I currently drive an old 1997 Toyota Camry that I purchased when I was a student. I've been driving it for about five years now and it has done about 260,000 kilometres. Because it is an old car, it is essential that I have roadside assistance in case something goes wrong. Some people have asked me why I don't just buy a new car. The answer is that new cars, e.g. a brand new $30,000 Toyota Camry, will lose about $3000 worth of value per year on average. I purchased my old Camry about five years ago for $7000 and a search on the internet of similar cars reveals that it is worth about $4000 today, so that is depreciation of about $600 per year compared to $3000. Sure, an old car may need to be serviced and repaired more, but I am sure that cost will not be greater than $2400 per year. A cheaper car is also cheaper to insure.
Back to the topic of roadside assistance. I've been with RACV for a few years now. I have recently received a bill from them to renew my roadside assistance. They are charging $95! Seems a little expensive. I did a quick internet search and found that Budget Direct charges $70. However, digging around a little more I have noticed one feature of Budget Direct's roadside assistance package that worried me: they only offer towing of up to 40km in the country. The biggest fear I have with this is, if my car broke down in the country, would the tow truck only haul my car 40km and that is it? What if 40kms is not enough? According to RACV's website, they offer the following if you breakdown 100km from your home: "$750, Taxi (1@$50), Rental vehicle, Alternative transport, Accommodation." The RACV benefit sounds much more reassuring.
Insurance is difficult because no insurance is the same. We are talking about highly differentiated products. It is not like petrol. Petrol is approximately the same and so you can easily compare petrol prices of different service stations according to price per litre. Insurance is not so easy. The key to comparing insurance, I think, is to look at what benefits you really think you need and then trying to find insurance that provides those benefits for the lowest cost.
Showing posts with label automobiles. Show all posts
Showing posts with label automobiles. Show all posts
12 July 2014
24 October 2009
Old Car or New Car?
In the United States there exist so-called lemon laws that state that if a new car you buy stuffs up a certain number of times you are legally entitled to a replacement car.
To understand why there are calls for lemon laws in Australia, read Helen Moss's submission to Consumer Affairs Victoria regarding lemon laws.
Such lemon laws were proposed for Australia in 2007 by state governments here. But today, all of a sudden, the Commonwealth government has stepped in and claimed that lemon laws are not necessary because new legislation -- the Australian Consumer Law -- will cover consumers if their cars are dodgy.
It is possible that this new national legislation will work, but there is also the possibility that going to court to fight car manufacturers won't be practical for the average person because of high costs.
That some new cars may be lemons I believe is a good reason never to buy a new car.
If you buy an old car, even if the car turns out to be a lemon, you lose less money because the car you buy is not worth as much.
Furthermore, do not think that warranties will protect you. If you buy a car and there is a fault and you bring it to the dealer for repair, the dealer has no incentive to fix the problem for you for free. They waste time and money, so they have an incentive to lie and say that there is nothing wrong with the car. However, if you have no warranty and you simply bring your car to the mechanic if there is a fault, you pay for the service and the mechanic has an incentive to fix the problem because he gets paid for the service. He will therefore likely do it and also be polite to you because he has an incentive to do so.
Before you buy a second-hand car, make sure you get it RACV tested.
To understand why there are calls for lemon laws in Australia, read Helen Moss's submission to Consumer Affairs Victoria regarding lemon laws.
Such lemon laws were proposed for Australia in 2007 by state governments here. But today, all of a sudden, the Commonwealth government has stepped in and claimed that lemon laws are not necessary because new legislation -- the Australian Consumer Law -- will cover consumers if their cars are dodgy.
It is possible that this new national legislation will work, but there is also the possibility that going to court to fight car manufacturers won't be practical for the average person because of high costs.
That some new cars may be lemons I believe is a good reason never to buy a new car.
If you buy an old car, even if the car turns out to be a lemon, you lose less money because the car you buy is not worth as much.
Furthermore, do not think that warranties will protect you. If you buy a car and there is a fault and you bring it to the dealer for repair, the dealer has no incentive to fix the problem for you for free. They waste time and money, so they have an incentive to lie and say that there is nothing wrong with the car. However, if you have no warranty and you simply bring your car to the mechanic if there is a fault, you pay for the service and the mechanic has an incentive to fix the problem because he gets paid for the service. He will therefore likely do it and also be polite to you because he has an incentive to do so.
Before you buy a second-hand car, make sure you get it RACV tested.
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