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I have been reading a lot and doing as much research as I could and need some help to decide whether I could consider the action of buying a car as an investment. This question comes after I can't come to a conclusion myself and would like some help. These are the guidelines I've been using while trying to decide:

  1. Utility comes first. While of course it's nicer to have a brand new Mercedes over a second hand deal, we don't want status (as it's something subjective) in the equation. However, if there is need for a Mercedes (because you are the best financial consultant in the country and you need your assets to show what you are worth) it's very likely that you also have an income proportional to the cost of the car.
  2. Buying a used car. I've read in many places (and from first hand experience given some family members, and friends) that a car in average is worth half its new price over the course of 3 years, and the money used to have it in the best condition will hardly match the loss on price. So this means that the spread between buying price vs. selling price won't be too huge.
  3. Is there something as hourly-worth? This is main issue with my question. The main purpose for buying a car (I believe) is the time saved and how convenient it is to not have to wait for someone to pick you up, or depend on public transportation. Therefore, the main thing that I question is: If I make 96.000/year (figures are meant to provide an easy example only), divided by 1920 (8 hrs a day, times 20 days a month, times 12 months a year) can I actually say my worth is $50/hr? Is the assumption of saying if I save 100hrs a month (5k/month) by driving my car instead of using public transportation which costs me on average 3k, is actually netting me a savings of 2k?
  4. Costs and other risks. Of course, one has to always take into account the costs, insurance, monthly repairs, gas and other factors that come with the fact of owning a vehicle. Those are rather easy to quantify.

After 5 years I decide to get rid of the car, I'm selling it for the average market price (9 years old now), and bought it for average market price as well (4 years old). Looking back, considering the points mentioned and of course any other valid points too, can one possibly say from a personal finance point of view "this car was a good investment"?

  • 44
    @Celius Stingher: A car (or other vehicle) would be an investment if you use it to produce income. It would be a good investment if the income produced is more than the cost plus running expenses. For instance, when I worked in construction, I needed a truck to carry tools and materials to job sites, so that was an investment. – jamesqf Oct 8 at 2:49
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    @jamesqf that vehicle is a capital expenditure which is expensed over time (aka depreciated). investinganswers.com/dictionary/c/capital-expenditures – RonJohn Oct 8 at 14:06
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    @jamesqf a classic car that appreciates in value could be an investment without it producing income (instead it produces capital gains) but that's far from the OP's situation – Chris H Oct 8 at 14:58
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    I think this is one of those cases where if you have to ask, the answer is no. – mao47 Oct 8 at 14:58
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    "save 100hrs a month ... is actually netting me a savings of 2k" - can you and would you use those 100 hours into generate 2k? If not, then no, you can't say that. Related: How do you value what your leisure time is worth? – NotThatGuy Oct 8 at 22:14
68

A few points.

  1. You may be interested in this website which helps you calculate the total cost of car ownership, and factors in things like insurance, gas, mileage, repairs, registration, etc... These costs are not inconsequential and have a tendency to add up.

  2. Even this calculator doesn't consider all the costs though because it ignores the lost opportunity costs-- i.e. the amount of money you could make by investing the cost of the car. e.g. If you buy a $10,000 car you could have taken that money and invested it instead where it could have earned 10% per year. So you're essentially missing out on an extra $1000 a year by buying a car.

  3. People love to find fault with public transportation, and only focus on the negative aspects e.g. the extra time you spend waiting for the bus, etc... This can be seen in your question where you calculate the amount of time that you save by owning a car compared to waiting for a bus. The problem with this is: It doesn't take into account the other hours you spend on car upkeep and maintenance and all the associated aspects of owning a car (e.g. shoveling your driveway); it ignores the fact that time spent on public transit can be productive-- e.g. you can work on the bus or the train but you can't safely/easily work in a car that you're driving; it ignores the mental benefits-- studies regularly show that people who take public transit have lower stress levels; and it ignores the fact that public transit is on average 10 times safer than driving a car.

  4. If you are driving primarily for work you may be able to write-off some of the costs of ownership/miles driven. Check your local tax law as this may provide you a tax break.

So to answer your question I'd never consider a car an investment, but in some circumstances it may be a useful money saver. However, if you've been able to do your job this entire time without relying on one I would suspect it's not going to save you money.

