“Is that yours?” Millions of car buyers spend billions of dollars hoping that this statement will be born of admiration rather than pity. When these words come out of a car dealer’s mouth at trade-in time, they can be especially hurtful– even if the salesman is as honest as their spiel is long. That’s the moment when most car buyers finally discover whether or not their automotive “investment” has walked off a cliff and fallen into the financial abyss known as depreciation. Here’s how to avoid the freefall…
It simply can’t be stressed enough. Depreciation is the mother of all automotive operating costs. Even if gas soars to four bucks a gallon, depreciation STILL repesents the biggest hit to the car owner’s wallet. To wit: The average cost for a new car in these great United State currently hovers around $24k. After seven to eight years– not far from the ever-increasing average amount of time American new car buyers hold onto their whips– the car’s owner will be looking at a depreciation rate somewhere between 70 percent and 85 percent.
In other words, come trade-in time, they’re facing an average loss between $16,800 and $20,400. That’s before any considering of the “opportunity cost” (i.e. money lost by NOT investing the cash in a house/money market/alpaca farm). Or inflation.
Bottom line: if you want to avoid depreciation, forget about buying a new car. Yes, a new car offers warranty-related peace of mind. But it's an extremely expensive security blanket. A carefully-selected used car may need repairs, but in most cases, they'll still cost a lot less than depreciation..
If you're willing to forgo that new car smell, figuring-out your buying pattern is the next step. There are two basic buying types: Keepers (keep cars for the long haul) and Traders (trade them in after a few years).
Many Keepers are ready, willing and able to enjoy a vehicle for well over a decade. “Keepers” believe their car should be a cruising companion until the point where the perceived risk of owning it (usually the cash outlay for major repairs) outweighs the fact that ownership itself [eventually] costs them nothing/virtually nothing. In the automotive world, they are what we call "married."
The key to being a successful Keeper: marry genuine quality, not reputation. Say what you will about “import bigots” and brand loyalty, but the automotive market is a place where perceived reputation translates into dollars and cents. Toyotas and Hondas routinely receive price premiums– even though many of their products fall far short in value and performance as compared to their peers. By the same token, overlooked or unloved models represent an excellent way to keep the hounds of depreciation at bay.
In most cases, car buyers get more bang for their buck (power, features, etc.), lower up-front costs, and lower depreciation costs simply by buying a used example of a less well known/accepted car. Mitsubishi, Subaru, Saturn– there are plenty of brands that sell excellent products that simply fail to capture the public imagination. The fact that these cars take a huge initial hit on depreciation works entirely in your favor, both buying and selling.
For example, if you’re looking at a midsized commuter, a 2004 Buick Century or 2004 Oldsmobile Bravada, both of which finished first in J.D. Power’s recent dependability study and received strong ownership ratings, will cost thousands less to purchase than a comparable Camry, Accord or Pilot. Remember: badge snobs must pay for the privilege.
The Trader is a different animal, a shorter time horizon than the Keeper, requiring a different strategy.
To avoid depreciation, Traders are best off buying a carefully vetted five to seven-year-old car of their choice. At that point, depreciation has exacted the majority of its revenge. With due diligence, Traders can get a superb return on their money. The average five-year-old car kept for two years experiences minimal depreciation (20 percent or so). The average seven-year-old car experiences even less, and so on. It's a simple but highly effective buying pattern.
And then there is the Sage. The Sage can buy nearly anything and make a buck at it. Yours truly has enjoyed hundreds of vehicles over the last few years– and it’s only taken huge chunks of my free time to do it. Mechanics, auto auctioneers, wholesalers, retailers and hobbyists will always have an edge when it comes to depreciation costs. We know what’s hot, and we know plenty of people who appreciate hotness.
Again, wisdom comes at a cost. Sages don’t pay for depreciation (much), but their insight requires years of hard work, money (mistakes are never free) and a feel for the auto biz' cycles of fashion and fame.
Whether you’re a Keeper, Trader or Sage, remember: a car is an expense. It may excite you or be a daily nuisance, but it is still an expense. By minimizing depreciation you will avoid the single largest cost in the process. With that money you can save the world, buy groceries or save up for your next car.
Steven —
Great piece.
Can you talk about the expected reliability of 5 – 7 year old vehicles? And how maintenance costs may become the owner’s #1 expense (vs depreciation), as most of us are neither sages nor mechanics.
