The impossibility of being a first-time car owner

Well ladies and gentleman, we have done it. Cat A COE has crossed the $100,000 mark, and it looks entirely likely that it will continue to trend upwards.

There's plenty to complain and moan about, but there is one particular group that I do want to address and send my hearty commiserations — first time car buyers.

Car ownership in Singapore is a complicated matter of finances and the question of 'need vs want'. A majority of car buyers (which chiefly factors into COE demand) are existing car owners.

While still expensive, there is a certain element of sunk cost for these people, i.e. they are already paying a certain monthly amount, so rolling that forward (in the form of a replacement purchase) doesn't feel drastically different.

And, it is also worth taking into account that though it's a greatly depreciating asset (should we even be calling it an asset?), a car still has some inherent value — whether Preferential Additional Registration Fee rebate after 10 years, or resale/trade-in value.

As such, when it comes to buying a car, existing owners have something of a leg up compared to people who don't already own a car.

I don't own a car. In fact, I own a motorcycle. I must concede that in my line of work, I am fortunate enough to have ample opportunity to drive new cars. I of course recognise and acknowledge that most people don't.

Potential first time car buyers, increasingly, feel like the group of people most priced out of car ownership by rising car prices. It's also part of the reason I don't personally feel inclined to buy a car.

But, this isn't just a feeling. Let's analyse the numbers.

There's plenty that has been written on the cost of car ownership. I don't really want to belabour the point, but we do have to do some new calculations because of how drastically car prices have changed.

We are going to use a Kia Cerato to do these calculations. It's perhaps not the most representative of the sort of car a first time buyer would choose (perhaps an Altis or Jazz), but it is the "cheapest" recognisable bread-and-butter model offered right now. For reference, the Cerato starts at about $145,000, whereas cars like the Altis, Jazz and Mazda 3 are priced in the $160,000 region.

Buying cost

The base Kia Cerato is priced at $144,999. With a maximum 70 per cent loan, that means that your upfront cost (i.e. down payment) is $43,500. Assuming you already have that money on hand, your subsequent monthly instalment will be $1,460.

At this point, I would like to already point out that my bike, which for all intents and purposes is a superbike (meaning expensive), has a calculated monthly depreciation of about $708. It's not the same thing, of course, but it still does highlight the sheer disparity.

Ownership costs

Now, I don't want to delve too deep into the mechanics here (you can read a previous article that goes into detail here ), but there are plenty of other ownership costs involved. They have been summarised in the following table:

If we sum it up with the monthly instalment on the car, that brings us to a total figure of $2,337 a month (rounded up).

Who can afford a new car? 

That number, viewed in isolation, is already somewhat intimidating (for a Kia Cerato, no less). But, it is perhaps even more important to consider it in context of a first-time car buyer.

According to the Ministry of Manpower's statistics, the median income of full-time employed residents in 2022 was $5,070. More relevantly, though, is to look at the median income of the following specific age groups:

We're focusing on these particular age groups, as these are most representative of people entering the work force, and/or earlier on in their careers. It is also most likely that people in this rough age demographic would be shopping for their first car.

As a unofficial guideline, people are advised not to spend more than 20 per cent of their monthly salary on a car. And if $2,337 is the amount you need to afford a Kia Cerato, the harsh and simple truth is that for the average, median-salaried Singaporean under 40, a car is basically impossible to reasonably afford.

To do so, you would need to be making somewhere in the region of $11,600 a month. Even when sorted by occupation, the average 'Managers & Administrators (Including Working Proprietors)' only starts to hit that median salary at age 45.

Unsurprisingly, this of course means that the only people that truly have the financial means to become a first time car owner are those with salaries far above the median. The 'rich', as many would call them.

What about a used car, then? Even if we average out the salaries of these three groups, the median salary would be $5,687. 20per cent of that equates to $1,137. If ownership costs accounts for about 35 per cent of monthly spending (based on our Kia Cerato calculations), that means that you could afford a used car with a yearly depreciation of $8,868.

What could you get for under $9,000 depre? If you go to Sgcarmart's Used Car page and do the relevant search, what you can get is… a ton of Suzuki Everys. Okay, there are technically a handful of passenger cars available, but the point stands — your options are extremely limited. Even for a basic used Altis or Jazz, you're looking at much closer to $10,000 depre.

So, again as an average, median-salaried single adult, even a used car is out of the question (assuming you're being fiscally responsible).

Of course, a couple, with twice the salary, could more conceivably be able to afford a new car. But, it's also again worth pointing out that even when averaged out, a twin-salary median salary of this broader age group ($5,687 x 2) totals $11,364. That's still technically (though marginally) less than the $11,600 number required to keep your total spending on a car within 20 per cent of total salary.

Your options certainly widen when exploring the used car market, which probably explains why most couples have to start their car-owning journey with a used car.

The hard, average truth

This is not to say that there won't be first time car buyers. Your lawyers, bankers and property agents are still going buy their 3 Series and C-Classes and what not. Some people may be willing to spend more than 20 per cent of their salary on a car. And, there is of course the used car market to explore.

But, the harsh reality is that with car prices where they are now, the average working Singaporean adult, especially if single, cannot reasonably buy their first car while practising strict financial discipline.

Which is a really long-winded way to explain why I've stuck to riding. Oh, and I also just like it better.

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This article was first published in sgCarMart.