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    Where I live, the buses come every half hour and don't go anywhere near I want to go. And it rains; I don't really feel like getting wet walking to and from the uncovered bus stop. – RonJohn Oct 8 at 14:01
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    @RonJohn agreed-- some people don't live near good public transit. Or if they had a car they'd be able to drive to a better/higher paying job. I'm not saying that car ownership is bad in all cases, just that people should be realistic about the costs/savings. – Dugan Oct 8 at 14:34
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    Source on "invested it instead where it could have earned 10% per year"? Because saying "you're essentially missing out on an extra $1000 a year by buying a car" is very misleading. – user2397282 Oct 8 at 15:19
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    @RonJohn I think that's a slightly different situation. If an area doesn't offer public transit that meets your needs, then the cost of owning and operating a car should be factored in as a part of the cost of living in the area and not a separate investment. Without a workable alternative mode of transportation, owning a car can't offer "savings" over anything else because there are no other choices. – Upper_Case Oct 8 at 17:44
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    @RonJohn It's annoying, but I've carried heavy grocery bags in the rain. But, again, if it's a feature of where you live that places you need to go to are spread out over auto-only distances and public transit is not an option at all, then your cost to live there will have to include a car. Then buying a car isn't a money-saving investment, as described in the question, but an expense on par with rent/mortgage. Choosing to live in such an area is thus similar to living in an area with high rents. I am not disputing that having a car is convenient, relative to many other options. – Upper_Case Oct 8 at 19:51
41

No doubt about it: vehicles are capital expenditures which depreciate over time.

Referring to a car as "a good investment" because it hasn't depreciated very much is metaphorical.

Having said that, the exception that proves the rule are low-supply, high-demand antique and specialty cars.

  • 1
    I think you are making a distinction without a difference - this 'capital asset' [not capital expense, which is not a used term] purchased by an individual would be reasonably considered an 'investment' by all but the most retentive accountants if it provides avenues to higher income. Telling a layperson 'This thing is not an investment, it is a thing that works exactly the way you use the word investment, but actually it is entirely a different thing' isn't terribly helpful. The side-glance at antique cars is just misdirection. – Grade 'Eh' Bacon Oct 8 at 15:16
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    @Grade'Eh'Bacon the word I should have used was "expenditure", not "expense". They're assets, but that doesn't mean they are investments, no matter how much you need it to make more money. (Computers, too, are assets needed to make more money, but they aren't investments.) – RonJohn Oct 8 at 15:22
  • When someone says college is 'making an investment in themselves', it is irrelevant that this cost will not be eligible for treatment as-such on GAAP-compliant financial statements. That wording is perfectly intuitive in that case as in this one, and therefore valuable to a non-accountant. – Grade 'Eh' Bacon Oct 8 at 15:46
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    @Grade'Eh'Bacon and I think "college is an investment in yourself" is a metaphor. Cars are no different than any other depreciating asset like computer equipment. – RonJohn Oct 8 at 15:52
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    I agree with @Grade'Eh'Bacon. Considering the purchase of an asset, which results in the generation of profit, to not be an investment merely because the asset itself has some costs, is illogical. Compare for example a new startup company that purchases a van with the expectation of making a profit. Not an investment? What about the person who provided the share capital for that company. That is undeniably an investment. Yet, we are essentially talking about the same allocation of resources. – JBentley Oct 9 at 20:09
21

Beware confirmation bias

I have been reading a lot and doing as much research as I could and need some help to decide whether I could consider the action of buying a car as an investment.

Oh, you have to be very careful here, of confirmation bias. Deciding which conclusion you want to reach, and then searching for the facts that support reaching that conclusion. The problem is, this also avoids searching for facts which do not support that conclusion.

For instance, the phrase "car as an investment". No credible source would ever speak those words, for reasons which other answers have illuminated brilliantly.

Cars are a total financial loss

There is no math in which you buy a car and resell it for more, unless you are the guy on Counting Cars. It would be neat if you were, because it would mean you could make car economics non-insane.

Here's an example. My poor car has been away from its maintenance base for 3 years. I took it to the diagnostic guy and he game me 40 things that need fixing. About 2/3 are done and I'm $300 into it; I have about another $300 to tick 'em all off. Speaking of "ticking off", people are going "hey, how are you getting one thing fixed for $300, let alone 25?" Because I do my own work, and I have a very old, cheap car.

