Corolla vs BMW

 

Buying a Toyota Corolla instead of a BMW X3 can make you R1.2 million richer

Drikus Greyling • 31 January 2025

An analysis by Daily Investor showed buying an affordable car, like a Toyota Corolla Quest, instead of a luxury BMW X3, can make you R1.2 million richer.

In South Africa, a car is seen as an important status symbol, and many people cannot wait to buy their first luxury car.

Showing off your new BMW or Mercedes-Benz portraits that you are financially secure and have achieved career success.

However, buying an expensive luxury vehicle comes at a tremendous cost. It is a poor investment which destroys wealth.

Daily Investor compared the difference between buying a luxury vehicle and opting for a cheaper alternative and investing the savings in the S&P 500.

For this comparison, we selected two of the most popular vehicles in their respective categories and considered their financial impact over six years.

  • BMW X3 xDrive 20d
  • Toyota Corolla Quest Plus

We assumed that the two buyers had the same budget. The first one spent his full budget on a car, and the second selected a cheaper car and invested the rest of the money.

Both vehicles were purchased in 2019 with loans covering 100% of the purchase price at an interest rate of 13%, repayable over a 6-year term.

Both cars were insured using a constant insurance profile to make the insurance premiums comparable.

It should be noted that insurance is subjectively applied to individuals and will differ from person to person.

In this case, the insurance profile was kept the same for both vehicles, which means the insurance premiums can be compared.

Insurance quotes were obtained from Naked Insurance for brand-new models of the same vehicle and proportionally applied to their 2019 prices.

We assumed the insurer’s risk profile remained constant over the 6 years, and the premium was adjusted for inflation to cover the vehicle’s replacement value.

For the sake of simplicity, it was assumed that both vehicles were sold with a complete service plan covering all maintenance expenses over their 6-year financing period.

Only the fixed costs of the vehicles were compared. This means that costs such as fuel and tyre wear were not included.

In 2019, a new BMW X3 xDrive 20d cost R789,000 and could be comprehensively insured for R2,001 per month.

To own this car, the monthly repayment would be R15,668, paid from January 2019 to December 2024.

This brought the total fixed costs of the BMW to R17,669 per month, which gradually increased to R18,161 over the repayment period due to rising insurance.

In 2019, a new Toyota Corolla Quest Plus cost R277,000 and could be comprehensively insured for R1,109 monthly.

The monthly repayment on the vehicle for six years was R5,501 over the same period as the BMW.

This brought the total fixed costs of the Toyota Corolla to R6,610 per month, which gradually increased to R6,883 per month due to rising insurance costs.

This means that the owner of the Corolla saved R11,059 per month from the first month by not buying a BMW.

Every month, the Toyota Corolla owner invested his savings in the S&P 500, which helped him accumulate wealth while driving a cheaper car.

After six years, when both cars were paid off, the BMW X3 xDrive 20d owner can sell his car for R468,900. The car was his entire investment over the period.

The owner of the Toyota Corolla can sell his car for R209,900. However, his S&P 500 investment with the excess cash grew to R1,423,942.

This means the Toyota Corolla Quest Plus had assets of R1,633,842 after six years, much more than the BMW owner’s R468,900.

It shows that buying a more affordable car and investing the rest created an additional nest egg of R1.164 million over six years.

The table below summarises the difference between buying a luxury and a more affordable car over six years.

Measure  BMW X3 xDrive 20d   Corolla Quest Plus
Car Value after 6 years  R468,900  R209,900
S&P500  Zero  R1,423,942
Total Wealth  R468,900  R1,633,842

Articles and other information on Daily Investor is for information purposes only and is not financial or investment advice. It should not be seen as a recommendation to buy shares in any company. Our content is produced without considering the objectives, financial situation, or needs of individuals. Before making any investment decision, prospective investors should consider the appropriateness of the information to their own objectives, financial situation and needs and seek legal and taxation advice appropriate to their jurisdiction.

Hidden force putting pressure on the rand

Hidden force putting pressure on the rand  

Shaun Jacobs • 28 January 2025

A weak Chinese economy is dragging down the rand as traders expect lower commodity demand from South Africa’s largest trading partner.

This will limit the foreign exchange South Africa earns from the export of minerals to the world’s second-largest economy.

At a media roundtable, Bank of America analysts revealed that they expect the Chinese economy to move sideways throughout 2025.

This is despite massive stimulus from the Chinese government and loose monetary policy, which has not had the desired effect on the economy.

China’s economy grew by 5% last year, perfectly matching the government’s target of increased exports and industrial production.

Economist for Europe, the Middle East, and Africa at Bank of America, Michalis Rousakis, said the bank expects the Chinese government to go deeper into debt to support this economic performance.

Export-led growth has been partly underpinned by deflation, which makes Chinese goods more competitive in global markets.

However, this also makes it highly vulnerable to potential trade tariffs from the US that are placed either on it directly or on its trading partners.

If the US imposes tariffs on Chinese exports and government debt continues to climb, the world’s second-largest economy could stagnate in 2025.

This spells trouble for global growth and emerging market currencies, such as the rand, as commodity exports heavily support them.

As a small economy that is highly open, South Africa is uniquely vulnerable to a slowing global economy and declining international trade.

This means that much of the local currency’s value is determined by international events, particularly developments in the United States or China.

A weak Chinese economy primarily impacts South Africa through commodity prices, with demand from the second-largest economy in the world largely determining these prices.

As a large commodity exporter, declining prices negatively impact South Africa’s economic growth and its foreign exchange earnings. This, in turn, weakens the rand.

A weak Chinese economy has been coupled with a very strong dollar since Donald Trump’s election victory in November 2024, resulting in the rand tweaking significantly since then.

The Chinese government has announced several rounds of stimulus to try to boost its economy and reignite growth, providing some support to global commodity prices.

However, Rousakis said these measures have only effectively created a floor for the Chinese stock market and ensured the local economy does not come to a halt.

It will not be enough to rekindle animal spirits or fundamentally resolve the fiscal difficulties faced by most local governments.

The perception is that the government’s commitment to boosting domestic demand remains incremental and vague.

While China is South Africa’s largest trading partner, it is far from the only game in town, and a potential slowdown in the Chinese economy could be mitigated.

Sub-Saharan Africa economist at Bank of America, Tatonga Rusike, explained that South Africa’s exports are among the most varied in the world.

This provides a natural buffer in the form of diversification, but it would be very difficult for the country to replace Chinese demand in a world of trade tariffs.

Given its position as president of the G20 and its significant role in Africa, Rusike said South Africa can expect to be somewhat insulated from a global trade war.

However, to fully mitigate the declining demand from China and reduce global trade, the South African government has to be nearly faultless in its foreign policy.

Rusike said the Government of National Unity (GNU) must work to improve global sentiment towards South Africa and consider policy measures to avoid the negative impact of tariffs.

The implementation of tariffs, even if not directly on South Africa, will have a significant impact on local financial assets but will have a minor effect on the country’s fundamentals.

These are largely within the control of the government, with reforms to the logistics sector, improved financial health, and a better business environment being local issues rather than global.

 

Articles and other information on Daily Investor is for information purposes only and is not financial or investment advice. It should not be seen as a recommendation to buy shares in any company. Our content is produced without considering the objectives, financial situation, or needs of individuals. Before making any investment decision, prospective investors should consider the appropriateness of the information to their own objectives, financial situation and needs and seek legal and taxation advice appropriate to their jurisdiction.