Friday, January 29, 2010

Why buying expensive cars doesn't make economical sense

When you were making a decision in the 60ies or 70ies whether to buy a Mercedes versus a Skoda, or a Seat versus a Volkswagen, you were facing very different cars with a huge gap between them in terms of engineering, features and quality. Today this is quite different! If you want for example to buy a station wagon and have to decide between a Volkswagen Golf Variant, an Audi A3/A4 Avant/Sportsback, a Skoda Octavia or a Seat Exoto ST then you will see that actually a lot of the components (engine, transmission, suspensions, navigation system, etc.) are shared between some of these cars, thanks to the Volkswagen platform strategy. Not even the quality is too different, actually all these cars are on a high standard. But still, there's a huge price difference between the cheapest and the most expensive car of these four. When you do the same thing between a Mercedes E series T model and a Skoda Superb Combi then it gets even worse. Price differences today are not justified by technology differences anymore, but rather by marketing and branding, a bit of design and maybe the availability of (expensive) innovative features. But from an economical point of view, even the cheapest car in the comparison can fulfill all the needs. And it gets worse! Maintenance, spare parts and insurance get more expensive the more expensive the car is. If you have ever compared spare parts prices then you have seen that adding a prancing horse (Ferrari brand) on a spare part box can increase the price by factors. Same with repair and services shops' hourly rates. The more expensive the car the more expensive the mechanic. And the insurance premiums are of course driven by car value too. So, if you are adding the numbers, you will buy the cheapest car doing what you want to have, assuming quality and durability is comparable. But that doesn't mean you are happy, as you always wanted to have the Audi, not the Skoda. Yes, dear marketing guys, you have been doing a good job in making us believe that "expensive" means better and more exclusive ....