And because of that, I can confine my auto expenses to $2000/year, if I'm dishonest with myself about my actual costs like most people are. Of course I spend much more.

See, I have the skill to make a car an investment if that were possible. It's not. So I simply do all I can to limit my losses.

And I know perfectly well I could have these losses at a much larger scale, e.g. I could drive a Tesla and have essentially 0 maintenance costs and massive lease costs, or drive an 80's Porsche and do the same thing with parts costing 5x as much.

Forget transit... unless you didn't.

If you pick any random piece of housing stock in America, the transit is practically unusable. Because in the massive post-WWII housing boom, sprawling developments were built, and transit was not only forgotten, but intentionally excluded, in a misguided goal of "keeping out the riff-raff". Even today, they like to "wall" developments. When the 80's transit resurgence began, they tried to "bolt on" transit to these sprawl developments, but it creates hopeless, gerrymandered routes that aren't efficient. Transit needs to be built first, then the development to the transit. Take Los Angeles, they're just building on the old Red Car lines! Which means they are serving old development that was built because of the Red Car lines. Postwar sprawlburbs will never get usable service.

Fire up Google Earth and look at Europe, and you'll see much the same, lots of farms turned into walled-off, transit-sterile housing estates. Of course the government requires some perfunctory sort of transit in order to permit the development, so some sad little shuttle bus trots through every 1/2 hour to take you to the train station. Totally impractical for living carless.

Here's the thing. There are hundreds of places in America (and other countries) with good transit. But they're not random. They have good transit for a reason, often relating to history, the lay of the land, a rail tunnel driven 100 years ago, whatever. But these places don't jump out at you when you do a car-based house search, in fact, they kinda do the opposite, they hide behind their typically older housing stock with character and grit, in neighbohoods that feel unsecluded. So transit-blind house searches tend to go straight to Car-land.

On the other hand, if the people who picked this house did the homework and made transit part of their decision, different deal. That's when you find "Oh look, 2 major trunklines to employment areas run just blocks from here". Point is, that doesn't happen by accident.

The value of your time

Quick question. When you get off work, do you log into Uber and start giving people rides? No, you say, because you don't want that experience?

Well, guess what. You're gonna get it. When you are driving a car, that is 100% your job. There's no practical way to "2-screen" the driving task. If you don't drive yet, there's plenty that it is your job to notice. Other drivers are careless, and you spend 80% of your attention bandwidth protecting yourself from them. Even on open road, stuff just happens way too fast - 2 seconds of distraction and you're hitting the rumble strips. "Autopilots" make it worse, because humans suck at monitoring automated systems that work 99.9% of the and suddenly do the wrong thing. (That woman did everything right, but just couldn't respond quickly enough when she witnessed the highly improbable.)

You can't read email, you can't text... it's been tried to death. In fact, the hard science shows talking on the phone with a handsfree is still distracted driving. It's not where your hand is; it's where your mind is. NTSB states it plainly:

No electronics should be used in cars, except that which assists the driving task.

So yeah. When you're behind the wheel, you are 100% an Uber driver to yourself. That big block of time is wasted.

Having belabored that point to death...

In the 90s I had this amazing thing called a Ricochet modem. It was a "cellular" data service that worked. It was amazing, it completely changed the value of my time on public transit. It made me choose public transit over driving.

Of course now, we take mobile data for granted. And you can do important work like Tinder right there on the bus or train. The value of this cannot be overstated. Of course you should have awareness of your surroundings, but I find 80% of my time on transit can be put to good use. Driving can't say the same.

  • Thank you for a complete and great answer!! Really liked the psychology in it as well. – Celius Stingher Oct 9 at 13:06
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    important work like Tinder" - it's better to relax after work instead of amplifying your frustration – user11153 Oct 9 at 13:19
  • @user11153 when you look around transit cars, you see a lot of people swiping left, or whatever you do on that thing... – Harper Oct 9 at 18:06
  • Why bring up the 3rd and 4th section? There's nothing in the question or in the OP's comment replies about public transport. It only distracts from the core points in the first two sections. – Jan Doggen Oct 10 at 9:43
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I may be focusing on just the words here, but "Investment" has a particular meaning. In the real world, my wife has used phrases like "I need to invest in a new pair of shoes". I suppress the urge to shout that routine purchases like this are not investments, they are just purchases. But, I keep my mouth shut, as she needed new shoes.

