Where Cheaper Cars Can be More Expensive

We have all seen the adverts. The ones that say 500 off this car today, 600 off dealer discount for that car for the next 10 days and in a lot of cases these discount reduction in prices can very well be true. In fact the majority of them must be true as we have this little thing called the Advertising Standards Act and the Advertising Standards Authority (ASA) which is a slightly better known organisation that takes people and organisations to court and prosecutes them whenever they publish misleading advertisements.

So the initial opinion about the cut price cars and the cut price advertisement must be true. Or must it The reason that I brought up this last short three word question is that to a certain degree the above statements are correct yet in a perverse way they can also be misleading.

Now I made my last comment in the knowledge that there may well be some resistance and mild hostility from the car trade because the real problem at hand here is the time honoured issue that indeed we are not being told the complete picture.

Let me explain. The real reason a cut price, car could end up costing you more is because of what is known as the hidden costs of car ownership. Principally the major hidden costs in buying a car, lie funnily enough in the residual value of the car when you come to sell it aon so in a lot of cases the real cost of running a car can vary wildly. It is when you take all these factors into consideration that you can take the true cost of ownership into account and when you amortize these figures over three years (the typical time period the average motorist keeps their car) the end results can be quite revealing.

Let me explain a little bit more and give you an example of how the residual costs to buying a car can vary. If we take two sample cars the first one is a Volvo C30 and for the purpose of this exercise the other we will compare it to is the Alfa Romeo 147. Now neither of these cars is exactly the cheapest on the marketplace and both are slightly more expensive than the average car but for our purposes are roughly in line with each other. Now doing a straight analysis of purchase prices the C30 has a target price of 14,539 which is 625 more than the equivalent Alfa Romeo. But, and this is a very big but, after three years the Volvo has retained 58% of the purchase value of the car for residual purposes. Within the same time the Alpha Romeo has only retained 39% of its initial value.

Now for mathematical purposes for cars of these two sizes the difference in residual value is crucial. As it stands at the moment it would appear that the Volvo is 2850 cheaper than the Alpha Romeo but by suggesting though that the initial price was 600 more expensive than the Alfa you would actually be making a grave financial error in your choice of car, IF and only if, your decision was based on purely financial reasons alone. When you take the massive difference in end user residuals the Volvo works out about 2000 cheaper.

A bit of a difference.