I’m also wondering if there is any truth to the hearsay that the Honda’s and Toyota’s of the world have higher parts costs than the 2.8, especially in those later years.
Viewing vehicles as an asset is a fundamental fiscal mistake. They are not assets. Aside from used car dealers, no one purchases a vehicle for the purpose of reselling it.
Rather, automobiles are a consumable commodity, much the same as a pair of shoes. The more used the commodity is, the less it is worth to others (resale price), but the more useful it has been to its original purchaser (you got more use out of it, clearly). Automobiles, much like new shoes lose value rapidly, at least initially, as they are no longer “new”, but by purchasing new shoes, one can be reasonably assured that they are of maximum future potential utility, and are the least likely to have experiences “wear” or have defects.
As with all such consumables, at some point additional value must be put back into the commodity (repairs, service) in order to get more use out of it. Eventually, the commodity becomes nearly worthless, either because it is used up (200000 miles, blown engine, etc), or because the required additional infusion of value exceeds the usefulness left.
Total cost of ownership is what kills the US dealers. They sell you a car, and then two years later offer massive incentives on the same model, further depressing your resale value.
Then again, I would never buy a new car. There are plenty of beautiful, babied 2+ year old cars out there and they are just too good of a deal. I would much rather drive an older Porsche rather than a newer Miata (which is what I do). Everytime I think about buying a new car, I just look at the used car market and think about how much more I can get.
Though I can agree that buying a used car can save a lot on the depreciation, I beg to differ on your opinion of the Buick Century. I have one. However, it’s 8 years old now, but has been an absolute lemon since I bought it (new) and even worse right after the warranty expired. It’s gone through 3 water pumps, 1 steering rack, 1 gauge cluster, more than 12 wheel bolts, 2 fuel pumps, 2 coil packs, and constant door re-alignments. These are only the non-routine maintenance items. The car has never been in a major accident. Hopefully, other Buick owners have better experience. I keep my cars for the longhaul. It’s the only way to get my hard earned money’s worth.
The only thing I worry about when buying used is the possibility of buying somebody else’s problem. This will happen when it comes time to rid myself of the Buick. It will become somebody elses problem.
So from my point of view, the other balance is the cost of depreciation over the longhaul vs the cost of repairs.
fallout11, precious comments.
With manufacturers being the first culprits of making new vehicles easier to attain than used vehicles, what is the real depreciation of any used vehicle.
When a percentage of people are “upside down” in their vehicles the instant they drive of the dealer’s lot is it depreciation or a combination of depreciation and the fiancial package.
2007 Worst Resale Value Cars (Cars.com)
Rank Make and Model Style* Residual Value
1. Mazda B2300 4×2 regular cab 27.95%
2. Ford Ranger XL 28.75%
3. Kia Rio Base 30.18%
4. Ford Freestar SE 30.78%
5. Buick Rendezvous CX 31.15%
6. Dodge Caravan SE 31.35%
7. Ford Crown Victoria LX 31.62%
8. Chevrolet Silverado 1500 Classic LS 32.08%
9. Dodge Ram 1500 Regular cab ST 32.83%
10. Dodge Durango
2007 Best Resale Value Cars (Cars.com)
Rank Make and Model Style* Residual Value
1. Mini Cooper Coupe 68.04%
2. Subaru Impreza WRX STi 62.57%
3. BMW 650 Convertible i 62.34%
4. Toyota Tacoma 4×2 Double Cab PreRunner 61.98%
5. Ford Mustang (tie) GT coupe 61.96%
5. Audi A4 (tie) AWD Cabriolet 61.96%
7. Porsche 911 Carrera coupe 61.36%
8. Jeep Wrangler Two-door 4×4 Sahara 61.10%
9. Volkswagen New Beetle Convertible 60.23%
10. Volkswagen Rabbit
Now just recently when in the market for a car, I went to look at a 2005 Mazda 3i Touring. It was a little over $16K. I ended up with a 2008 Mazda 3i Touring (newer models have side air bags, and I have a young son so this was a big deal) – cost $16,900.
So this told me a couple of things – These cars have fairly good resale value (in fact not too many 1-3 years old 3’s are on the used market as people tend to be keepers with this model), and although I fully understand the logic of resale value, I was willing to forego that altogether for a safer car with some other tweaks and refinements for not a whole lot more $$$$.
