Annual supercar ownership cost = 10% of price?

[px1980]

Sold my 718 Cayman as it wasn’t used enough, and didn’t feel special enough to make me want to be up at 6 on Sunday for a drive. I’m now considering a supercar (and renting Caterhams or similar for trackdays). Most likely in £150-250k range, shortlist includes 812, F8, 488, Huracan Performante.

I look at numbers and am I getting it right?

Annual depreciation: around 5%. I know past 2-3 years have been crazy for car prices but surely in the long term, things will be back to normal. Especially with recession potentially on the horizon

Dealer spread:10%, assume I’d keep the car for 3 years, that’s around 3% per year

Insurance: 1% minimum? I paid £1500 with Admiral for my £80k Cayman so surely a £240k Ferrari won’t be less than £2400? (London postcodes are expensive for premiums + only 3 years NCB)

So that’s 5% + 3% + 1% = 9%, plus road tax, detailing(?), service, consumables… 10-12% per year? £24-29k on a £240,000 812, for example?

Am I getting it right? I want to confirm the numbers as the alternative is a supercar club, for £20k I’d get 4-5 weekends per year which realistically is probably enough.

For older cars the numbers possibly work out differently but I’m considering a 2-5 year old £150-250k car.

[andrew]

lamborghini superleggera 2007 ( new ) to date with 62k miles :
servicing and other stuff done at service time : £3600 pa
tyres and other stuff done between services £1200 pa
tax £600 pa
insurance £300 pa
petrol at 13mpg
depreciation at £50k ??? / 16 years

[px1980]

Dealer spread of 10% (difference between what they sell for and what they’ll pay for your car) amortised over 3 years is a decent chunk of my calculation, you kept yours for 15 years so that expense doesn’t apply, but otherwise the numbers roughly confirm what I worked out? And I didn’t include petrol or consumables. Or repairs / extended warranty beyond the first 3 (?) years.

[andrew]

the above is literally everything ( including speeding certificates ), but for a share of the detailing costs ( which i forgot about )

lamborghini were unable to offer a warranty extension, but tbh little to nothing of the above would be covered by one

[Yex GTR]

With a Ferrari there does appear to be a "cliff" they fall off value wise when a certain mileage level has been reached. Several friends have owned them over the years and anything above 2-3,000 miles per year appears to be regarded as well used so if you are planning on adding significant miles to a new toy the depreciation could be higher than your calculation and possible lead to difficulty selling further down the line.

I don't really get this with "Supercars" as surely you want to drive them and enjoy them whenever you can or what is the point of ownership ?

[andrew]

Yex GTR said:

With a Ferrari there does appear to be a "cliff" they fall off value wise when a certain mileage level has been reached. Several friends have owned them over the years and anything above 2-3,000 miles per year appears to be regarded as well used so if you are planning on adding significant miles to a new toy the depreciation could be higher than your calculation and possible lead to difficulty selling further down the line.

I don't really get this with "Supercars" as surely you want to drive them and enjoy them whenever you can or what is the point of ownership ?

certain large dealer groups have buying policies on maximum total mileage too

[Nuttbelle]

Never thought of it in % terms as i prefer to deal in pound notes.
Don't think your assumptions are massively wrong other than both dealer spread and depreciation are bigger than what you have quoted.

Dealers are selling less cars so need to pull bigger margins from those they do. I know from recent experience it was closer to 20%.
One trade bid was 30% and £70k below retail .
I did threaten to phone the police for attempted robbery.

If u double your depreciation and dealer spread you will know worse case scenario but won't be cheap

[PinkHouse]

Nuttbelle said:

Never thought of it in % terms as i prefer to deal in pound notes.
Don't think your assumptions are massively wrong other than both dealer spread and depreciation are bigger than what you have quoted.

Dealers are selling less cars so need to pull bigger margins from those they do. I know from recent experience it was closer to 20%.
One trade bid was 30% and £70k below retail .
I did threaten to phone the police for attempted robbery.

If u double your depreciation and dealer spread you will know worse case scenario but won't be cheap

What car was this with the -£70k dealer bid?

[Numpty with honours]

My formula is this

Take the value of the car - If it has strong demand it will depreciate by around 12.5% to 15% per annum

Take that value of the car and apply 6% - this will be the loss of investment income you might achieve if you bought for cash or if you borrower the money

Insurance is generally not mind-blowing - insurers know that owners take care in their cars and this pleases insurers - ie running parallel with their demands - it's cheap high performance cars that our the big worry for insurers

Maintenance - 5% of the value of the car

Fuel - 6 k miles at 20 mpg = £2,000

I have a 2017 Honda NSX which I paid around £110k some 4 years ago

So

Depcn £110k X 15% = 16,500 - despite what the adverts say - the truth is my 2017 Honda NSX is worth around £65K i(with 33k miles) if I want to sell it - so my depcn calculation is about right

Interest on my capital tied up or borrowed £110k @ 6% = 6,600

Insurance £1,000

Maintenance = £110k @ 5% = £5,500

Fuel - 8000 miles at 25MPG @ £1.5 per litre = £2,000

Total cost = £31,600 = 29%

If I apply that to my other cars, it's about the same

[pmn3]

Numpty with honours said:

Total cost = £31,600 = 29%

That‘s a mind blowing figure don‘t you think?
My calculation is slightly different (e.g. lower depreciation, but higher insurance - I‘m in London) but 20-25% is about right, including the loss of 6% investment income.

