Cost of car ownership skyrocket in Singapore.

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?

How much to spend on a car? Ask 2 questions.

Guy A:
I want to buy a car but my elder brother keeps telling me how expensive it is. He even worked out the depreciation. All in, about $12K a year. I think that is OK.

Guy B:
$12K a year in Singapore for a car is quite normal. My car is about the same.

Guy C:
Can be lesser than $12K a year lah but that is OK for most families.

Is it a good idea to lose $12K a year to own a car?

Hey, having a car definitely improves our quality of life. It is worth it!

Sure or not?

Cannot find an unoccupied seat on the train or bus? 

What?

Cannot even get on the train because too crowded?

What?

Train broke down? Again?

Alamak. 

All these issues are magnified if we are on an outing with children and the elderly. Stop for a moment and imagine that.

I get exhausted just by thinking about it. Shudder. Yes, we have a finite amount of energy too.

Of course, like many people have pointed out, having a car also helps to save lots of time used in travelling. Time is precious.

Here is a something from a fellow blogger whom I respect:

"Financial bloggers are more conservative than the general public. My advice to all financial bloggers is this: 

"Just live life a little."

Read his blog here:
What's good about owning a car?

In my retirement, I don't need a car but I have a car too. It definitely helps to make life more comfortable.

Now, before some start building castles in the air, we really should be asking other questions before we buy a car. I will share two questions in this blog but before I ask them,

Guy A takes home an earned income of $40K a year.

Guy B takes home an earned income of $40K a year and has passive income of $12K a year.

Guy C has no earned income because he is unemployed but he has passive income of $120K a year.

So, what are the questions?

1. Are we using more than 10% of our total income for the car?

Why 10%? For an average young worker, spending $200 per month on transportation is pretty normal, riding mostly on mass transportation and with taxi rides on certain days. Assuming a monthly pay of about $2,000 a month, $200 is about 10%.

2. How much of our total income depends on us holding a job?

Of course, regular readers would be familiar with this line of thought. Try not to consume with our earned income. Instead, invest to have passive income and consume with our passive income.

If being jobless means we have to cut back on our consumption drastically, we might want to think twice about that car.

There are some other things I would consider and if you are interested, please read related posts at the end of this blog.

(This blog was inspired by an email from a reader and my subsequent reply.)
Related posts:
1. Buy a car with 4D winnings.
2. AK learns to embrace YOLO.

https://www.gov.sg/microsites/whatsyourplan/finances/can-you-truly-afford-a-car-in-singapore