* Car-buying advice from someone who knows nothing about cars*
After over 10 years of blissful reliance on public transportation, it was time to grow up and we finally bought a car! His name is Delfin.
On a scale 1 to 10, where 10 is the maximum knowledge about cars, I’d put myself at 1.5. My husband is solid 10, so we make a decent average.
However, with the knowledge of cognitive biases what human brain is susceptible to, i knew what a process of selecting a car should look like:
- Acknowledge and then totally disregard your emotions on the subject of buying a car. Emotionally it doesn’t matter what car you have – on that later in this article
- Figure out what are must haves for the car – for us, it was three things: (i) ACC – Adaptive Cruise Control (if a car stops suddenly in front of your, our car will stop by itself), and (ii) it had to be hybrid (after so many years of not having a car i was not quite ready to go full-pollution route), (iii) pass all the safety standards
- Select a car that makes most financial sense for your selected time period out of available choices that satisfy #2
For example, our time period is 3 years. In 3 year time we would likely get a full electric car, as we will hopefully live in a place where there is a charging outlet in a garage.. Buying an electric car right now would be too much pain, as we’d have to find random places to charge it up.
First, the financial part..
How do you know whats makes most financial sense? Easy. Take the cost today, estimate the car’s cost at which you will be able to sell it at the end of your desired time period (for us 3 years). Divide by 36 months in our case. This is how much we are paying per month for the privilege of driving our car.
Of course the killer here is depreciation, and it works roughly as following:
| Depreciation timeline | discount |
| Right after putting your butt in the drivers seat | -10% |
| in 3 years | -40% to -50% |
| in 5 years | -60% |
So, the most obvious solution would be to buy a car after someone owned it for 5 min, and wanted to sell. Unfortunately, there were no such cars on the market with ACC and being hybrid. In fact, since this ACC is a fairly new feature, there were practically no used cars in the market with it. We had to buy it new.
However, here in Europe, we have a bit different situation than in the US, as Europe is making a big push towards clean cars, and little by little restricts the use of gasoline-run cars in the cities. So in our case, as hybrids will be in crazy demand 3 years from now, we hope that we will be able to sell our car at almost 70% of its cost after 3 years!
Which means that we would loose 10k-12k of the car’s value in 3 years.
All in all, per month the use of our car would cost us 300 EUR, which is very decent in European standards (cars here are way more expensive than in the US).
And now why it doesn’t really matter which car you buy
People make rational choices based on their self-interest
Classic economics theory, Adam Smith
Humans make decisions and act in ways that are anything but rational.
real life
A notion of cognitive biases, introduced by psychologists Daniel Kahneman and Amos Tversky in 1972, stipulates that the humans regularly mess up in their judgement thanks to the tricks of their own minds – aka biases
Ever wondered why the prices are always something.99 ? or why employers hire people who are like them?
There literally dozens of these biases, that once you study them, you’d be humbled by realization that you yourself decide very little in this life, rather letting that black box brain of yours to construct memories, do the reasoning and decision-making based on some screwed-up rules
As you can imagine, there are tons of biases that companies and sales people use on you to coerce you to buy their particular car – from the “herd behavior” effect, which makes us want to buy a car that the class of people we aspire to belong to buys, to “current moment bias”, which makes us pay crazy money for that BMW lease thinking that spending today is more important than saving for future.
However, there is one bias which is actually working in our favor once you turn off emotions and turn on calculator. Its called:
The ownership bias
People place additional value on items they already own.
In 1991, a bunch of students were divided into two groups: the first group was given coffee mugs and the second group was given nothing. When the first group of students were asked what they would charge to sell their mugs, they gave a higher price than the second group who were asked how much they would pay to buy the same mug.
So, the beauty of the Ownership bias, is that you are going to like your car – doesn’t matter which car! you are going to like it, just because it’s yours.
Finally, a premium for show-off
People love luxury goods. there is little sense of paying extra just for a brand name, but we all do that – we pay extra money to show off. Our car buying experience, actually illustrated for me the cost of the show off.
As you remember, we wanted a car that would be (i) hybrid, (ii) have ACC, (iii) pass strict safety standards
After months (!) of extensive research, my husband selected a trio of contenders, which funny enough were absolutely the same – same engine, same features, same look (they do belong to the same company and the engines are manufactured on a same factory)- the only difference were in logos and the prices.
So, what gives?
we bought a Volkswagen. even though absolutely same Seat was 5k cheaper, my husband calculated that the price depreciation of VW will be less than the Seat’s one – just because its German, and oh the Spanish, they assign a premium to anything-German.
but this example shows that the “premium” car being Audi, is 40% more expensive than equal Seat, or 20% more expensive than equal VW. So, in this example, 7k difference for Audi is a price to show-off. Is it worth it? definitely not for myself and my dear readers, who are hopefully reading this blog to get rich and happy!
Our Delfinchik – welcome to the world!