On a £150-200k car this will be £30-50k.

And while I could in theory afford it, I always ask myself the question - am I getting 30 or 40 grand worth of fun out of it?

[Numpty with honours]

Many don’t see a cost in having equity in their car - you could use it so pay down your mortgage or invest it so it has to be part of the cost of ownership when the asset is a purely discretionary expenditure

The explosion in interest rates make the figures very sobering - not only the cost of interest as I have outlined but depreciation will be higher because people will be exiting the market and a £150k car is not essential when the tide starts to go out ( to paraphrase that wonderful quote from Warren Buffet - when the tide goes out we find out who has been swimming naked)

[Numpty with honours]

Many don’t see a cost in having equity in their car - you could use it so pay down your mortgage or invest it so it has to be part of the cost of ownership when the asset is a purely discretionary expenditure

The explosion in interest rates make the figures very sobering - not only the cost of interest as I have outlined but depreciation will be higher because people will be exiting the market and a £150k car is not essential when the tide starts to go out ( to paraphrase that wonderful quote from Warren Buffet - when the tide goes out we find out who has been swimming naked)

[Tagteam]

At the end of the day - borrowing at high interest rates to buy a depreciating asset isnt a good decision . Cheap funding and asset increases has made it a bit of a one way bet - which has now gone the other way.

[dng992]

Numpty with honours said:

Many don’t see a cost in having equity in their car - you could use it so pay down your mortgage or invest it so it has to be part of the cost of ownership when the asset is a purely discretionary expenditure

The explosion in interest rates make the figures very sobering - not only the cost of interest as I have outlined but depreciation will be higher because people will be exiting the market and a £150k car is not essential when the tide starts to go out ( to paraphrase that wonderful quote from Warren Buffet - when the tide goes out we find out who has been swimming naked)

Thats definitely a valid point about the opportunity cost of cash purchasing a car. But it also comes down to each indvidial situation e.g. outgoings/debt levels

The belief that you simply should finance even if you do have the cash has become so entrenched in Supercar mentality. The issue is you then finance a very new car which has lots of depreciation still + currently very high interest payments...even if you somehow consistently earn 12%+ returns (average car buyer is doing man maths, let alone generating hedge fund type consistent returns) in the market, right now you are probably down. Thats also not factoring in intangible aspects like having to actively manage your cash lumpsum to generate returns and having the pressure of the debt burden every month + another outflow in your lifestyle to think about (amidst holidays/family/house/social expenditure)

[rawenghey]

dng992 said:

Thats definitely a valid point about the opportunity cost of cash purchasing a car. But it also comes down to each indvidial situation e.g. outgoings/debt levels

The belief that you simply should finance even if you do have the cash has become so entrenched in Supercar mentality. The issue is you then finance a very new car which has lots of depreciation still + currently very high interest payments...even if you somehow consistently earn 12%+ returns (average car buyer is doing man maths, let alone generating hedge fund type consistent returns) in the market, right now you are probably down. Thats also not factoring in intangible aspects like having to actively manage your cash lumpsum to generate returns and having the pressure of the debt burden every month + another outflow in your lifestyle to think about (amidst holidays/family/house/social expenditure)

All day long.

The situations in which it's cheaper to take out credit or leave credit rolling, because you can match or beat the finance cost elsewhere are very, very rare.

I recently ran the numbers on a loan I still had open at 3.9% and calculated that, given my personal situation, I'd need consistent returns of about 8% just to break even. Finance on these motors is usually a hell of a lot higher than 3.9%.

Obviously, people blowing tons of money on a discretionary purchase is their prerogative. The cars will often provide memories that money can't buy. It's just the flagrant denial wrapped up as legitimate finance advice that is hard to swallow.

Edited by rawenghey on Thursday 24th August 10:57

[ex-devonpaul]

rawenghey said:

I recently ran the numbers on a loan I still had open at 3.9% and calculated that, given my personal situation, I'd need consistent returns of about 8% just to break even. Finance on these motors is usually a hell of a lot higher than 3.9%.