Depreciations touches the head, whereas many car purchases are matters of the heart!
Weird. These used cars deals seem rare to me.
I just bought a used car last week. I was disappointed by what I saw on the used car market. Perhaps my price point was too low. Perhaps it was because I only wanted a wagon.
My budget was $5k max. I wanted nothing older than a 1999, less than 120k miles, a wagon, and good fuel economy.
It took a month. I finally found a low-mileage 1999 Volvo V70 that needed some TLC for $4k. It was over 200 miles away, so I had to waste a day on public transportation getting down there.
Still… I looked all over the California using Craigslist and cars.com for over a month. When this Volvo popped up, I snagged it.
So where are all these great deals?
I just look at the used car market and think about how much more I can get.
I beg to differ on this. Price of pre-owned Civic, Odyssey etc. are very close to that of new.
By buying used you are taking a risk of getting a car that has been abused even it it is under warranty. You finance rate on older car is more tthan that of a new one.
I used to own 10-12 year old cars, cars which were bottom-of-the-barrel when new, mostly out of necessity. Then I started working, moved up to a four year old fun car, and I’ve been disappointed. I guess my mistake was equating “less than five years old” with “new” but I’ve had to do a lot of maintenance and worse, a lot of corrections to bugs and stuff that I’d consider warranty repairs. Basically I’m turned off from buying a slightly used car ever again.
I used to swear I’d never ever buy a new car, but that’s what I want to do next time. There would be some value to me to own a car from the start, have that warranty, know that every scratch and sign of wear is my fault and my responsibility, know how the car felt when new so I know if crummy shocks are due to age or if they were just meant to be crummy… if I can afford it, I want that experience instead of what I have now
One thing I always tell people is to look at the resale price of something to determine its “true value”. I’ll start with a non-car example: compare the “new” versus “used” prices of diamonds versus other precious stones. A $5,000 new diamond ring may easily be worth less than a $1,000 the next day to resale. But other precious stones hold their value much better. Why? [putting tinfoil hat on] Well the diamond industry inflates the prices and sells the experience of a new diamond (you wouldn’t want someone else’s used engagement ring would you?), so the new price is inflated way above what it’s actually worth. The used market quickly adapts and the actual value of the diamond is seen.
Same thing goes with cars, the used value tells you much more about what the car is actually worth. Why did I just buy a new 4Runner rather than a used one? Well when I was looking around, the used price was not that far off of a new one, so it was worth it to be to not have to worry about someone else’s problem. The market has spoken that a used 4Runner is worth nearly the same amount as a new 4runner minus maintenance costs that it’s incurred. Now, if I were looking at Tahoes instead, then I’d have gone used. People may get up in arms about the domestic makers slapping cash on the hoods which lowers resale values, but that’s just a symptom of the problem. The real problem is that they’re inflating the new price to sell the experience of something new, but the car really isn’t worth that new price and when the sells slow down, they need to do something else.
The used market (in particular one with large numbers of buyers and sellers, e.g. ebay) quickly equilibrates to what the car is actually “worth”. The new market has artificial constraints that generally make it advantageous to the seller (higher prices). 1) Limited supply which only comes from one source, 2) The “experience” of a new car, 3) easier financing/lower interest rates on new car loans versus used. All of these things make a new car price more than what it’s really worth (in most cases).
Call it a commodity, call it a depreciating asset, it’s all semantics. You can invest in commodities, and most people do not throw away their cars like they do old shoes.
Just so long as you understand that everything you spend over the cost of a dependable beater that meets your actual needs is an entertainment expense. It’s like money spent for a nice dinner. You are happier, but poorer. Nothing wrong with trading money for happiness.
Many people need features in a vehicle for their ability to make money (even more fool themselves into a rationalization rather than a justification). If you need a truck to haul stuff for work, then that’s different than if you need a truck to fit in at the country western bar.
Lot’s of wisdom in this piece, and I especially like Mr. Lang’s pointing out that the best deal for you depends a lot on you. Kudoo’s. It would be even better if you made a more pointed case about how much more depreciation is than fuel even if fuel goes over $5 per gallon.
It will be an interesting test of the site’s fans to see how many posts have some nonsense about some absolute certainty that just doesn’t apply to everyone.
