So, should you spend a bit more to get a fancier car?

This story originally appeared over at The New Daily. (They’ve asked me to write a consumer-focused story each week, which I will also post here)

I recently looked up the cheapest new car and the most expensive new car being advertised in Australia. I was gobsmacked at both ends of the spectrum.

At the very bottom end was a Mitsubishi Mirage, 2014 model, with only 15km on the clock. It cost $9,880 before on-road charges.

Screen Shot 2015-06-28 at 2.52.40 pm

The most expensive was a new Rolls Royce Phantom. The only one of its kind in Australia. Price $994,000, drive away, no more to pay.

Screen Shot 2015-06-27 at 11.29.16 am

That’s 100 times more expensive! Obviously you get big differences depending on which car you choose.

Only one of these cars has a 5-star ANCAP rating – the highest local standard for safety, and a 5-year warranty.

As you probably guessed, I’m talking about the Mirage. Yep. You can pay a million bucks for a car that has no official Aussie safety rating and a shorter (four-year) warranty.

The Mirage’s little motor also boasts far better fuel efficiency, at 4.6L/100km. That compares to 14.8L/100 km for the 12-cylinder engine beneath with the winged lady.

So the cheapest car is winning on some pretty important features. This made me wonder. What is the real difference between a cheap and expensive car?

Once upon a time it was reliability. Mercedes of old ran for hundreds of thousands of kilometres. Not so much any more.

The great industrialisation of Japan, from the middle of last century changed the game. The brilliant standardisation of quality pioneered by companies like Toyota made quality a starting point.

These days the car that endures that is likely to be a Honda or Subaru.

So luxury cars distinguished themselves with features. Leather seats. Sunroofs and electric windows. (Remember how exciting the smooth glide of an electric windows was when they first came in?) Cruise control and heated seats.

But it turned out that when you’re making millions of Camrys, it is possible to cheaply fit them all with an impressive swag of desirable features. So the game shifted again.

Now the luxury car distinguishes itself on some rather weird parameters.

The reviewers dwell on things like the noise the engine makes in a Porsche, or “a rather striking cherry wood inlay in the luggage area” in a new Mercedes.

Do these things matter to anyone who isn’t looking for a reason to buy an expensive car anyway? They remind me of the blueberry notes the labels are always so eloquent about in fancy bottles of wine. Important for an extremely refined few.

Most of us operate at a rather more prosaic level.

Let’s look at two vehicles in the fastest growing category around – “crossover” SUVS. Screen Shot 2015-07-01 at 1.37.05 pmScreen Shot 2015-07-01 at 1.37.34 pmA Ford Kuga costing around $26,000 and a Mercedes GLA costing around $55,000.

Here’s a comparison on some important features.

Screen Shot 2015-07-01 at 1.43.07 pm

Okay, I’m being facetious.

There are actual differences. For example, the Mercedes gives you 4.6L/100km, the Kuga 6.3L/100km. And there’s more:

Screen Shot 2015-07-01 at 1.43.14 pmThere are lots of other little differences too, in things that are probably good to have. But adding them up, are they worth an extra $30,000+?

The difference in comfort between a $25,000 car and $55,000 car is more slight than the difference between economy and business class on an aeroplane. If you sit in that car for an hour a day for ten years – 3650 hours – a $30,000 price difference means you’re paying a premium of $8 an hour.

Whether that $8 hourly rate looks like a worthwhile investment or a worthwhile saving depends on the person, and their income.

Interestingly, it seems income is a big factor.

Official statistics show the rich spend far more on cars than the poor. Households at the top of the income distribution spend eight times more on cars than the bottom of the distribution.

Maybe they can afford it. Maybe they value the small luxuries of life. But there’s another explanation possible too.

It is called signalling. On the African savannah, the male lion grows a mane which may actually harm its survival. Doing so and still managing to thrive shows it is super fit and healthy – and worth mating with.

Some experts think conspicuous consumption is similar in humans. Throwing money around announces to the world that you are special.

The larger and more frivolous the expenditure, the more effective the announcement. It makes sense – the person who buys that one-of-only-25-in-the-world Rolls Royce is far more likely to be someone trying to demonstrate something about themselves than a person with an extreme passion for fine wood inlays.

So when we see someone insisting they need electric lumbar support and alloy wheels, and the Mercedes is simply the best way to get that, we are probably justified to wonder whether they are falling into the trap of simply showing off.

Obviously, there’s a minimum price point –perhaps somewhere below $10,000 – where spending less on a car is a risk too big to take. And there’s a point – probably somewhere above $100,000 – where spending more is entirely silly. But where’s the tipping point? What’s too much to spend on a car? What’s too little? Please share your views below!

“Hatchbacks on stilts.” Why SUVs are an arms race we must stop

There’s a lot of talk about how Australians are buying smaller cars, and how Australian car makers are stupid for pushing on with big petrol-guzzling cars nobody wants.

But Australians do want big petrol guzzling cars. They just want them to be tall.

The SUV category is going crazy. In April 2004, 12,351 SUVs were sold. By April 2014 monthly sales had doubled to 25350.