The above makes sense. Not only is there the finance costs to cover, but also tax. Your takehome return needs to cover the finance, not easy he last few years. The days of 10%+ returns from a tracker seem over, and as managed funds nearly always underperform trackers long term then you need to be lucky.

But going back to the OP, they make no mention at all of financing the car. Presumably that is taken care of and factored in, maybe they have the cash ready.

All the Man Maths, assumptions on cost, depreciation, dealer spread, etc etc are just exercises to convince yourself you can justify it. Apart from VED, service, and Insurance, everything else is a guess. Depreciation is going to be a biggie, who knows where the economy will go. And the shorter term you own these things, the larger the frictional costs become.

The thing you need to ask yourself is "If this car costs me £100k+ in 2-3 years, will it spoil it?". If the answer is "yes", then you shouldn't buy it.

Not because you can't afford it, but because the enjoyment of ownership reduces with the concern of cost. If you can buy it, drive it, and not look at the Classifieds or think about residuals then go ahead, but if you're mentally ringfencing £25k or whatever pa them you're probably better off joining a Club.

You're 43(?), plenty of time for a mid life crisis, would waiting 2 years and having an extra £50k in the bank make the maths easier?

[Bispal]

If you buy a car and aim to keep long term then depreciation is less of a factor. And the longer you keep it the less it is. It becomes an issue when owners change cars so often, lots of depreciation, dealer spread etc. Keep long term, 10 years + and financial impacts are substantially reduced.

The main costs ATM are warranty, £3 - £5k pa, and, in London, insurance. Its sky rocketed in past months. £5K PA is average London quote. I have many friends had to take cars out of London and put into storage as can't even get insurance. Servicing is not not too bad at £1k - £1.5k pa.

Depreciation very much depends on the car, i had one lose £10k in 3 years / 15k miles, and another appreciated £40k in same time & miles. My F355 was the most expensive car I owned in terms of depreciation and running costs.

Dealer spread seems to be £20k or you can SoR at a reputable dealer for £6k.

As people have mentioned above the claim you can make money by buying on credit and investing the capital does not work. Best bonds are 6% and you will pay 40% tax, so 3.5% actual. Car loans around 8% best so you're losing 4.5% pa by borrowing.

Pick carefully, 675LT / 600LT, at bottom of curve, and depreciation should be minimal, if kept long term. Use specialists to service and biggest cost will be insurance and warranty (if you take one)

Edited by Bispal on Friday 15th September 08:28

[WCZ]

Bispal said:

If you buy a car and aim to keep long term then depreciation is less of a factor. And the longer you keep it the less it is. It becomes an issue when owners change cars so often, lots of depreciation, dealer spread etc. Keep long term, 10 years + and financial impacts are substantially reduced.

The main costs ATM are warranty, £3 - £5k pa, and, in London, insurance. Its sky rocketed in past months. £5K PA is average London quote. I have many friends had to take cars out of London and put into storage as can't even get insurance. Servicing is not not too bad at £1k - £1.5k pa.

Depreciation very much depends on the car, i had one lose £10k in 3 years / 15k miles, and another appreciated £40k in same time & miles. My F355 was the most expensive car I owned in terms of depreciation and running costs.

Dealer spread seems to be £20k or you can SoR at a reputable dealer for £6k.

As people have mentioned above the claim you can make money by buying on credit and investing the capital does not work. Best bonds are 6% and you will pay 40% tax, so 3.5% actual. Car loans around 8% best so you're losing 4.5% pa by borrowing.

Pick carefully, 675LT / 600LT, at bottom of curve, and depreciation should be minimal, if kept long term. Use specialists to service and biggest cost will be insurance and warranty (if you take one)

Edited by Bispal on Friday 15th September 08:28

yeah it's got crazy in london, I know a few ppl in central london selling because of fear of theft + insurance costs

[Chad_Hugo]

There's a lot you can do to make the equatio work in your favour.

Firstly, pick a somewhat older car e.g. 458, earlier Huracan, one of the Mclarens mentioned, not something like an 812SF or F8.

Little to no meaningful depreciation to come, less mileague sensitive too, so a big potential upside. Obviously cheaper to buy too, so you borrow less and therefore pay a lot less in interest. If your coming ou of a Cayman any of the choices above will feel like a trully massive step up, you don't IMHO need to go all out and get something like a 812.

Compared to something like an 812SF at say 240K, that will be hugely mileague sensitive so if you want to do some decent miles in it, espect to lose a lot on a car in that price bracket which is newer, and has a lot less miles on it.

Also, a 458 or Huracan at similar money you can potentially sell privately, meaning the dealer spread issue disappears as you can sell the car to it's next owner eliminating the dealer margin. Or try SOR with a trusted dealer you have a relationship with, again you will save a massive amount of money if you can wait for it to sell before getting paid.

[Calculator]

Excellent points