Understanding the True Cost of Mobility

Hey folks,

Matthew here, Sales Manager at Gerry Caffrey Motors. If you haven't been here before, welcome to "Under the Hood," a weekly newsletter where we discuss frequently asked questions from the dealership and new trends in the industry. If you are already a subscriber, welcome back! It's been a busy few weeks, and I've missed a few posts, but I'm excited to be back with new topics each week.

Last weekend, I was in London visiting friends, and our conversation turned to buying cars (shock!). They asked why I often recommend PCP (Personal Contract Purchase) finance over outright buying. I explained that while I'm not necessarily a fan of PCP as an absolute rule, when the right factors align – like warranty interest rates, incentives, and strong trade-in values – it can significantly reduce the total cost of mobility.

Total Cost of Ownership vs. Total Cost of Mobility

Cost of mobility is a phrase that is becoming more popular in the industry, and for good reason. It is something that every savvy car buyer should be thinking about. Most people think of the total cost of ownership as the value they get from a car purchase, focusing mainly on the price of a new car versus the trade-in value of their old one. While this is important, it only tells part of the story.

The total cost of mobility covers all the expenses of owning and operating a vehicle. This includes:

• Purchase Price: The initial amount paid for the car.
• Trade-In Value: The amount you receive for your old car.
• Interest Rate: The cost of financing your vehicle, if applicable.
• Fuel Costs: Regular expenses for fuelling your car.
• Motor Tax: The annual tax paid for your vehicle.
• Maintenance Costs: Regular and unexpected repair and upkeep expenses.
• Depreciation: The decrease in your car's value over time.
• Insurance: The cost of insuring your vehicle.
• Other Costs: Any additional expenses, like parking fees, tolls, and accessories.

Owning a car is not like owning a house. A car, more often than not, is a depreciating asset. You are going to lose money on a car. Think of it as an expense rather than an investment. Smart buyers recognize this and focus on the total cost of mobility to manage the overall expense of owning the car.

The Hidden Costs of Focusing Solely on the Upfront Price

I've seen many people get fooled into thinking they’re getting the best deal when, in reality, they’re stepping into a car with a much higher total cost of mobility. One of the most common examples is people who shop around for the highest trade-in value, focusing nearly entirely on the number they are offered rather than the overall package.

In many cases, the dealer offering the "best trade" is actually just subsidizing the trade-in to appear higher. This can happen because the dealer wants to get rid of a car that isn’t selling well and is willing to lose money or make little to no profit on it.

Most dealers use the same valuation tools, have similar reconditioning costs, and use similar trade partners and platforms. If they are offering you a lot more money than the going rate on your trade-in, it could just be because they really want to move that one car that just isn't selling for them.

As a result, the customer might end up owning a car that is likely to depreciate significantly over the next few years, or a car that is incredibly expensive to run or maintain. All while thinking they got the best deal because they shopped around so much.

Of course, this isn't always the case. If you have done your research on the new car you are taking and look at each offer broadly rather than just one aspect of the deal, you are much more likely to find the best value out there.

Taking a Broader Perspective

If I was changing cars, for example, this is what I would be looking at:

• Warranty: Coverage that can reduce unexpected maintenance costs.
• Interest Rates: Competitive rates that minimize financing costs.
• Incentives: Dealer or manufacturer incentives that add value.
• Strong Trade-In Prices: When the trade-in value is genuinely high and not just subsidized against an overpriced car.
• Running Costs: Are you comfortable with the tax, insurance costs, and fuel economy?

By considering all these factors, you can make a more informed decision that truly lowers your total cost of mobility, rather than just focusing on the immediate trade-in value.

Final Thoughts

Is this something you would have considered before? Understanding the true cost of mobility can help you make better financial decisions when purchasing a car.

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