The Cost of Filling your Car

In South Africa, as I guess the case around the world is, owning a car is a symbol that shows to the world that you have the ability to go where you want, when you want. This independence is much sought after by those without ‘wheels’, but for those already on the road, the urge is to always ‘upgrade’ to something that more matches your personality/ego. It is no wonder that buying or selling your car can be such an emotional event, with some people even naming their cars!

You may be asking why I’m bringing up emotional issues in an investment report? Well, put simply, investments (purchases) always involve emotions, and that the best way to optimise your investment (purchase) is often to reduce your emotional involvement! I put purchase in brackets as, unless you buy and sell cars for a living, buying a car is typically not an investment. The cost of running and maintaining a car, and the rate of depreciation, makes car ownership an expense purchase.

With petrol being one of the costs of running a car, its price can play a big role in your purchasing decision. When petrol is cheap petrol guzzlers don’t cost materially more to fill up than economical cars, but this equation changes as the price of petrol goes up. Taking a look at how the petrol price has moved relative to inflation over the past 10 years, we can see that it has comfortably outpaced inflation over this period (9.2% pa increase, vs 5.8% for inflation).

For a person whose salary has grown at the same rate as inflation, or even at inflation + 3% per annum, over the last decade, petrol has become a bigger slice of his salary. He has two choices here: either forgo expenditure in other areas of his life, or change his car for one that operates more economically. Over the last 12 months petrol has increased by 11.1%, around 7.5% ahead of inflation!

In the chart below we can see that the price of petrol (rolling 12 month price change) has been a lot more volatile than inflation over the past decade. The rand price of oil has, however, been the most volatile (by far) of the three. So while everyone complains at the volatility of the petrol price, they should take into account the volatility of the major input into petrol.

Current weather patterns (extremely cold northern hemisphere, and rainy southern hemisphere) are conducive to higher oil prices – at least in the short term – and coupled with a strong rand at the end of 2010, motorists shouldn’t expect 2011 to be an easy year on the pocket when filling up their cars.

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Take care,

Mike Browne
info@seedinvestments.co.za
www.seedinvestments.co.za
021 9144 966

Source: http://www.sasol.com/sasol_internet/frontend/navigation.jsp?navid=11600012&rootid=599999

Mon, 17 Jan 2011

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