Oh, I have a feeling some of you are not going to like me this week. But I take it. Writing in the journal comes with privileges. Not getting yelled at once in a while is not one of them.
You won’t like me because I’m going to talk about your vehicle. Yes, yes, the very one that is stored in the driveway, in the garage or on the public road, and which impoverishes you 24 hours a day, 7 days a week, 52 weeks a year.
In fact, I am taking advantage of the door opened last week by Pierre Fitzgibbon, the Minister of Economy, Innovation and Energy, according to whom we will have to halve the number of vehicles in Quebec to stop adding CO2 to the atmosphere by 2050.
The number of vehicles has been growing much faster than the population in Quebec for 20 years, noted the minister. In addition to causing pollution, our transportation habits cost us excessively, and this money could be used to enrich us.
Many citizens say they are being “thrown by the throat” since the interest rate hike. I do not deny that this is true. But, in at least some of the cases, if we take a step back, we discover that the hands that are clutching their throat so forcefully are their own hands.
In North America, one of the culprits is our choice of transportation mode.
I have long struggled to put my finger on a rule to follow when choosing a vehicle. This purchase is clearly a financial black hole. Every 4,000 pound metal box I’ve owned has given me great insight into the wealth destruction these machines can accomplish.
Insurance, depreciation, new tires, new brakes, gas, oil changes, scratches of all kinds, not to mention parking, registration fees, statements of offence…
I’ve struggled for a long time to find a good rule, but I recently came across an old rule that has saved thousands of people collectively millions of dollars, a rule that I’ve followed in my life without m notice it.
First, what I like about this rule is that it takes into account the chemical composition of the human brain. For example, the euphoria effect of owning a new vehicle has been known to wear off after about six months. After this period, our dopamine levels stop climbing when we sit behind the wheel of our machine. Our vehicle is no longer a white horse, a spaceship of the future, the ingenuity of the world made object. It becomes in our eyes what it has never ceased to be in the eyes of others: one more vehicle in a province that already has 5,200,000.
Buying a new vehicle is therefore a trap that makes thousands of dollars disappear in depreciation for a bit of hard leather, and not much else. It is for this reason that American millionaires generally do not drive new vehicles and prefer Toyotas and Hondas to prestige brands1.
So what is it?
The famous rule says that you cannot spend more than 10% of your gross annual household income on the purchase of a vehicle. The goal is to keep it for a minimum of 5 years, ideally 10 years.
Clearly, a couple earning the Quebec average of $81,000 per year should not spend more than $8,100 on the purchase of a vehicle.
The good news is that the price of used vehicles has fallen significantly since the peaks of the past few years. Kijiji and Marketplace are overflowing with small and large vehicles in good condition that sell for around $8,100. There are currently more than 7000 in Quebec on Kijiji, including a 2012 Honda Civic, a 2009 Subaru Impreza and a 2012 Nissan Leaf.
That’s for the average household. If your household earns the princely sum of $150,000 a year, you can spoil yourself and spend $15,000 on your next vehicle. Nearly 14,000 vehicles are offered at this price or less on Kijiji in Quebec.
For $15,000, you can get a safe bet like a 2018 Toyota Corolla or a 2017 Honda CRV, a 2015 Ford F-150 pickup truck, or a luxury 2014 Audi SUV.
The latter are mostly in debt and bad with money – the average car loan in Canada had a balance of over $26,000 in the first quarter of 2023. So that will skew our comparison.
It is fairer to compare with the lives of our parents, our grandparents and our great-grandparents. I don’t think I’m wrong in saying that 99% of the 10,000 generations that preceded us on this Earth would lose consciousness if they could come back to life and drive around in a 2018 Toyota Corolla. Just turn on the air conditioning and power windows would make us quasi-gods in the eyes of anyone who lived their life before 1950, including the wealthiest and most powerful people in society.
What if you earn less than $25,000 a year? According to this rule, you cannot buy a safe motor vehicle. Among your options, you have carpooling, cycling, electric bike, scooter, public transport, or a mixture of all these modes of transport.
Note that this rule is for enrichment, which is another way of saying security, freedom, independence, and stress relief. If this doesn’t interest you, or if your house is paid off and you have 3 or 4 million in financial assets, feel free to ignore it.
In fact, I own shares of several automakers in my index funds. I am part owner of Volkswagen, Mercedes, Toyota and Tesla, to name a few.
And I’d love to have you as a client. Our financing rates are unbeatable.
