Thinking About Buying a Car? Here's Some Advice!
Updated: Nov 1, 2022
Oil price surge, persistent supply chain issues and interest rate hikes have continued to make the cost of car ownership at all time high. During this uncertain time, you might be re-evaluating your mobility options: either buying/selling your car, using more “on-demand” alternatives such as public transportation and car sharing, or simply biking or walking.
If you can't decide which option is best for you, hopefully this article can help you make up your mind!
#1 Use this Simple Formula
This recently published article on Nature estimates the value of private car ownership and use in selected U.S. cities. It brings up this simple formula that can help us think about car ownership:
Total Value =
[Use Value of getting from A to B] +
[Non-Use Value (e.g. flexibility, recreational use, status)]
According to the study, the median value of car ownership ($11,197) in the metro area, outweighed the annual cost of owning and using a car ($9,282 (in 2019 levels)).
However, the majority of this value ($6,497, or 58%) can be attributed to ownership/non-use value rather than use value!
For example, if you don't think you need a car to get around (i.e. low use value), but you enjoy driving for enjoyment and the freedom to travel wherever you want at any time (i.e. high non-use value), then having a car is perfectly justified for you!
Furthermore, you are likely underestimating the "Non-Use Value" of owning a car before you really get one. Once you really own a car, you will likely discover additional "Non-Use Values". You will most likely find creative ways to make the most use of owning a car by going to places you never thought about before, and feel a sense of accomplishment or simply a spark of joy every time you see your car (this is also a "Non-Use Value"!).
On the other hand, you are even more likely to underestimate the cost of car ownership. According to a recent research, a typical American couple who commute to work in separate cars and who spend $19 per day in driving and car ownership costs would have paid $125,000 each after ten years!!!
So for families or couples, unless other options (car-sharing, public transportation etc.) are not feasible, it makes less financial sense to keep an under-utilized car, unless it does create substantial "Non-Use Values". The Net Value of car ownership could be lower or even negative if you happen to live in an area with good public transportation and car sharing options (i.e. lowering the Use Value of owning a car):
Net Value = Total Value (Use+Non-Use) - Total Cost
So, it is important to plug in your own variables into the formula to help you make the best decision. The key questions is: Does the total value (use and non-use) of car use outweigh the cost of ownership for you?
Start by brainstorming a list of the advantages (value) and disadvantages (cost) of car ownership. For example, if you don't like driving, driving in itself would be a "cost" for you. On the flip side, if you are a car enthusiast and love to drive, "love of driving" would be added as one of your "Non-Use Values" of driving.
#2 Research Car-Free Alternatives
Many studies have shown that a reduction in car ownership can improve citizens’ health and well-being, not to mention the reduction in pollution levels and all the environmental benefits. If you've ever been caught in traffic behind a slow-moving truck while bicycles pass by in the bike lane, you may have thought you'd be happier without a car. Check out this article that does a great job summarizing the car-free options you might have.
Personally, I have moved back to the city during the pandemic, walked more and used more public transportation. I have also used Turo and Zipcar in college and on vacation, and had pretty positive experience with them.
#3 Tips for Buying and/or Selling Your Car
If you persist on owning a car, I'd be happy to offer some advice. A complete car buying guide like this certainly helps. However, it’s more important to understand your own budget, lifestyle and preferences before losing track in the wide selection of products. For example, this article may help you determine what type of car suits your lifestyle.
Last year I sold my car to Carvana with a competitive price and had a very smooth experience. I received an online quote after providing the necessary details, and the following day I arranged a virtual walk-through. I was surprised by how rapid the procedure was; my car was picked up by their truck in a few hours following a brief virtual "inspection." After the pickup, the payment was quickly deposited into my account. This article provides a thorough review of the experience selling to Carvana.
Overall, I’m still bullish on the digital transformation of the car transaction process. There will always be a new platform popping up once in a while. Do your own research and you will either find a good deal or get a great resale value!
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I hope this is a thought-provoking article that inspires you to either re-evaluate your mobility model or learn something new about the car transaction process!
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