Financial advice
It's very common for Argentines to use the money to upgrade their car as soon as they can save up some money. It's a form of investment that keeps their money from depreciating, many say. Is it true to call a car an investment? Let's analyze this question in detail.
This article is taken from the book El Inversor de Bolsillo Argentino – Platinum Edition 2024
The same thing happens with a car as with a house. If it's for personal use, we can't consider it an investment since it won't return any money. What's more, the costs will increase as the car accumulates more miles and, consequently, more visits to the garage. We shouldn't be confused by the fact that we sell it for more than we bought it for; that only happens as a result of inflation.
On the other hand, there is the option of buying a car, using it as a taxi or remise, or using a driver. Calculating profitability is similar to that of real estate: we must subtract expenses from the income we obtain and divide them by the cost of the car. But in this case, there are some additional complications to consider.
The real estate
In the case of real estate, it depreciates much more slowly than cars. In accounting terms, depreciation occurs after 50 years, which means we should, at least in theory, allocate 2% of the purchase price each year to maintain the property in good condition. In practice, it's usually less. In fact, a house in good condition can have a value very similar to a much newer one.
But in the case of cars, accounting-wise, depreciation is calculated over five years. This means that each year we must set aside 20% of the car's value just for reinvestment, that is, to buy a new car. Depending on local legislation, a car can be used for public transportation for longer, usually 10 years. So, with a bit of luck, we should set aside 10% each year for reinvestment. It's a considerable amount, which we shouldn't take into account when calculating our profits.
The complications of seeing the car as an investment
Further complications arise: mechanical failures and potential accidents, which translate into lost profits—the money we lose if the car is in the shop. Add to this the fixed costs: insurance, fuel, registration fees, oil changes, etc. In the case of a taxi, there's the cost of the license, which is roughly the same as that of a new car.
But the biggest complication of all is the human factor. I have two friends who had this kind of investment: one owned a taxi and the other a remís. The first owned two taxis, one his own and the other with a driver. Due to local laws, he had to hire the driver as an employee, paying his social security contributions, etc. The driver, in turn, crashed his car, made it disappear one weekend because it had supposedly been stolen… he did all kinds of things. My friend eventually got fed up and sold it.
My other friend, who owned a taxi, had a similar experience. He had better luck with the driver, but not with the car itself. He repeatedly had to take it to the mechanic. Once, he was in an accident, and he struggled for countless months to collect the insurance. He had to give up his personal car to use as a taxi in the meantime. And when he figured out how to hire the driver, he realized the profitability was zero. It wouldn't even be enough to replace the car in the future. The result: he sold the car, and his investment was gone.
In summary
Of course, not all drivers are bad. Things don't always go wrong. But when investing, always consider the possibilities. Mechanical problems, for example, are a given: you won't be able to avoid them. Specifically, you should approach it like any other investment: always do the math. Use the same formula as for real estate, but add a contingency fund for all the aforementioned possibilities. In my opinion, it's not a good option, but you can evaluate it like all others and draw your own conclusions. In short, as the Bible itself advises, before investing, "calculate the costs."
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