Trade offs

The decision on whether to get my car repaired for £5,000-odd is a big one! As discussed in the last post, I have Plan A in hand - going ahead with the new gearbox, assisted by a bank loan that will take 30 months to pay off, then I'm free of it. For a little while ahead, I can back out of that Plan if I wish. There are alternatives. Friends who know their stuff have urged me to consider what else I might do. I have been listening.

It helps if one sets these things out in writing, and considers the best course of action. Sentiment must not be the ruling factor. Facts and figures should prevail. It's mainly a matter of money, and what I can get if I spend money this way or that. But there are some other things to keep in mind too.

Given a choice between owning a new car and an old one, I'd go new every time if I could. Who wouldn't? But it's impossible to keep funding a string of cars out of one's own purse, unless a lot of cash is available. I had a pot of inherited money back in 2010. It was exactly what was needed to buy Fiona. But once spent, that money was gone forever. And I recovered almost nothing of the money invested in the Cottage. I do have a decent income (for a retired person, that is!), but it's all pension, and therefore its value is fixed. What it can buy will never change. I can afford only so much.

All my big expenses - not just car bills, of course - have to be funded from this pension income, and until recently my savings bumped along at a low level, because as soon as I got a couple of thousand together, it would be time for some periodic expense on the house, car or caravan.

All this is what many a retired person experiences. It's somewhat hand-to-mouth. It certainly needs a lot of planning, to match income to outgoings and make room for savings. But I reckon I have managed my income pretty well. And so far, I've done it without taking out loans, or letting my credit card balance ride.

I've given priority to my health, my home, my savings, and my caravan holidays. Those are still my priorities. Savings are important because I need an adequate Emergency Fund, and then, beyond that, money for all kinds of things that will need buying. I don't want to do anything that will make worthwhile savings impossible.

But the car is important because it enables those caravan holidays, and that type of inexpensive holiday requires a particular type of car.

It must (at the least) be powerful and heavy enough to tow the caravan safely. And two other things are desirable: four-wheel drive (for maximum assurance in bad weather, but especially for traction in wet fields) and a rear-view camera (to make hitching-up easy - I'm a solo caravanner). You can see at once that my best choice can't be an economical small town car. It needs to be a large and probably upmarket car.

Fiona is such a car. My original plan was to keep her for fifteen years (Volvos are legendary for lasting at least this long) until 2025. I'd be aged 73 then. If it hadn't happened before, I'd give up caravanning at that point, and enjoy hotels instead. I wouldn't need Fiona's capability any longer. I could swap her for a smaller car, financed in whatever way seemed suitable at the time. My guess was that by 2025 the car scene would have changed hugely. It might make perfect sense to abandon personal ownership and simply finance a series of short-term car-use contracts.

The question is, does the present gearbox crisis change my long-term plan? And would it be changed if there were further crises in the future? What if the engine needed an expensive overhaul? Or the various driveshafts had to be renewed? Or a suspension rebuild were ever necessary? Would it make sense to cover those costs until I gave up caravanning? That is, would it make sense to me - the view somebody else might take is neither here nor there.

So we are now talking about trade-offs.

If I commit myself to paying this present £5,000, and possibly more to come over the next ten years, do I get enough benefit to make it worth while?

PROS
# I can keep a car that's ideal for my caravanning needs.
# I can keep a very comfortable car that has a lot of luxury features, and a strong emphasis on safety. A certain amount of prestige, too.
# Fiona suits my physical shape and tendency to back ache. She doesn't hurt me. Whereas I really hate small, low-slung cars. They are awkward to get in and out of, and their seating and controls tend to induce pain.
# I may be lucky with future maintenance costs - and if so, my savings will keep accumulating, giving me peace of mind.
# I will avoid all the rules and restrictions applying to a finance deal on another car. They might be very irritating.

CONS
# I will have to break my 'no loans' rule to fund the new gearbox. For 30 months anyway.
# Fiona may be rejuvenated in the gearbox department, but her other mechanical bits won't be.
# Marrying a major new component with older parts could hasten their failure.
# Ongoing ownership may turn out to be a protracted tale of one big expense after another. That said, Fiona is a Volvo: basically robust, and built to last. Keeping her need not be a bad mistake. But she will cost me much more for normal maintenance than a new car would.

For me, the pros I've listed still outweigh the cons. I must in any case have a car suitable for caravanning. But let's look at the money.

My car expense planning spreadsheets tell me that in the year coming up - 2016 - I will probably spend £4,215 on running Fiona, as follows:

Car tax £280
Road rescue £80
Insurance £500
Fuel £2,600
Annual service and MOT £430
Two new front tyres £325
TOTAL £4,215

£4,215 would have been perfect for my savings plans. But if I go ahead with the gearbox loan, my total car costs for 2016 will increase by £2,115 to £6,330. And my savings for 2016 will be correspondingly less.

If I go for a new car under some kind of three-year Contract Leasing scheme - with no intention of keeping the car, only to enter into another contract at the end - there will be a monthly payment to service. But the expenses will shrink to only these:

Insurance £500
Fuel £2,600
TOTAL 3,100

So if the £6,330 mentioned above is manageable, then it's clear that I could pay £3,230 per annum - which is £6,330 less £3,100 - in new car contract payments. That's £269.16 per month.

Unfortunately £269.12 per month won't get me another Fiona! It might be enough for a reduced-spec Volvo XC60 with a smaller engine, manual transmission (but clutches are a no-no with my bad knees) and no four-wheel drive. Such a car would certainly save on fuel costs, but wouldn't be ideal for caravanning - and, I assure you, I do know my business where caravanning is concerned. I'm not sure, in any case, whether a leased car could be fitted with a towbar and used as freely as I use Fiona. And I'd certainly have to pay more if wanting to cover more than 10,000 miles per annum. (I usually do 14,000 miles) I'd also have to beware of being left without the funds for the up-front payment (commonly the equivalent of six ordinary monthly payments) when looking at the next contract. No up-front payment ready, no car.

It doesn't of course have to be a Volvo. Since 2010 other makers have brought out models that might suit my requirements. I'm going to consider some of those tomorrow, and see what they would cost.

I must keep in mind, though, that if I abandoned personal ownership and moved over to contract usage, I would be committing myself to annual motoring costs of at least £6,330 for many years ahead. Whereas once the gearbox loan were paid off, Fiona would cost me some £2,000 less than that in the average year. A possible difference of £20,000 over the next ten years. I dare say that if I retained Fiona, some other big replacement jobs would arise - but surely not jobs totalling as much as £20,000? And if not, then in the long run I'd save money by hanging onto Fiona.

So: do I keep what I've got, a car I own outright? Something I can sell, or trade in, if it ever suits me to? Once fixed, Fiona will be worth about £11,000.

Or finance a new car every three years - a car I'll never actually own?

Do I cope with the hassle and expense of ongoing maintenance on Fiona?

Or the hassle of keeping to contract restrictions - and the further hassle of negotiating a fresh new car contract every three years?

Hmmm...tricky, isn't it?