Car price has come down quite a fair bit since I bought my car about 4 years ago. New tax structure has brought the car price lower. Many of my friends have already upgraded their cars. Shall I follow suit?
The case for upgrading my car to a new one is simple. I bought my Toyota Corolla at S$91,000 with a OMV valued at S$15,000. If I scrap my car at the end of 10 years, the government will give me back 80% of OMV – i.e. $12,000. Hence, my yearly depreciation is going to be S$7,900.
Since I consider my made in Japan Corolla as the top of its class (the new Corolla is made in Thailand and I won’t consider brands like Mazda, Nissan, Honda, and other European cars of the same class), if I ever change my car, it will be an upgrade from my 1.5 liter car to a 2.0 liter car.
Consider a new Camry, or Accord, or a VK’s Pussat, they are retailing at about S$100,000 and the OMV of the cars are in the region of S$23,000. Under the new tax structure, at the end of the 10th year, the government will refund 50% of ARF and ARF is 110% of OMV. So new car will only get back 55% of OMV – i.e. S$12,650. Yearly depreciation is about S$8,700.
With a mere increase of less than S$1,000 a year, I could have ended up with a much better car. Why not?
The case against it is as such. If I am to trade in my car right now, due to the crash in car price, I will only get back slightly more than S$40,000. That is to say for the last 4 years, my car has depreciated by S$50,000 – i.e. yearly depreciation is S$12,500 instead of S$7,900 as previously calculated!
The bright side is that if I consider the past as write-off (I have to if I consider upgrading one because once I do so, I will realise the loss), the yearly depreciation for the next 6 years for me will be calculated using the current value of my car minus off the goverement refund at the end of the 10 years and that is S$4,600 per year!
And because I have almost paid up all the car loan, my cashflow for car financing for the next 6 years will be S$0.
How about an increase in car related expenses? The road tax for my 1.5L car is S$875. The road tax for a 2L to 2.4L car is S$1,550 to S$2,150. That is an increase of S$1,000 per year on road tax alone.
I travelled about 20,000 km a year. My car’s fuel consumption is 13.32 km per liter. Each year, my car consumes 1500 liter of petrol and if petrol cost is about S$1.5 per liter, I paid roughly S$2,250 on petrol per year.
A 2L+ car’s fuel consumption is estimated to be about 9.5 km per liter at best. Hence, it is a 40% increase in petrol consumption. That translates to about another S$1,000 of extra expense.
At the time of posting, I don’t have the exact figure for an increase in car insurance. My guessimation will be in the region of S$500 to S$1,000.
To sum up, for the next 6 years, I will have to pay an increased of S$4,000 on yearly depreciation and closed to and additional S$3,000 on expenses versus my putting up with my older car and increased maintenance cost, the choice is obvious.
That’s why I am not going to upgrade my car any sooner.