EL CAMINO DE LA CRUZ (8, 34-9, 1)
2.6 La parusía del Hijo del hombre (9, 1)
During the second interview set, it was affirmed that consumers neglect motoring costs such as parking fees or depreciation (respondent CS1, CS2, CS6 and CS9). Depreciation, the rate at which
162 a car loses market value through time, especially during its first three years, reaches an average of 20% per year (Section 2.4). Three questions about vehicle depreciation were asked to explore if car users understand the real cost of depreciation and residual value.
Respondents were asked to predict the average residual value of an average new car worth
£16,000 after 3, 7 and 14 years respectively. The 3rd year interval was chosen as this is the benchmark in the market to calculate depreciation and it is the interval where a car loses the highest proportion of its value. The 14th year interval was chosen because this is the nearest rounded value for an average lifespan of cars in the UK (Skelton and Allwood 2013, Oguchi and Fuse 2014, Dun, Horton and Kollamthodi 2015). The 7th year is therefore half that lifespan. The responses were tested for skewed distribution (i.e. if the distribution is asymmetrical). Some degree of skewedness was found where a few respondents predicted that an average, new
£16,000 car, would increase in value over time. This would raise the average value and an inaccurate means. For this reason, they were considered outliers as only very few collectible cars will raise their value after 3, 7 or 14 years. Another caveat is that only 240 people provided a value at year 14, raising the margin of error to 6.4%.
The UK car market values were taken from a UK independent credit broker of passenger cars (Wisercarbuyer 2017) for use as comparison between consumer expectations and actual market residual values. This broker was chosen because it was currently the only one offering a depreciation and residual value calculator for the UK car market. An average depreciation indicator from the website as used as an example. The calculator uses current car price estimates and differentiates between manufacturers’ list price and actual paid price. However, for this research there was no disparity between the list price and the paid prices so that notional and actual depreciation values coincide. The prices used were taken on the 23rd February 2018.
To find and ‘trim’ any response outliers, the 25th and 75th percentiles were calculated using a weighted average of the values (Tukey 1977). The 75th percentile (£10,000) was then subtracted from the 25th percentile (£7,000) and a ‘g’ factor of 2.2 was multiplied by the result, (i.e. £3,000) (Hoaglin, Iglewicz and Tukey 1986, Hoaglin and Iglewicz 1987). The ‘g’ factor is dependent on n.
For this sample size, it is recommended 2.2 (Hoaglin and Iglewicz 1987). The result, 6,600, is then added to the 75th and 25th percentiles. The outliers were, thus, calculated by adding the factor
‘g’ to the 75th percentile (ibid). The lower cut-off value was £400. However, the minimum value
163 entered by respondents was £1,000. The upper value for outlier cut-off was £16,600 (Table 27).
This value is above the average price as new. Neverthless, no respondents used this exact value.
The next lower value indicated by a few respondents was £16,000 (no depreciation) and the next upper value was £24,000, which was then trimmed. The median value was then calculated without the upper outliers.
A mean of £8,348 was found for the value of a new £16,000 car after 3 years, which is 10.6%
above the market values used for reference. A similar approach to outliers by trimming was used for the variables of 7 and 14 years (Table 28, Table 29). For these latter two variables, the cut-off values were not taken into consideration as the value of a functioning car does not drop below zero (Table 28 and Table 29). The values obtained at 7 and 14 years were 2.8% and -21.7% below the reference market value used in this study. In other words, respondents overestimate the value of a new £16,000 car after 3 years but underestimate its value after 7 and 14 years with the caveat of a 6.4% margin of error for the latter (Figure 29). Nonetheless, the upper mark of this error would be below the £2,022 market benchmark, but closer to Storchmann’s (2004) estimate.
Table 27. Outliers calculation for predicted average value of a 3-year-old average ar. Adapted from Hoaglin and Iglewicz (1987).
Table 28. Outliers calculation for predicted value of a 7-year-old average car.
Q1 (25th percentile) Median Q3 (75th
percentile) g Lower outliers
164
Table 29. Outliers calculation for predicted value of a 14-year-old average car.
Q1 (25th percentile) Median Q3 (75th
percentile) g
The average residual value calculated (i.e. a percentage of the original price) from responses was 52.2% (52.8% reference market value) after 3 years, 26.3% (27.0% reference market value) after 7 years and 9.9% (12.6% reference market value) after 14 years.
Undertaking a one sample t-test for each age variable against the ‘Wisercarbuyer’ references, there is a statistically significant difference (p value < 0.05, p = 0.000) between the predicted value (£8,349) and the reference value (£7,552) for a 3 year old car; there is no statistically significant difference (p value > 0.05, p = 0.151) between the predicted value of £4,203 and the reference value (£4,326) for a 7 year old average car; and there is a statistically significant difference (p value < 0.05, p = 0.000) between the predicted value of £1,584 and the reference value (£2,022) for a 14 year old average car (Table 30).
Survey respondents are optimistic about the rate of depreciation of vehicles after 3 years, but pessimistic after 14 years, with very small variation at 7 years. Storchmann (2004) suggested that after 10 years a car would be worth around 10% of its original value (Section 2.4), which would put the value at around £1,600 after 14 years, close to the means obtained from the sample and with no statistically significant difference (p value > 0.05). Women estimated higher mean values than men in all three-year categories with a statistically significant difference between gender at 7 and 14 years (p value > 0.05). Women estimated higher mean values than men in all three-year categories with a statistically significant difference between gender at 7 and 14 years (Table 31 and Figure 30), using independent samples test with bootstrapping with equal variances assumed. In other words, women seem to be more optimistic than men with regards to residual value. The general overestimation of residual values of nearly new cars by respondents is an indication that the costs of motoring are not completely understood.
165
Figure 29. Expected vs. real residual values for an average £16,000 new passenger car.
Table 30. One sample t test for average estimated value versus reference value of a new £16,000 car after 3, 7 and 14 years
Mean Reference
cost of car
Sig. (2-tailed) (p value) Estimated cost of average UK car after 3 years 8349 7552 0.000 Estimated cost of average UK car after 7 years 4203 4326 0.151 Estimated cost of average UK car after 14 years 1584 2022 0.000
£7,552
£4,326
£2,022
£16,000
£8,349
£4,203
£1,584 0
2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Residual value (GBP)
Years
Expected vs real residual values for a £16,000 new car
Market residual values Estimated residual value by respondents
166
Table 31. Mean average value difference of a £16,000 car between gender mean response (at 3, 7 and 14 years)
Mean average value. Independent samples test with bootstrapping
3 Years (n 725) 7 Years (n 704) 14 Years (n 221)
Male Female Male Female Male Female
8248.78 8479.37 3874.06 4628.66 1476.56 1731.18
Sig. (2-tailed) (p value) Sig. (2-tailed) (p value) Sig. (2-tailed) (p value)
0.166 0.000 0.027
Figure 30. Expected vs residual values for a £16,000 new car by gender
£7,552
Expected vs real residual values for a £16,000 new car
Market residual values
Estimated residual values by Male respondents Estimated residual values by Female respondents
167