If you’re lucky enough to receive a legacy of, say, £10,000 or £20,000, what should you do with it? You’d expect me, as an investment pundit, to point you towards a cheap passive stock-market fund. But there’s another option that can make financial sense: buying a nearly-new car.
I have recently bought two popular family cars, both just over a year old, for less than half the price I would have paid if I had bought them new. Keith Adams, editor of Parkers Car Price Guide, says, ‘For canny buyers there are some amazing secondhand car bargains, especially if you’re after a volume-produced family car. Just pick petrol, not diesel, and you’re in the pound seats.’
These days, car manufacturers persuade us to buy brand-new cars with ‘zero per cent finance’ offers. The deals offered are so good that consumers keen to drive the latest model tend to come back and buy new again. Last year a record 2.7 million new cars were registered in Britain; in January 2017, another 174,564 came onto the road — the highest number since 2005. But the effect of this bonanza for manufacturers is that it leaves vast fleets of barely used cars sitting forlornly on forecourts.
In December 2010, Autotrader listed 54,145 cars for sale that were less than a year old. By December 2016, that number had risen to 127,625. In six years the number of nearly-new cars available on Autotrader had more than doubled. Economics teaches us that an increase in supply must drive down prices. Keith Adams agrees: ‘Used car values in the UK have collapsed and now lag way behind Europe.’
And I have taken advantage. The first nearly-new car I bought before Christmas was a 1.6-litre Vauxhall Astra SRI, 13 months old with 15,000 miles on the clock. It cost me just £8,000, compared to a brand-new list price of about £19,000. The second car I bought, a couple of weeks ago, is a Ford Focus with an Eco engine. Brand new: about £21,000. Just over a year old with 5,000 miles on the clock: £10,500, again half-price for barely used.
I would not have got those deals a few years ago. Keith Adams says that in 2010, the average one-year-old family car was worth 75 per cent of its original list price. So the nearly-new slump has probably saved me (compared to what I might have paid for a comparable pair of cars in 2010, if I’d been inclined to buy them) £10,000, which I can invest elsewhere — perhaps even in a cheap passive stock-market fund.
Historically I have never spent much money on buying cars, viewing everything to do with motoring as consumption rather than investment. However, recent experience has taught me that when a car (like a woman, you might say) reaches a certain age, it needs rather a lot of work to keep it going. And those bills add up.
Last summer my ten-year-old diesel injection Ford Focus, inherited from my father, developed an intermittent fault with its fuel system. A series of visits to the garage over many months have cost me in excess of £1,500 — more than the car’s worth, in fact — and it still isn’t fixed. Witty comment from the garagiste: ‘This car doesn’t need a mechanic; it needs an exorcist.’
And this is not uncommon. I interviewed a chief executive recently who had exactly the same experience with a Mercedes which he eventually got rid of after £10,000 worth of garage bills.
A nearly-new car means less servicing and repair, no MOTs for at least a couple of years, and often lower car tax, as new cars tend to be more fuel-efficient (see Laura Whitcombe on page 36 for the latest Vehicle Excise Duty rules). And soon there may be another financial inducement: as the demonisation of diesel gathers momentum, the government is expected to come up with a diesel scrappage scheme.
Newer cars are also safer, with better braking systems and more airbags. And so for the first time ever I have been tempted, both by the bargains to be had and the downsides of keeping an old car on the road, to spend what I regard as serious cash.
Looking back I wonder why I didn’t ditch the old Ford diesel earlier. It comes down to emotion clouding rational thought. I didn’t want to get rid of the car because it had been my dad’s — and having spent £500 on trying to fix it, I thought I might as well continue.
The same mistake is too often made in stock-market investing: falling in love with a share and doubling down. Intellectually I know that emotion can encourage us to make irrational decisions, I still make them myself, but I’m hoping you will learn from mine.
And if anyone wants to buy a ten-year-old Ford Focus in need of an exorcist, just send me a message.