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HERE’S something different. Are you thinking of buying a car? Then here’s a little technique to help you decide which one to get.
Since cost ought to be the most important factor in making this decision, think about it like this: there are two costs involved. One is the cost of buying the car. And the other is the cost of owning it.
The cost of owning a car should be calculated like this. Take the cost of its routine maintenance — oil change and air filter replacement. Then take the mileage it gives you per litre of fuel, assuming for now you won’t be driving on CNG. Then take the cost of the insurance.
Assume that you drive an average of 300 kilometres in a week, although if you’re at all savvy about your vehicle ownership you’ll know what your real daily driving average is. Assuming you’re looking at a vehicle that gives you 10km to a litre, your weekly fuel bill will be about Rs3,180. Your insurance cost, for a typical locally assembled midsize car might cost you Rs30,000 for a year.
If consumers made their decisions on purely rational, cost-benefit calculations, things might be simpler for manufacturers.
At 300km in a week, you’ll be going in for routine maintenance every 13 weeks and paying close to Rs 2,500 each time, including the oil change, oil filter and cleaning up.
Now annualise these numbers and you get a running cost of almost Rs219,000 per year. You’re driving almost 17,000km a year, rounded up, so your per kilometre cost in this given vehicle comes out to Rs13, again rounded up.
I did this exercise for a number of locally assembled cars of various makes and sizes, whose names I won’t be listing, and I got a per kilometre cost that was as low as Rs6 and as high as Rs18. It’s a bit harder to factor in the cost at which the vehicle is purchased because some cars retain their value better than others because there is a thriving resale market for them.
So it’s a little tricky to figure out how much of the initial cost of purchase is actually being ‘consumed’ in the process of driving the car, the way the fuel and engine oil and insurance coverage gets consumed as the vehicle moves.
To do that exercise, it would be necessary to get an idea of how much of its original value a car loses over a given period, say, five years. And calculating that would also need factoring in the exchange rate movements in the intervening time. An exercise of that sort could be done, potentially, just by picking up price data from company websites for various models, and looking up corresponding prices of the same vehicles being sold after five years’ use taken from the classified pages of this newspaper.
But who has that kind of time? Students in business schools do, for one, so maybe an assignment could be made out of this exercise: obtain the cost of traversing a kilometre of distance in three different kinds of vehicle, let’s say a 1000cc, 1300cc and 1800cc model. Considering more than 16,000 cars are sold every month in Pakistan, you’d have a reasonable market of people who might be interested in your final findings.
The idea is to think of distance as a good that is consumed, much like petrol or food. The many different ways that you can consume that good each carry a different price tag. If you commute 50km a day roundtrip on a bus in Karachi, for instance, each kilometre consumed costs you less than one rupee, considering most buses charge a flat rate of Rs20 for a trip.
There is no upfront cost here though, and the service is not available on demand like an automobile waiting in your driveway is. A motorbike might charge you a few rupees per kilometre for the same trip, although I must admit I had not done any numbers on the cost of consuming a kilometre by motorbike. Then you make the leap to consuming distance via automobile and hit the elite double digit range per kilometre.
This is a far cry from how decisions are usually made by the consuming public when making auto purchases. Much ego is invested in these decisions, and superfluous costs are racked up simply because people don’t want to be the only one without that particular feature. For instance, many new cars in the 1300cc range are now featuring navigation panels for outrageous costs, where a simple smartphone will get that job done for you. I wonder how many of those opting for this feature actually end up using it.
If consumers made their decisions on purely rational, cost-benefit calculations, things might be a lot simpler for the manufacturers, and there’d probably be a lot less waste. There’d be a demand for the kinds of calculations that can give a detailed idea of the various costs.
But none of that exists because most of the time people make important decisions with all the wiles of a flock of sheep, looking around them to see what others are doing, asking each other how their experience has been with a given model, and most of all, with an eye at the resale value because they want to have their cake and eat it too. They want to consume that kilometre, but they don’t want to consume the equity in their car.
So here’s a shout out to teachers in business schools. Can somebody out there start putting young minds to work on generating the cost of consuming a kilometre in three different categories of vehicle? Can we know what we’re paying to traverse that kilometre if we choose to do it in a Corolla or a City or a Swift? Now that would be different!
The writer is a member of staff.
Twitter: @khurramhusain
Published in Dawn, September 18th, 2014