I bought a treadmill. Actually, I bought one to replace the treadmill that, after 20+ years of obsessive use, died. The purchase, 2 decades ago, saved me the cost of gym membership, along with the round trip time to the gym. I could go down the path you are, with similar logic, and even separate the actual dollars saved vs perceived value of my time.

In your case, careful analysis can help you decide whether a purchase is worth it, including spending a bit of money to buy back some for your own free time, but in the end, I view it as just that, thoughtful analysis, and not the license to call such purchases "investments".

verb (used with object)

  • to put (money) to use, by purchase or expenditure, in something offering potential profitable returns, as interest, income, or appreciation in value.
  • to use (money), as in accumulating something: to invest large sums in books.

  • to use, give, or devote (time, talent, etc.), as for a purpose or to achieve something: He invested a lot of time in helping retarded children.

Above is the Dictionary definition. I include it, and offer the fact that words also have secondary/tertiary meaning, and that in normal conversation some might use the word as you suggest. Still I'll maintain I wouldn't do so under the guise of personal finance.

Edit - I included the dictionary quote to offer my own understanding that the word itself has multiple common uses. Still I was taken aback at the use of the word ‘retard’. I requested that the definition be updated, and they (dictionary.com) agreed. I’ll edit again, once I see the new example sentence.

  • When people talk about purchasing goods as investing, I sometimes think of it like this: if you need a new pair of shoes, you effectively have a sunk cost of the minimum amount that it will take to buy shoes (say, $30). But you might choose to "invest" an extra $90 by buying a more expensive pair of shoes that will last two years, instead of the cheap $30 pair that would need replacement after 4 months. So, like an investment, you put in $90 up front and after two years you've only spent $120 on one pair of shoes instead of $180 on six pairs, thus "earning" $60 on your "investment". – David Z Oct 8 at 20:52
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    Though of course I'm aware that, in practice, people do also just use "invest" to mean, essentially, "spend". – David Z Oct 8 at 20:53
  • Can you tell, I tiptoed around declaring it "wrong"? Even offering the fact that the dictionary (literally dictionary.com) offers a use similar to OP. Yet, it also used the word 'retarded' which I swear was changed due to political correctness. – JoeTaxpayer Oct 8 at 20:58
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    While I upvoted the answer, I'm disappointed in the political commentary. As someone who is physically retarded, it it completely obvious that the word for "delay or hold back in terms of progress, development, or accomplishment" is perfectly justified when describing some people's physical or mental conditions. – RonJohn Oct 9 at 20:48
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    I'm glad you mentioned it, though, because it gave me the opportunity to contact them and make the case that "retarded" is a valid use in the situation. – RonJohn Oct 9 at 20:55
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Cars are only good investments in certain cases.

Brand new cars

As little time as they take to maintain, they depreciate as soon as you sign the loan papers. They will also continue to depreciate rapidly over the first 5 years or so. Also, when they do break down, the repairs are likely to be more expensive. Insurance and registration is going to be high on these cars, too. You don't start to see things turning in your favor until at least the 5 year mark. For really expensive cars, think more like 10 years.

Even electric and hybrid cars will depreciate quickly and their repairs are even more expensive than other new cars. And because of their high initial cost and high cost of repairs, etc., you really aren't gaining anything by not having to buy fuel for at least 4-5 years.

Used cars

Depending on how old it is, how many miles, how the previous owner treated it, recalls, and so much more, it may or may not be a good way to go. Doing your research, as with anything, will show you which used cars are likely to be a better use of your money. Older cars do break down more often, but their parts are also easier to find and cost less because of it. Also, being able to do basic and some medium level repairs will save you money.

In some places, like Iowa, you automatically get a greatly reduced registration rate once the vehicle hits 10 years old.

If you get the "right" car, which you sometimes can't know until after your purchase, maintaining it will determine if it's an investment or not. If you're having to constantly do major repairs, it's not likely worth it. If the trim and headliner falls off, but the drive train, breaks, and other mechanical components are solid, requiring minimal maintenance, you have an investment. In this case, the term "investment" means you aren't paying more for something else to do the same function.

