The luxury car is one of the most hotly debated items in the financial community. There is a good reason for that discussion, since having more car than money is a sure-fire way to destroy your finances.
As a financial planner, it hurts me to see clients that have so much of their monthly income tied up in a depreciating asset like a car. I also see people who try too hard to project a certain image with their vehicle. I have a humorous story from my past that highlights that situation.
The Motor City
Being a product of the Motor City, cars are woven deep into the economic climate I grew up in. The majority of people in the Detroit area make their living in the automobile industry. Even if they do not work directly for a manufacturer or a supplier, the financial health of the auto companies drives the economy in the State of Michigan.
Having grown up in an area that relies on car sales and high profit in the automotive sector, what you drive is really important in our area. The other thing we deal with here in Southeast Michigan is a very poor public transportation system. While many people blame the car companies for this dilemma, there are a lot of factors to consider. (For a good article on the subject – check this out. (article)
I mention my background so you can understand that I really appreciate cars. Admittedly, I am certainly not a car buff like many people are, but I enjoy the technology and the driving experience. Plus, I am grateful for the living many of my family members have made in the industry, and I am happy when car sales are doing well.
Riding in Style
I have several friends who love luxury cars because of the superior handling and premium equipment. It is true that a luxury car rides nicer and performs better. There are some manufacturers who always on the cutting edge of performance and engineering.
My mom is from Bavaria, and I have visited Germany several times. Several of my cousins have worked for BMW in the past. I have been to their museum in Munich. The experience was amazing, and I am a big fan of the “Ultimate Driving Machine”. I can say the same thing about Audi. When you take one out on the Autobahn, it is a driving experience I have never experienced in North America.
I hope this convinces you that I am not a hater on luxury cars. However, I do hate seeing people struggle financially. The problem that I see is that for every person I know who loves high end vehicles for the performance, there are many more who drive them just for show. A car is a status symbol for a lot of people.
Avoid the Pose
I am all for people having nice things. I want everyone I work with to achieve prosperity and surround themselves that bring them joy. However, poor choices in housing and transportation costs have left many people in a delicate financial situation. Saving and planning for a bright future are not possible because all of their monthly income is tied up in car and house payments.
One of the biggest challenges is trying to get some people to reason on the poser mentality. We are surrounded by advertising and social media posts that project a certain image. It is easy to get caught up in the affluenza epidemic and come to believe that everyone deserves the finest things in life right this minute.
I have seen this among business people as well. Having known a lot of colleagues who worked in sales, I have seen people make really poor financial decisions trying to make an impression with their car. Unless you rack up the sales needed to justify the expensive payment every month, it can become a total burden on your bottom line.
I have a funny story that I think really ties into the whole image versus reality discussion. When I was younger and getting started in information technology, our company was looking at a new data management platform for sales and inventory.
The leadership of my company had previously held several meetings with the sales and technical teams from one particular software firm. They were a smaller upstart, but the team was knowledgeable and the product had some nice features. There had been many positive discussions which then led up to a final presentation. A meeting was set up with the owner of the company to determine next steps.
We worked in a small building, and prior to the meeting, several of us were waiting in the conference room which overlooked the parking lot. As the team from the software company arrived, many of my managers were really impressed. The owner of firm was driving, and he pulled up in a brand new top of the line $85,000 7-Series BMW. A couple of people commented that the company must be doing great. It left an impression on the majority of our leadership team. He was very engaging during the presentation and the team from my company decided to enter final negotiations.
After the interview was over, two of us young techies escorted their team out to the parking lot. I told the owner that I really loved his car. He asked if we wanted to take it for a quick spin around the block. Of course, we said yes!
As we hopped in, I noticed all of the window stickers in the back seat. Then, when we pulled out of the driveway, the gentleman told us that he had just picked the car up at the dealership and was taking it for a test drive! I do not know if it is common practice everywhere, but some places remove the window decals for safety reasons during a test drive.
After our quick trip around the block, he mentioned he was deciding between the BMW and two other luxury models. We thanked him and the team, and headed back inside the building. I could not wait to tell my manager that the car was only a test drive.
First Impressions with Lasting Headaches
Unfortunately, that ended up to be a non-factor. Our company signed a long term deal for the software platform. This was despite another customer of theirs giving a lukewarm review. Shortly thereafter, we started the implementation of their product. It was a total disaster. A couple of us befriended their technical team and they told us that it was a bad company to work for. Those technicians all left within a few months of our deployment. Their product was terrible and the company went out of business about two years after we started with them.
One final note – the owner never did buy that luxury car. I found out from the technical guys that he drove an old Honda and that he still had it several months later. That first impression of a certain image held a very different reality.
The Moral of the Story – Test Drive?
Perhaps the story does have a happy ending, since the gentleman only borrowed the car instead of buying it! You can see the point I am trying to make. Stay focused on your reality and make smart choices financially. Avoid trying to be something you are not just to present the image of wealth.
I know so many friends who thought they would find happiness in a fancy car, only to discover it quickly became a burden. For as much as I enjoy a nice car, remember that depreciating assets will never make you wealthy.
Your net worth and saving more than you earn will make you wealthy. Once again, if you can afford it, I want you to have the things that are important to you. Just make sure the timing is right in your life. If you really have the urge to drive in luxury but you cannot afford it, maybe go out one day and take some test drives!