There has been a lot of talk recently about the cost of petrol, Colin Charles is one of the few people to consider the issue of wages in this discussion [1]. Unfortunately almost no-one seems to consider the overall cost of running a vehicle.
While I can’t get the figures for Malaysia (I expect Colin will do that) I can get them for Australia. First I chose a car that’s cheap to buy, reasonably fuel efficient (small) and common (cheap parts from the wreckers) – the Toyota Corolla seemed like a good option.
A search on www.drive.com.au shows adverts for Corollas made in 1990 and 1991 for prices ranging from $3000 to $5000. Assuming some optimism on behalf of the advertisers I could probably buy one for about $2500. The current term deposit rate from the major Australian banks is just over 8%, so spending $2500 on a car (instead of having the money in a term deposit) means a loss of $200 per annum interest, if instead the car was purchased with a bank loan the rate would be significantly higher (car loans have quite high interest rates). Of course the real cost is whenever you sell a car and buy a newer one that costs more – but this is harder to estimate. The next issue is insurance, for a 1990 Corolla of the smallest engine size (as a rule of thumb the smaller the engine the smaller the insurance bill) comprehensive insurance (sans optional extras such as windscreen protection) would cost me $489 per annum, and third-party fire and theft would cost me $398. Of course those rates are for someone who is more than 25 years old and has a good driving record. The majority of people who “flip burgers” appear to be younger than 25 and would therefore pay more. Car registration starts at about $550 per annum (varies by state). Car service would cost at least $200 a year (for scheduled services). So it seems that the cost of a cheap car is around $1,350 per annum before you even drive it!
Now with a car that’s 18 years old you have to expect that some parts are wearing out, including parts that make it unroadworthy and must be replaced. Assuming that $300 per annum is spent on parts and labor to repair parts that wear out seems quite conservative (especially if driving a car that costs less than $3,000 – one of the cheaper cars in that age range). That brings the total cost per year to $1,650 if you are lucky (if unlucky then expensive parts could wear out at financially inconvenient times).
The amount of driving that I do is around 5,000 to 7,000km per annum (according to the ABS the average passenger vehicle was driven 14,100Km in 2005 [2]). Assuming 7.5L/100Km (one of the results that has been quoted for fuel efficiency of a car of that age) and 7,000Km of driving that would be 525L of petrol per year, at $1.70 that is $892. So at current fuel prices when driving a small car for minimal distances (either for environmental or financial reasons) the cost of petrol may be about 35% of the vehicle operating cost. If driven for the average distance the fuel cost will be about 52% of the total vehicle operating cost (which is about $3,400) – which seems like a reasonable incentive to save fuel.
If someone wants to advocate measures to make cars more affordable for poor people then the first thing to consider would be a reduction in the vehicle registration fees (which are a significant part of the vehicle operating costs). Another would be government incentives for car sharing schemes (see my previous post on car sharing for details on what is on offer in Melbourne at the moment [5]), $3,400 would give 340 hours (or more with the weekend deals) of driving a shared car (including fuel) at current prices. A shared car would not be suitable for driving to work but would be good for most other car use. Also it should be noted that share cars are new and have all the latest safety features – I really wouldn’t want to be involved in a crash while driving a 20yo car. Unlike the costs of registration etc for owning a car, all the costs of a shared car will be reduced if you use it less.
The tax rate for someone earning $28,579.20 is $2,850 plus 30c for each $1 over $25,000 [3], which is $3,923.76, which leaves a total after tax income of $24,655.44. Someone working 40 hours a week on the minimum income who drives an average distance will spend about 14% of their after-tax income on their car if they have a small old car and were able to buy it without borrowing money.
According to the ABS the median income is actually slightly lower than full-time work at the minimum wage [4]. So it seems that there are many people who are working part-time and earning less money than they would if they worked full-time at the minimum wage.
So the question for Colin is, how does this compare to Malaysia? Is someone on a minimal income in Malaysia going to spend ~7% of their after-tax income on paying insurance, tax, and basic maintenance on a car without the additional expense of driving it? How does the cost of the basic car ownership compare to the cost of fuel in Malaysia?
- [1] http://www.bytebot.net/blog/archives/2008/06/15/on-fuel-subsidies-and-earningspending-power
- [2] http://www.abs.gov.au/AUSSTATS/abs%40.nsf/mediareleasesbyReleaseDate/66E24E957EB09229CA2571E10077D71D?OpenDocument
- [3] http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htm&mnu=5053&mfp=001
- [4] http://www.abs.gov.au/AUSSTATS/abs%40.nsf/7d12b0f6763c78caca257061001cc588/96e08af8f4178a45ca257306000d4fd4!OpenDocument
- [5] http://etbe.coker.com.au/2008/04/13/car-sharing-in-melbourne/
The car share companies and some public transport operators — that is, major competitors to private car ownership — like to quote the estimated total cost of ownership of cars, they seem to go from somewhere between $100 and $150 a week for small cars and upwards counting interest on repayments but not lost interest on investing the deposit.
The only adjustment I would make to your figures is that I know very very few under 25s with comprehensive insurance. They often take out third party damage only and sometimes only compulsory third party injury, and just expect to suck up the costs of a write-off or a theft (or to file for bankruptcy in the case of a third party damage claim if they aren’t insured).
Mary: In the calculations I didn’t use comprehensive insurance, as $400 seems to be the minimum “excess” it seems that a significant portion of any repair bills to a $2500 car will be paid by the owner. So the only real benefit to comprehensive insurance would be if the car is written off – in which case the owner could probably still salvage at least $500 of parts and end up only $2000 out of pocket.
When under 25 I crashed a car which was worth about $12K and only had 3rd party insurance, that sucked as I had to pay $5K in repair bills. It’s not something I recommend. Of course if you are going to “self insure” then you really should make sure that you have the money to back it up (something that people on the minimum income probably don’t do).
I didn’t get a quote on the compulsory injury insurance, that seems just too risky.
Poor people in Malaysia don’t have cars, they have motorbikes.
Tsuyoshi: I expect that those motorbikes have registration duties paid to the government and insurance, so we can do the same calculations to determine how much of the cost is based on the vehicle and how much on the fuel.
Russell, nope, there are no longer registration duties to be paid to the government in Malaysia for motorbikes. This was an election ploy a few years ago (I can’t recall if it was during Dr. Mahathir’s time or Badawi’s).
The clincher? You get a fuel rebate, even for running a motorbike. Remember, no yearly rego, yet, a fuel rebate. Shocking.