Sports/performance cars

These are a money pit. They cost a lot everywhere. They can pass everything except for a gas station. They often need specialty tires, insurance is high, and if you don't keep off the gas, you'll be paying speeding tickets.

Classic cars

These are borderline investments. Their parts are getting scarce, they may break down more often, they aren't for daily driving, and to get good repair service, you have to pay more for it. These also have a higher price to buy, to insure, and at the pump. New tires might not be available for some really old cars. I've seen common classic cars that were more expensive than new sports luxury cars.

These cars are literally not being made anymore. Your 1990 Honda, your 2001 Mustang, and your 2009 Prius are never going to be considered Classics. They may legally be considered a classic car eventually, but not to any real "car guy/girl".

https://en.wikipedia.org/wiki/Classic_car

Public transportation

Some places have great public transit and others don't. In fact, I'd have to say that most places don't. Even when the service has high availability, too often the departments in charge of them are under funded, under staffed, and get too much use to maintain their vehicles well. Even when they have law enforcement available, there's still possibilities for crime, distractions from other customers, and just plain forgetting things when you exit.

If you are able to use it, it's clean and comfortable, and you are able to be productive at the same time, that's great. Use it. It really can reduce stress by not having to pay for and maintain a vehicle, but it can also add to stress when you miss it, miss your stop, or have to deal with SOB riders.

Personally

I'd rather have a car than not. Most places have no or very limited public transit. I've recently moved to a large city that has good public transit and I tried it for a while. I'm not a fan. You have to know exactly where you're going before you ever step on the vehicle and if you make any mistake, you're going to take a minimum of 2x as long. Not to mention that public transit can easily take 3x as long as driving even when you do things right, but this also depends on the metro area. Chicago, New York, and other huge metro areas might take less time in public transit than driving.

I've learned, the hard way, how to do most repairs on my own vehicles. Through blood, sweat, and swears, I've avoided at least half the costs of repairs. I've also owned 2 cars simultaneously for most of the time I've owned cars so when one dies, I can switch to the other. Right now I have 1 car that needs a motor replaced and I'm seriously considering throwing in an electric package instead of a gas engine again. It'll cost more than the car is worth to someone else, but I really like the car, so I'm ignoring the bit of it being a "bad" investment. The engine model was a known issue from the factory, so I'm not going to replace it with the same thing, that's for sure.

Conclusion

The purchase of a car is an expense. How you treat it and how it treats you determines whether it's an investment or not. The longer you own a car generally helps determine if the car was worth the purchase and keeping a car until it's too expensive to fix is usually the best way to know you got the most out of that purchase. Public transit can be a good thing, but it's strictly a "YMMV" basis whether it is or not.

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    "Your 1990 Honda, your 2001 Mustang..." Maybe not to a boomer, but certainly there are going to be Gen X/Y-ers who grew up around the street racing scene. As this group ages, they may desire cars from that era. – Kenneth K. Oct 8 at 17:14
  • @KennethK. as a Gen Xer, I can see people thinking those are desirable, in the same way some people think bell bottoms are desirable. On the whole, most other's won't agree. Even if you aren't into cars, seeing a Belair, a Model T, a Corvette Stingray, or a Rolls Royce is a treat. Seeing a ricer '92 Civic just doesn't have the same appeal. It didn't even in the 90's. And a '01 'Stang looks like a crossbreed of a real Mustang and a Taurus, with the Taurus being the most generic body shaped car of all time, which is why police liked them so much. – computercarguy Oct 8 at 17:24
  • As little time as they take to maintain, they depreciate as soon as you sign the loan papers, surely the price of the car doesn't depend on how it's financed? – gerrit Oct 8 at 19:08
  • @gerrit, actually it can. I've had a friend try to buy a car and the loan company said they wouldn't give a loan on that specific car for over $X, which was a couple thousand over the price on the car. The sales person instantly dropped the price and the loan was given. Also, if you try to sell a car back to a dealer immediately after signing, they are likely to deduct 10% or more as it's now "used". Insurance is likely to sell "gap" insurance because you're likely to owe more on the car than it's worth from it's original purchase price. iii.org/article/what-gap-insurance – computercarguy Oct 8 at 19:15
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    As an aside, in 2006 here in Australia I considered buying a 1990's R32 GTR Skyline, which at the time was around $18,000 AUD. Now you'll be hard pressed to find one for under $70,000 - a similar example would be an old Ford Falcon GTHO - worth in excess of $150,000 to $2million now. To know what models will become future classics though, that's the gamble. – Aaron Lavers Oct 10 at 6:52
5

