The automobile is of great prominence in American life. There are 260 million of them on the roads and 85% of people use them to get to work. At 14% of expenditure they are the second biggest expense, after the cost of a home.
These products have improved immensely in quality, comfort and safety over the years. Each one represents a multi-billion dollar investment on behalf of its creator–in design, research and development, and the production line to manufacturer it.
An equally impressive level of investment goes into the promotion and sale of these products. As 85% of vehicles are financed/leased, Automakers place heavy emphasis on monthly finance payments, “Lease from $299/month, Finance for $399 a month for 60 months.” This psychologically anchors customers to a number that doesn’t represent the complete cost of operating the product.
Physiological Anchoring is a powerful cognitive bias, it’s the common human tendency to rely heavily on the first piece of information presented. “$199 a month” becomes embedded as a price, even if the total cost of transport is many times higher than that.
Amortisation of the deposit/down-payment, the cost of insurance, maintenance, fuel and depreciation(assuming it’s not a lease) melt away into a blur of general expenditure. Buyers underestimate their total transport costs. The result could be financial strain, misery and potential default.
The result of this miscalculation is a higher percentage of the customers expenditure going to the automaker.
Progress has been made in limited areas, such as the EPA/DOT disclosure on the annual fuel cost of operating the vehicle.
It’s a start, but it could be so much more.
The cost of operating a vehicle should be an industry standard. The numbers would be consolidated for 1 month and 3 year periods. (3 years corresponds to the warranty period of most vehicles.)
All advertising which quotes a lease rate, finance rate or RRP would be required to first display and quote the TCO, or total cost of ownership per month in equal prominence. This would help nullify the artificially low anchor set by the finance rate. Rather anchoring on the lease rate of $189/month the buyer would hopefully anchor the number presented first, for example $506/month.
Additionally there would be a sticker of A4 size, placed on each vehicle. It would be required that a dealer show the customer this information for any vehicle they are purchasing.
As insurance rates differ significantly by state, for example Michigan $213/month vs Ohio $71/month the TCO could be state specific.
The numbers are an estimate, the depreciation curve for each vehicle is an estimate. It depends on many factors. The point is not that it represents an exact amount the customer will pay, but that it correctly anchors them to the correct ballpark for transportation costs they are about to commit to.
Below are some examples of what it could look like. It would allow for direct comparison for models across different manufacturers. The numbers below are an educated guess for illustration purposes.
Let’s call it the TCO Sticker.