so if you consider the fact that the depreciation cost of a car over 10 years is certainly higher than that of a HDB flat over 99 years. How can that not be a destructor of wealth?

Regrettably, there are many Singaporeans who are ill-informed about car ownership. On the other hand, many average-income Singaporeans refuse to concede that they are in pursuit of an unworthy goal and chooses to pretend that they are safe and snug economically. They pat each other on the back and tell stories to convince themselves that they had made the right decision. To car owners and potential car buyers out there, my humble advice is this: Knowledge is preferable to ignorance. Better by far to embrace the hard truth than any reassuring fable.

AK71 said...

Hi Dave,

I share your sentiments on car ownership in Singapore and I applaud your public spiritedness. :)

Alamak. I should sell my car. Bad AK! Bad AK! ;p

Cory said...

Hi Dave,

is alright to voice different opinion. In fact i do agree with the notion that depreciation cost needs to be included. What I am coming at is not to "attack" at the personal level. The comment section is there to provide different opinions.

If readers don't even bother to read the arguments, God bless them. "Saving" other naive readers which they enjoyed from the luxury. may even make thing worst since nothing going to help them from other scams which may cause them a lot more damage.

The society is better if we accept different opinion as opinion. That's why we have Leftist and Rightist. They are quite extreme and they can exist at highest level of office. Many things we view right today can be wrong tomorrow. Perception is a fine line. Let the reader decide after you have put your argument.


Cory

JW said...

Alamak then I should sell our fully paid family car too :(

T said...

hallo dave
Seems to me he is writing about his own running costs for his car. Different people use their cars differently - some travel at peak ERP hours, others long distances to Malaysia etc... Some zham their brakes v hard, others are gentle with their cars... So how will he able to factor in all these variables to give a general breakdown of costs that fits in with the usage of everybody lol?

Myself, I bought my car v early on (21 years old), my salary was pretty avg then and car expenses were really hefty, as a percentage of salary then. But I got by, so I do believe that you can keep running costs below 1k, cos I sure did (the blogger estimated 1k).

In any case, I reckon the focal pt of his post was not to go into a discussion of the minute interplay of car prices, COE, parf, depreciation blah, but to highlight the conveniences that a car brings. These conveniences eg saving your strength/time are intangible and may be easily overlooked in a consideration that only features actual numerical costs when coming to a decision about purchasing cars. So I thought it was quite a good post to highlight how his car had brought him intangible benefits as such.

anyway, since i am considering buying a new car soon. and you do seem to be an expert, can you elucidate more on why cant someone use instalment payments + monthly running costs to count total monthly costs of car. Why must we factor in depreciation? thank u and hv a good day!

AK71 said...

Hi T,

I kaypoh a bit here. I agree that having a car certainly makes life more comfortable. I know because I am a driver too. Like a fellow blogger, SMOL, I borrow with pride. ;p

Like you have said, the benefits of car ownership are mostly intangible (unless we use it for private hire). Now, depreciation might seem intangible but it is part of the total cost of car ownership. The value of the vehicle declines over time.

To be financially prudent, depreciation has to be considered for anyone thinking of getting a car especially if they are concerned with building personal wealth in a country where cars are truly big ticket items.

T said...

hallo ak thank u for your reply. my v layperson understanding is this:

if you pay 100% upfront cash for the car: then you gotta count in annual depreciation of the car to your monthly running costs (erp+ parking + maintenance etc) to get total monthly cost.
so it will be: (annual depreciation/12 mths) + monthly running costs = Total monthly cost

but if you take a loan for the car: then the monthly instalment payments will already factor in depreciation right? of course, the blogger mentions that he paid 50% of car price, so if you want him to be v accurate, he should only count 50% of monthly depreciation to the total monthly cost (this is what i wanted to confirm).

but in any case, I do feel this is not the original intent of the blogpost anyway (which is to go into such specifics), it felt to me just a personal take on the perks of owning a car

AK71 said...

Hi T,

It doesn't matter whether you pay full now or pay in installments, the car will depreciate in value at the same rate and that is the depreciation we should take into consideration. The wealth destruction effect is the same.

If paid in installments, then, we have to add finance cost too, of course.

Bully the bear is a blog I enjoy reading and the blogger is someone I respect. I know why he blogged the way he did and I share his sentiments which was why I linked it in my blog and I told him about it too: How much to spend on a car?

However, Dave did raise some pertinent points and maybe he came across too strongly in delivering those points especially when he questioned the blogger's intentions but I thought it useful to share his take in a proper blog instead of leaving them in the comments section.

Learn what we want to learn and discard the rest. We can certainly learn from both writers. We don't have to say who is right and who is wrong. Too stressful to do that. ;p

AK71 said...

Tempest in a teapot (American English), or storm in a teacup (British English), is an idiom meaning a small event that has been exaggerated out of proportion.

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