As Cars Turn Into Computers, Should We Buy or Rent?

I drove the best car ever made for twelve years… until last week [It was a BMW 3-series!]

Once a year, my mechanic would look at me as if was a lunatic and ask why on earth I’d want to get rid of it.

It runs as well as ever and will easily do another 100 thousand miles, he’d say.

Apparently cars made around the turn of the century were at their mechanical peak. Comfort extras like air-con, cruise control and self-winding windows all worked fine.

The problem with new cars he said, is that the electronics have become overly complex and are causing a rising tide of real and false issues. Meanwhile, the underlying mechanics are no better than they were at the end of the last century.

Why get a new car when your old one is as good as it gets?

Was I driving a classic (‘the best car ever made’) or a fifteen year-old banger?

Should I invest a few hundred to fix the broken wing-mirror, or spend £25k on a nearly-new car?

Need I care what the neighbours think as they look down from their gleaming 4x4s?

The fact is there was no need to get a new car. The car would probably have run just fine for another 10 years at my (low) mileage – and at minimal cost.

What the hell has need got to with it anyway?

Frankly, had it been purely down to me, I’d have kept it.

But Mrs B and my two daughters had different ideas. For Mrs B, it was all about status. For the girls, it was about more space, power-windows and novelty. For me, there was the bonus prospect of less anxiety of random breakdown.

Finally, a drip, drip oil leak plus the wing-mirror falling-off marked the tipping point…

What I learned about ‘buying’ a new car in 2015

Having not bought a car for so long, I was amazed at how things have changed.

Nobody buys a new car anymore…

Hardly surprising given the exorbitant prices and crippling depreciation. Typically, 25% in the first nano-second.

It seems there are 3 options (in the UK):

• Hire Purchase – you pay an upfront deposit and pay off the rest plus (high) interest in monthly instalments. You don’t own the car until it’s fully paid off. Consider if you want to keep the car for 12 years like I did!
• Leasing – you make monthly payments (typically lower than HP) over a pre-agreed 24 to 48 months. You never own the car. Consider if you don’t mind changing the car in 2 to 4 years.
• Personal Contract Purchase – you make an upfront deposit and then monthly payments (including interest) over 24 to 48 months. At the end of the term, you either make a typically large ‘balloon’ payment and keep the car, or you simply hand-back the car with nothing more to pay, albeit with no equity.

Mind-bendingly seductive

Having crunched the numbers, I can see why PCP has become the popular option. It gives you access to a brand new or nearly new car for a ‘minimal’ deposit (say £5k) plus ‘minimal’ monthly payments (say £300) over 2 to 4 years.

For all the deals I looked at, it made much more sense to hand the car back rather than make the final ‘balloon’ payment. Clearly, this is no accident since it encourages you to start the whole process over again every few years. But know this: you never own the car. Effectively, you are renting the car at a high rate of interest. Around 10% APR in May 2015.

If you can finance the deal with a lower APR then I suggest running the numbers: taking into account the total cost including interest, depreciation and expected equity along the way.

Unsurprisingly, car dealers are pushing PCP so beware.

The trend is away from ownership & towards access

I’m struck by the number of ads for brand new as well as nearly new cars that quote a monthly cost rather than an outright figure.

£297/month is a lot more compelling than £35,000.

This shift is consistent with software which has largely moved to a monthly service model for ongoing access, maintenance, service and upgrades.

In fact, I’d go so far to say that a car is no longer a car. It’s more like a computer on wheels.

Seamless, wireless connectivity with your favourite apps, podcasts, watch etc… is going to become ever more of a deciding factor. And we’re going to expect the car’s software and data (for navigation etc) to upgrade as easily and often as it does for your phone.

When I next switch, I look forward to flat-rate access for 24/36 months to a new wirelessly-connected, constantly-updated device that just happens to have wheels and leather-seats. (The one after that could well be self-driving but let’s not get ahead of ourselves)

Meanwhile, I’m finally enjoying listening to podcasts and making calls over the car speakers.