09 May 2015

The Cost Of Motoring

Recently FCA (Fiat Chrysler) CEO Sergio Marchionne criticised the auto industry for being too fragmented, making it less efficient than it should be. He said it was risky not to cooperate more as costs increase. The industry is spending a lot on getting CO2 emissions down and looking at alternative fuel options. Add to that the new technologies making cars ever more complex and prices simply cannot come down. Margins in the mainstream sector are paper thin as it is.

He is right and I have commented here before about it. So much cost is wasted by duplicated R&D, costs that could be shared better. It's an expense that someone has to wear, either the car maker or the consumer. However there are moves in the right direction but not enough for Sergio. I think he is impatient with the progress FCA is making and wants to work with others more than they do with his company. This is slowing him down.

Now on to the cost to the consumer. Cars are too expensive. It's not just the outlay, nor fuel, servicing, insurance or registration. The big killer is depreciation. If they cost less to buy, then that would lessen depreciation as reduce costly monthly payments if using finance.

So with ever greater economies of scale why are prices not lower? Beyond what has been mentioned, most cars are simply more than most motorists need. If I bought a new car tomorrow it would have far more features than I want. That applies to a wristwatch, cellphone or computer too. The difference with a car is instead of costing me tens of dollars more, it adds up to hundreds or - more likely - thousands.

Consumers wear the high cost of car ownership so they get what they deserve. I personally resent giving up so much hard earned money to pour down the new car sink hole. If more people held off buying and made their over-engineered and over equipped vehicle last longer, or even gave up car ownership for public transport, then maybe the industry would have to rethink how it operates. I just can't see that happening.

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