Toronto’s plan to charge highway tolls drives home a point about personal finance for the decade to come: Cars are a financial liability that will only get worse.
So many government priorities can be served by squeezing drivers – fight global warming, ease urban road congestion, find money for public transportation and other projects. Some households can’t operate without a car, especially if they have kids or make long daily commutes from the boonies.
For everyone else, here are four reasons to think about ditching your car.
Toll roads are coming
Toronto mayor John Tory announced plans last week to charge tolls on two heavily used highways that connect the downtown with the suburbs to the north and west – the Don Valley Parkway and the Gardiner Expressway. The cost being floated is a $2 toll, which would generate up to $200-million for public transportation and infrastructure projects. There is no way that other cities aren’t studying Toronto’s move.
City councils across the country are hypersensitive about property tax increases these days. Calgary is looking to hold the line on taxes next year, while Ottawa is proposing a 2-per-cent increase and Winnipeg is looking at 2.3 per cent.
Small increases such as these are politically savvy in our slow-growth economy, but they won’t let some cities do more than maintain the status quo. Road tolls are an obvious way to augment city revenues.
Prepare for toll lanes on highways, metred toll highways such as Highway 407 in Ontario (the further you drive, the more you pay) and new tolls on old highways.
Gasoline prices are going to rise
The federal government is working with the provinces to fight climate change by putting a price on carbon. Expect to see higher prices for home-heating fuel, for gasoline and possibly for electricity. There are estimates that a carbon tax would boost gasoline prices by about 11 cents a litre, enough to raise fuel costs for a household by a couple of hundred dollars a year on average. A carbon tax is symbolic of the view that cars are part of the problem in today’s world and their use must be discouraged.
Even without a carbon tax, gasoline prices are likely headed higher over time.
Today’s moderate prices are a result of slow global economic growth.
If output around the world starts to pick up, rising oil prices will push the cost of gasoline higher as well.
Car loans are crazy today
A shocking 56 per cent of new vehicle loans today have a term of seven or more years, the auto industry analysts at J.D. Power and Associates say. The auto industry has clearly found a way to make its products affordable to everyone – reduce monthly payments by making them last a few extra years. And yet, the average new car payment in Canada is still roughly $570, according to J.D. Power.
People dismiss concerns about long-life car loans by talking up the deals they’re getting – zero per cent financing in some cases. But cars sold with interest-free loans can be more expensive overall than vehicles with rebates or discounts that are financed at regular interest rates. If you get zero-cost financing, you usually don’t get the best price breaks.
The worst part of car loans of six to seven years or longer is that they often result in people trading in a vehicle before the loan is paid off. The amount owing is added to the cost of a new vehicle, which is bad personal finance. Your goal with a car loan should be to pay it off and deploy that cash more productively, not fold it into a bigger loan.
What you buy today could be obsolete tomorrow
The typical car or truck starts depreciating when you leave the dealer’s lot. But there’s now some additional risk of depreciation due to changing technology. Plug-in electrics are coming down in price, and so are hybrid gas-electric vehicles. Chrysler’s new Pacifica minivan comes in a hybrid model that costs less than the gas version in Ontario thanks to a provincial rebate designed to reduce exhaust emissions. If hybrids or plug-ins reach a tipping point of affordability, the value of a basic gas-powered car could fall hard.
The rise of driverless cars could also lower the value of your family car. People who make grinding daily commutes in traffic are going to be all over these vehicles as they become affordable. Think you can ditch your car? If ever there was a time to sit out the car ownership experience for a few years to see what’s coming, it’s now.
The Globe and Mail
Published Sunday, Nov. 27, 2016 5:47PM EST
Last updated Monday, Nov. 28, 2016 8:10AM EST