Meanwhile, “passenger vehicles” – your classic sedan, sold fewer. April 2004 saw 44,000 sold, but by April 2014 sales shrank to 39,000.

In 2014, even as the car market is having its worst year for a decade, SUV sales are creeping up.

Image

When people buy an SUV, they’re purchasing the ability to go off road. Right?

Not if you look at the details. Companies are pushing out two wheel drive versions of their SUVs and they sell fast.

The AFR’s motoring writer nailed this in a review of the new $90,000 BMW, which is two-wheel drive.

Some surprisingly large SUVs – including the X6 fastback from BMW – feel like hatchbacks on stilts,” he wrote.

Image
Reflecting: a BMW SUV in its element.

And there’s the key.

People want to be high up. It’s game theory. If the car in front of me is small, I can see over it really well from an SUV. If the car in front of me is tall, I want to be in an SUV or I won’t see anything at all.

Image
Externality would be a sweet name for the new Ford SUV. I imagine its prestige to come from being that little bit bigger, heavier and harder to stop than the Explorer, the Excursion and the Expedition.

As someone who drives a car that comes up to armpit height, I can confirm sitting in traffic involves looking at a lot of SUV bumper bars and having no idea what is happening in the traffic up the road.

Image
2048. Thank me later.

An elevated position doesn’t just permit a better view of traffic, but of other people in the traffic. I can’t see what that Range Rover driver is texting from down here, but they can sure see what’s on my phone (at right).

The light commercial category also shows the change. You can’t easily sell a ute you have to step down into these days. The 1.74 metre tall Nissan Navarra tops the category, easily out-selling the 1.5 metre tall Holden ute.

Buying a tall car is what’s called a dominant strategy, if you want to be able to see. It’s also a dominant strategy if you want to crash into another SUV, according to research.

In head-on collisions between passenger cars and SUVs … Drivers of passenger cars were more than four times more likely to die even if the passenger car had a better crash rating than the SUV.”

This is the classic game theory scenario of an arms race.

The arms race analogy is a good one. Like the proliferation of weapons, taller cars are costly and risky. They are heavier, take up more road space, cause more wear and tear to roads and emit more carbon. They may be more likely to roll in a crash. They’re exactly the kind of purchase decision in which a government might try to intervene.

For a long time, SUVS had lower import tariffs than passenger cars. That changed in 2010 when tariffs on cars fell. But by then, the proportion of SUVs sold was already steadily marching upwards.

Changes to the way we tax cars are possible in the next few years. The Henry Review recommends getting rid of the luxury car tax and fuel taxes, replacing them with congestion taxes or user pay systems. It is clear that our current system does little to deter SUV purchase. Could a well-designed licensing and user-pays system be better, or is the only stable game theory equilibrium one where we all drive cars like the Dodge Ram, that can barely fit in a lane?

Image

 

 

Time for a Mazdalanche!

In Nauru, half the cars on the roads are Hilux Surfs – a kind of old 4×4 sold in Japan. In New Zealand, half the cars are Nissan Sunny’s – a kind of car sold in Japan. I have driven both and they have been some of the happiest times of my life.

The prices for these cars are terrific. The  reason why starts far, far away..

Japan has very strong vehicle quality rules. Cars have to be inspected after the first three years, then every two years, and every year after they are ten years old. The inspections are not cheap, running up to $2500. This means Japanese consumers like to get rid of old cars even though they still run well, to buy new cars. The Japanese government wants to encourage that because Mitsubishi, Nissan, Toyota and Suzuki are all Japanese.

Japan ends up with a lot of used cars and exports them very cheaply.

Japan drives on the left, so there are not too many markets they can sell second-hand cars to. NZ and Nauru – both countries without car manufacturing – snap them up.

But, unlike a bunch of other smart countries, Australia doesn’t permit the import of normal second-hand Japanese cars!

Now we are losing Ford, Holden and Toyota, we no longer need this consumer-hurting import limitation. It is time to take advantage of Japan’s crazy policy. 

For comparison. Here’s some options from the Australian website carsales.com.au that are indicative of price range for a 2007 Maxda CX-7

Screen Shot 2014-02-22 at 9.28.37 pm

Here are the results from japan-partner.com.

Screen Shot 2014-02-22 at 9.27.58 pm

Big savings. Thousands per car.  Shipping costs can be very reasonable, in the region of $2000.

As our car industry fades into nothingness, this can be our compensation.

The Productivity Commission’s recent report on the car industry recommended getting rid of the limits on importing Japanese cars, so it’s a possibility it could happen soon.

The only reason to act cool on the issue is that I bet DFAT would like it too as a handy bargaining chip.

The Japanese government would probably be delighted if we started bidding up the prices of this category of export. All those Japanese consumers would find their second hand cars were worth a bit more. Perhaps we could even use it to encourage them to cut out their “scientific” whaling program?

DETROITELAIDE?

Australia’s car industry is leaving the party. Ford has said its goodbyes, Holden hasn’t announced it as such but it has put on its jacket and is looking for its keys. Continue reading DETROITELAIDE?

Are SUVs making our streets safer?

That could be the conclusion you’d draw if you looked at the statistics for 2013. Continue reading Are SUVs making our streets safer?