Be honest with yourself when it comes to working out the costs of your motoring

I’VE SPENT THE guts of 25 years in and around the Irish motor industry, and if there’s one question I get asked more than any other at family gatherings, it’s some version of “what should I buy?”

What I almost never get asked, oddly, is “what will it actually cost me?”

That’s a pity, because a report out this week suggests most of us haven’t a clue, and the gap between what we think our cars cost and what they actually cost is bigger than most people would be comfortable admitting to their bank manager.

The research comes from the ESRI, funded by the Department of Transport. They took a nationally representative sample of more than 800 drivers, asked them to estimate their annual motoring costs, then walked each person through a full breakdown of what actually goes into keeping a car on the road.

Seven in ten underestimated, and not by a little. The median guess was around €2,000 a year. The real figure came in closer to €3,000, roughly 50 per cent higher than expected, and that’s before you’ve even paid for the car or watched it lose value on the drive.

Fuel was the single biggest reported expense at a median €1,560 a year, which tracks, since it’s the cost we all notice every time we’re standing at a pump watching the numbers climb.

We didn’t just take the ESRI’s word for it. At DoneDeal Cars we ran our own rough sums too, working from typical 2021 model year cars, the sort of ordinary secondhand cars people are actually buying right now rather than theoretical averages, and using the same real-world annual mileage the CSO uses.

By our estimates, a diesel family car comes in north of €7,000 a year to run once you add tax, insurance, servicing, depreciation and fuel together. A comparable petrol car isn’t far behind. A hybrid comes in noticeably lower, and an electric equivalent lower again, by a margin somewhere in the region of €1,500 to €2,000 a year against the diesel.

Parking and tolls alone, something almost nobody budgets for, added up to more than we expected too. The headline holds up either way: fuel type still matters enormously once you add everything up, not just at the pump.

Financial planning 

Recently on my own Driver’s Republic podcast, we spoke to Paddy Delaney, who runs the Informed Decisions podcast and spends his working life doing financial planning for people heading toward retirement. He made a point that I think belongs in the same conversation as the ESRI’s, because it goes after the bit of motoring cost that fuel receipts and insurance renewals don’t capture at all: depreciation.

Delaney’s argument is that cars, however much we love them, are depreciating assets, and that cost is one “people don’t recognise or appreciate or calculate enough.”

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He walked through an example of a fairly typical PCP deal on a €50,000 car: a €15,000 deposit, roughly €400 a month for three years, and a balloon payment of around €25,000 if you want to actually own it at the end. Add that up and you’ve paid in the region of €55,000 over three years for a car that, by the time the deal ends, might be worth somewhere near that €25,000 figure.

Do the sums and the depreciation and interest combined work out at close to €10,000 a year, “no matter what way you spin it,” as he put it. For anyone on a higher tax bracket, he reckons that’s the equivalent of roughly two months’ gross wages, just to cover what the car has quietly lost in value while it sat on the drive.

He’s not anti-PCP, to be fair, and he’s upfront that if you know the number and you’re happy to pay it, more power to you. His issue is with people who don’t do that sum before they sit down at a dealership desk, where, in his words, “we’ll smell the cookies in the oven and we just want the cookies,” and the financial reality gets pushed to the side while the emotion of the new car takes over.

He’s also got form for a good line on this: he once compared PCP to “a very popular recreational hallucinogenic for many years also by the name of Angel Dust,” which is a fairly memorable way of saying that low monthly payments can make you feel like you’re getting more car than you’re actually paying for.

Emerging pattern

Put the ESRI’s numbers, our own DoneDeal figures and Delaney’s depreciation math side by side, and a pattern emerges. It isn’t just that we underestimate fuel or insurance, though we clearly do. It’s that the biggest single cost of owning a car, the bit where the value quietly drains out of it every month, is the one nobody puts a number on until they’re forced to.

Whether that’s the ESRI pointing out that seven in ten of us guessed wrong, our own figures showing a near €2,000 annual gap between the cheapest and dearest car to run, or Delaney’s point that a flashy three-year-old PCP car can cost more in depreciation alone than most people’s annual grocery bill, the message is the same: know your numbers before you sign anything, whether that’s a finance agreement or just a fill-up.

I’ll admit to being a bit smug reading through all three, because after 25 years of reviewing cars and running my own, I do keep a rough tally of what mine costs me. But even I hadn’t put a figure on parking and tolls until this week, and I’ll confess I’ve never once sat down and worked out what my own car has lost in value since I bought it.

None of it feels like much in the moment. All of it adds up to a genuinely large sum by December, whether it’s dribbling out of your wallet at the pump or quietly disappearing off the car’s value while it sits in the drive.

So the takeaway, beyond a mild sense of unease, is this: before you next change the car, do the full sum rather than going on gut feel about the monthly repayment or the fuel figures alone. Compare tax, insurance, servicing and depreciation too, not just what’s on the finance leaflet.

None of us are going to stop needing cars any time soon, certainly not in a country this thin on public transport outside the cities. But knowing what something actually costs you, rather than what you’d like it to cost you, is the first step to making a sensible decision about it.

Turns out, for once, I was one of the lucky ones who wasn’t kidding himself.

I wouldn’t bet on that being true for most people reading this.

Paddy Comyn is the head of automotive content and communications with DoneDeal Cars. He has been involved in the Irish motor industry for more than 25 years.