Published on August 7th, 2020 |
by Steve Hanley
August 7th, 2020 by Steve Hanley
In a past life, I was a car salesman. Not an ordinary car salesman, mind you. You wouldn’t find me skulking around the lot, jumping out at people, and trying to browbeat them into buying a car today. No, no, no. I worked at a Saturn dealership where we endeavored to treat our customers as if they had actual brains and could make intelligent choices on their own, given the proper information.
One of things we stressed to our customers was the true cost of ownership — not just the monthly payment, but also how much they spent on gas, repairs, and maintenance while they owned their car. And then there was the matter of depreciation, which often takes more money out of people’s pockets than any other factor. That’s when their eyes started to glaze over.
They would scrutinize the window sticker with its detailed fuel economy information as if it might offer clues about how to decipher Egyptian hieroglyphics, but pointing out to them that the chariots sold at the dealership next door would be worth considerably less at trade in time made no impression on them at all. All they cared about was the monthly payment and the EPA numbers.
A study by researchers in Germany found that people can tell you almost exactly how much they spend for fuel each month, yet the vast majority greatly underestimate the total cost of owning and operating a conventional car. When they learn the truth, a significant proportion of them say that knowledge makes them more likely to use public transportation or possibly abandoning the idea of owning a private automobile altogether. In a study published in the journal Nature recently, the researchers say,
“Consumers decide whether to own a vehicle on the basis of considerations such as where they live and the vehicle’s upfront and lifetime costs. If they systematically underestimate total costs, this could increase car ownership and its associated emissions. It could also make alternative forms of transport — car sharing, alternative fuel vehicles, public transport, biking or walking, — seem less attractive.
“We surveyed more than 6,000 citizens across Germany to investigate whether consumers grasp the total cost of car ownership. We also performed a simple analysis to explore the potential implications of this awareness on the number of cars on the road.
“We find that people underestimate the total cost of owning a car by about 50%. We also found that providing personalized information on the costs of car ownership increased respondents’ willingness to pay for a public transport ticket by around 22%. We estimate that educating people in Germany about the true cost could reduce car ownership by up to 37% and cut associated transport emissions by 23%. We suggest labeling and communication policies that could help to speed the transition to cleaner transport.”
Computing Total Cost Of Car Ownership
Using data supplied by the German Automobile Club and other sources, the researchers calculated the actual monthly costs of car ownership, depreciation, fuel, taxes, insurance, and repair. They found that consumers underestimate the total cost of vehicle ownership by €221 (US$240) per month on average. “The misjudgement amounts to 52% of the actual costs, so the total cost is nearly twice what people think. Using only the respondents who provided an estimate for all cost factors, the underestimation is €161 on average, which is 35% of the actual costs. To our knowledge, this misjudgement has not been reported previously, and it can provide leverage points for designing new transport policies.”
They predict that if consumers were aware of the true cost of owning a car, the result would be 17.6 million fewer vehicles on Germany’s roads, leading to less pollution and cleaner air. They also suggest that demand for bus and rail travel would increase by 8% and 12% respectively. Now here’s the big thing. The researchers predict that educating the public about the true cost of ownership would increase sales of electric cars by 73%. The researchers recommend the following steps to help reduce the knowledge gap.
- Cars should be labelled with total costs at the point of sale and in registration letters.
- Companies that promote alternative forms of transport with lower emissions — such as electric-vehicle dealers, car-sharing or public-transport firms — could boost business by including information on the cost of car ownership in their advertising.
They claim following their recommendations would be far less expensive than other alternatives like raising fuel taxes and increasing subsidies for public transportation.
“We calculate that fuel prices would need to rise by a massive 1,242% to cut car ownership by the same 37% reduction that we predict as a result of improved consumer information. This is because fuel price changes largely target driving itself, rather than the decision of whether to buy a vehicle. We find that eliminating public transport fares entirely would decrease car use by only 4.1–6.2%, and could have an even smaller impact on car ownership.
“We believe that policies on labeling and information would be less costly and less politically fraught than would many other options. The primary resistance to such a policy might come from conventional car dealers and manufacturers who would be reluctant to see sales fall. But information provision is likely to get strong public support from consumer-protection agencies, for example, which could offset such lobbying. Furthermore, providing ownership cost information could be implemented by revising existing fuel labels, which would reduce institutional obstacles.”
The focus on gasoline prices and fuel economy has been part of the automotive experience for generations. It’s easy to see how much we pay at the pump, but not so easy to see depreciation lowering the value of our car as it sits in the driveway. Information is power, but first the information has to be readily available.
Many headlines report that electric cars are still too expensive compared to conventional cars, but if depreciation is taken into account, the equation changes dramatically. Prices for preowned Teslas, for instance, are often very close to original MSRP, which can go a long way toward making a Tesla an affordable option, especially when the average driver is underestimating the cost of owning a conventional car by $240 a month.
At CleanTechnica, we like to report on the true cost of ownership of vehicles. Please be sure to share this information with your family and friends. It’s time to explode the myth that the only important metric when considering a new car is the monthly payment and the price of a gallon of gasoline.
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