Your car: a great little earner

Recently I decided to buy a new car. It was financed from assets held in a rollover fund which I believe was an asset transfer rather than expenditure. What a joke! Everyone knows that cars are dreadful investments don't they?

But I started to think about the cost and benefits of car ownership. A few weeks earlier I had been discussing the concept of imputed rent from owner occupied dwellings. That is the revenue an owner occupier earns from their house. It is based on how much rent you would pay if someone else owned the dwelling.

It is not some nebulous concept, an aggregation of it is included in the National Accounts and proposals to tax it are made at from time to time.

Could the same be done for car ownership?

The alternative to trips made by private vehicle is to use public transport of one form or another (buses, trains, aeroplanes or taxis) or other forms of transport such as walking, cycling, roller boarding or scooting. The latter group are almost free but the former are not.

Given that the alternative to most of my car trips is fee for service public transport I decided to impute the income provided by my car over a two year period. Against this I totalled up all the costs incurred of owning the vehicle.

In late May 1999 I bought a Peugeot 306 1.8 litre car for $17,500. About two years and 20,000 kilometres later I sold it for $10,000.

A total cost of $15,957.00 over two years of which $3,473.75 ( 21.8 per cent) are fixed costs that would have to paid even if it never left the garage.

Looking at my travel over the two years I was able to break it down into three major groups:

• commuting, trips two and from work for which the alternative was ACTION (ACT Bus service);

• interstate trips, the alternative being air travel; and

• point to point trips, for which the alternative is the taxi service.

On this basis the imputed income provided by the vehicle is estimated in the table below.

Imputed income
Item	Amount $	Comment
Commuting	1,197.90	Based on using the car for commuting an average of 2.5 day a week, 22kms a day at a cost of 36.3c a kilometre(ACTION fare $8.00). A total of 3,300k
Interstate trips	800.00	Based on Air fares for two to Adelaide From Canberra (2,500k)
Other trips	20,934.55	Canberra Cabs charge structure is: $3.20 Flagfall, $1.30 per Kilometre, Radio charge 65c. The figure was estimated using certain assumptions about the number of trips for which a Flagfall and radio charge would be incurred. The figure also includes costs of phoning taxis. Total distance involved was 14,200k
Total	22,932.45

Much to my surprise the imputed revenue stream ($22,932.42) was much higher than the costs. My car was apparently highly profitable. A rate of return of 43.7 per cent over the two years, or 21.9 per cent a year.

There are no shares or property investments that can match that. If there are any they are likely to be shonky.

If the figures seems unbelievable consider this. The NRMA technical advice section claims that it costs 37.5c per Kilometre to run a 4 cylinder car, thus 20,000k should cost $7,500, a much lower figure than mine. Alternatively, you could base the imputed income figure on how much it would cost to hire a car. Budget Rent-a-Car told me that the cheapest rental for long term hire is $53.90 a day. Over two years or 731 days that would amount to $39,400. A much higher figure than my estimates based on public transport fares.

Consequently, changing the parameters leads to a higher rate of return. The only way the rate of return could be used would be not to use the car at all or to substitute paid for unpaid transport such as walking or cycling. However, given the distances and times involved these are unlikely substitutes.

The only missing factor is the externalities involved. These include public works such as bridges roads etc that are funded out of revenues not related vehicle taxation, the costs of air pollution and accidents involving death and trauma. Although public transport also requires extensive infrastructure and can also add to environmental problems.

So what is the meaning of this?

It explains why the private car is so universally popular not only in Australia but in countries (mostly in Europe) where the vehicle tax regime is much more severe. Is has been said that cars are status, sex symbols or both and that they burden people with huge expense. But if my calculations are valid then cars are bought for the substantial and highly valued services that will accrue.

Ppolicies that are meant to mitigate the impact of private cars may need to be re-assessed. Taxes and charges could be increased. The proposed carbon tax may have an impact. But on the basis of the above figures they would need to be increased significantly before there would be any appreciable impact. Such taxes would make private motoring the preserve of the wealthy and privileged few, hardly an equitable outcome.

It may be more useful and equitable to introduce incentives that encourage low emission vehicles. These could include reductions in rego for low emision vehicles.

Terry Giesecke B Ec (Hons)