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Your decision is easier once you know what you want

Meet Baby.

She has been a faithful car to our family for several years and by next month, she will be 10 years old. As with all cars in Singapore, they are due to be scrapped or exported out when they reach 10 years. Each car has an inherent scrap value that is based on 50 percent of the cars open-market value (OMV) when it was first purchased. Baby's OMV is $64,000 so in effect, I would recover $32,000 if I were to scrap or export her out of the country. The amount may be a little more if you can also salvage the metal and fittings costs.

Now, I can opt to continue owning Baby beyond 10 years. This would entail me purchasing the a new Certificate of Entitlement (COE) for the next 5 to 10 years. The prevailing COE premium for 10 years is close to $34,500 and for 5 years, it is half that amount. If you choose to revalidate the COE for another 10 years, you can then opt to revalidate it again after that 10 years is up. If you opt to revalidate for 5 years, there is no option to further extend it.

The kicker in these considerations is that, if you opt to extend your COE, you lose the scrap value of the car. In other words, if I revalidated Baby's COE for another 10 years, then in effect, I would be paying $66,500 for the car - the $34,500 for the COE and the lost scrap value of $32,000.

So this is my dilemma: should I revalidate the COE or should I scrap the car, collect the $32,000 and use that as downpayment to purchase another car?

The answer would be so simple if not for many other considerations:

(1) I cannot find another such car for $66,500

Let us not forget that this is a German luxury MPV. Even 10 years ago, it contains features that are only just now being fitted into other marques. So if I wanted a car of similar quality and standard that can carry all my 5 babies (hence the name of the car) plus the wife and I, I would certainly have to pay three or four times this amount.

(2) Mercedes does not make the R class anymore

Coupled with that, Mercedes has stopped production of the R class because they lost money on this model. They put in too many cool stuff, and yet they could not sell enough of them. What this will do is, in effect, make it a rare model in time to come. Maybe not now, but in 10 to 20 years, this car may achieve iconic status - and that would certainly make the car valuable.

(3) I have poured in a lot of money to maintain her

Over the years, I have spent more than $50,000 in maintenance so that she runs perfectly. She will never run like a brand new car, but she still feels solid, and she still looks great for her age!

These three considerations should be enough to sway the decision to keep the car, right? And if it were not for these others, it would be a slam-dunk decision. But...

(4) Baby has travelled more than 230,000km

Yes, I really used the car. She went with us everywhere, and we clocked lots of kilometres with her. That of course leads to accelerated wear and tear. Even though we spent a lot on her, she will now need a lot more to continue the journey.

(5) She is staring at another $20,000 tune-up

Yup! If I want to continue to run her, I will need to put in a fresh $20,000 tune-up to replace the worn out parts. But that will not guarantee me that the bleeding will stop. Ultimately, if I added $20,000 upon $20,000, leading me to another $50,000 to $60,000 over the next 10 years, the question is whether I would be better off taking the total $126,500 and throw that into a brand new car with 10-year warranty? Of course that car would not be a German luxury car!

(6) She will continue to cost more over the years

Not just in petrol consumption (she is a 3-litre V6) but in road tax too, which increases by 10% each year until it is 150% of the current road tax.

So, how should I make this decision?

The first thing is to identify my main intent: what do I really want?

Would it be too bold to ask for my cake and eat it too? To have a luxury German brand car that can carry my whole family and which does not cost me more than $1,500 in installment payments, and which is cost-effective to maintain?

Okay, even as I write that, I know I am dreaming. So the answer is no.

And yet, if I were to extend Baby's COE, and get a loan for the $34,500, I will, in effect, pay $557 in installment payments over the next 7 years. So I can get that luxury German car etc etc for less than $1,500 monthly installment.

And the cost-effectiveness part?

I suppose one has to take the good with the bad. Since I was willing to part with $1,500 monthly installments, perhaps I can sink the balance $950 into a maintenance sinking fund? That will allow me build up my resources over the next 10 years to $114,000; periodically drawing down for maintenance and tax. It would probably not exceed that amount, so there might well be net savings here.

Okay... I am convinced. Bite the bullet, extend the COE, and spring for the repairs. It will be an easier option than to look for another car.

I know... some of you may be thinking, "Why not just do without a car?" If you know me, you will know that is not possible. Hence, it was never an option.

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