No car purchased to get you from A to B can be considered an investment. All cars depreciate as soon as they are driven. Only collectible or show cars can be investments because they are rare or unique, not driven (accumulate no wear), and make some sort of artistic and/or historical statement.

For any car you would routinely drive, the best you can hope for is to minimize the total cost of ownership over the time you've owned it - minimize purchase cost, insurance, maintenance, repair, and fuel cost, and maximize resale. By this measure, the first car I ever owned was probably the closest I've ever come to a car as a "good investment" - a 1978 Dodge Colt bought for $2,800 (CDN) in 1980 and sold for $2,400 in 1982 (about 2 years use). It wasn't an investment, just a cheap car that served my needs at the time.

Rather than look upon your car as an investment, consider the value for money it delivers. There is the relative convenience and utility of getting you to or from your job or wherever else you need/want to go, and the amount of pleasure you may or may get from whatever comfort or conveniences it offers, and just how it looks. If it delivers the things you value, it isn't in the shop beyond the expected routine, and you're OK with what it costs, it's good value for money... but it's no investment.

0

The other answers address buying a car to actually use it for personal purposes and they are true - the car is a financial void.

If you focus on making profit from owning a car there are several options: Look for vintage and special cars and look at special markets. It is a high-risk field and may be called rather speculation than investment.

Ferraris, Buggatis, Lambos and other supercars usually don't lose their price. Special models of Jaguars (E-type), Fords (Mustang) are a good tip after some time. Even Skoda can be be an investment. For example, several years ago one can buy decent 62' Octavia for $100, now they start at $1000 and good ones are even more expensive.

The point is to find the sweet spot, when the car price is minimal and hit the car model that will rise in price.

If you started using the car, in seconds you need to replace fluids, consumables, something gets broken... and the car starts to be a void again.

The only way of making profit from having a car is to have the work where a car is mandatory - deliveries, taxi, on-site-services, car rental.

-2

I have never met a RICH person, especially an Entrepreneur who said:

  1. Buying a house (home?) on a Mortgage is a good investment (unless you run a legitimate home business).
  2. Buying a car (for non commercial/business purposes) is a good investment.

This was told to me when I was just 23 years old by a successful Entrepreneur.

Now, I am 53, have lived or worked in every type of country on the planet and believe the above. I have owned/used from Nissan/Toyota to Mercedes S-500...

Lets do some simple math:

House on rent: $1,300 per month. Same house on mortgage $1,800 per month (real example from a Canadian). Not considering inflation.

Rent for 20 years: 312,000.00 Same house on mortgage for 10 years: 552,000.00(adjusted with insurance, repairs, etc).

On the 21st year the house you own is going to cost ANOTHER $250,000 for 'code compliance', etc.

If you lose your job, your freedom to move is lost with a mortgage. But, if you rent, even on a lease, you can break it citing that you are unemployed.

Cars don't even need math. When you drive your car out of the dealership it loses its value by 50%.

So, again, at 53 - all these 'financial' games are for 'middle-class' and 'rich.

The old saying applies: "If it is too good to be true, it probably isn't".

Trust this helps and as 'food for thought'...

  • 2
    "House on rent: $1,300 per month. Same house on mortgage $1,800 per month (real example from a Canadian). Not considering inflation." Definitely not where I live in the US. Rents are much higher than base mortgage payments. – RonJohn Oct 10 at 3:36
  • Also, I did the math on renting vs mortgage, and mortgage easily came out on top. – RonJohn Oct 10 at 3:36
  • @RonJohn: Can you share your math on mortgage vs renting. – Mr. de Silva Oct 10 at 4:42
  • If rent is not affordable a person can move, but NOT when in a mortgage. – Mr. de Silva Oct 10 at 6:00

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