Thanks Steve, I do have a question though. Where do special edition versions of popular cars fall. For instance Would a Cobalt SS or a Malibu SS suffer the same depreciation dive as their low rent base model sold extensively to rental fleets? Or in my case, how would a Mazdaspeed6 do vs a standard Mazda6? I have noticed that the Mazda6 has really ramped up fleet sales for the vehicle to the tune of 40-50% of the cars production. Obviously, no Speed6’s were sold to fleets, but will it retain its resale any better?
Drifter,
If you are a young college graduate who has a standard of living that you can’t quite afford yet, but who REALLY will be seeing a doubling of income over the next five years, then yes, new or certified used is the way to go. High finance rates are a bigger waste than depreciation. Still, spend as little as you can that will still leave you happy for three years.
Another way to go (I may get flamed for this) is the cheap lease. If you can find a car you are happy with that will lease out at less than 300 per month, then that MIGHT be a deal for you. These deals are almost always manufacturer specials. First, take the total cost to you over the term and divide it by the months (3,600 initial payment with taxes, plus 200 per month for 36 months = $300 per month). Make sure that the mileage allowed is more than you drive. The reason this lease works is because leasing is not much more than buying if you trade every three years, buy average price cars, and aren’t experienced at trading. If you can get less months, then all the better. Don’t go longer than 3.5 years. You will end up unhappy.
If you are not the person I descibed, or if you are especially wise, then you should likely be driving whatever you can pay cash for (I won’t list the exceptions, they are a small percentage of the population).
There is no free lunch. Whether you retire rich or poor will have more to do with this sort of decision than how much you earn. You can spend your life filling the wallets of a bunch of New York fat cats, or you can be a winner.
I also am someone who disagrees with the sentiment that used cars are the way to go. Reliability is crucial to me and as such I’m not nuts about the unknown, which is something you have to deal with to a greater or lesser degree with every used car you buy. Also, I like having a car under manufacturer warranty. I had an Isuzu Rodeo with an engine sludge issue that required about $5,000 to fix. That I was lucky enough to have it happen with 800 miles left on my warranty is something I’ll always remember.
I think the key to smart new car shopping is having some flexibility in how the car is optioned, its color, etc., and having the luxury to wait until the right car turns up. I saved about 20% off sticker on a car with 90 miles on it that was called a “demo” and got mega-discounted. It is a really great car and has full warranty and I don’t have to worry whether or not it was problematic for a previous owner. Unless you’re sold on a car that just isn’t in inventory (like the Prius used to be), or you just have to have some color or doo-dad, you don’t have to give up the new car smell to get a great deal. It’s like anything else, haste in the buying process or perceived (though not necessarily actual)necessity of any sort is the enemy of a good deal.
Viewing vehicles as an asset is a fundamental fiscal mistake. They are not assets. Aside from used car dealers, no one purchases a vehicle for the purpose of reselling it.
Rather, automobiles are a consumable commodity, much the same as a pair of shoes. The more used the commodity is, the less it is worth to others (resale price), but the more useful it has been to its original purchaser (you got more use out of it, clearly). Automobiles, much like new shoes lose value rapidly, at least initially, as they are no longer “new”, but by purchasing new shoes, one can be reasonably assured that they are of maximum future potential utility, and are the least likely to have experiences “wear” or have defects.
I get your point that buying a car requires a different perspective than buying an investment asset. But my inner accountant can’t let go of your use of financial terms. Saying a car is not an asset makes you sound like you’ve been miseducated at a Robert Kiyosaki seminar.
Kiyosaki, who apparently knows how to make big money in real estate and selling books but wouldn’t recognize a financial statement if one hit him in the head, insists that cars and the homes we live in are liabilities because we make monthly payments on them and they don’t generate monthly cash flow. Not true. It’s the loans that we usually take out to purchase our homes and cars that are liabilities. Assets are assets whether they are cash generating investments or not. In fact, with cars and homes, every time you make a payment to reduce your liability you are increasing your net worth.
A car is an asset – usually a depreciating asset with a limited functional life span. As such its purchase and ownership must be managed differently than an investment asset. The key is purchasing wisely so that you can retire the loan (i.e. reduce your liability) faster than your home or car depreciates or wears out. This keeps the net worth of that asset in the black so you can resell it without losing additional money (cash) on the loan to cover the depreciation. And done really well, as Steven Lang pointed out, you might even be able to turn a profit.
Oh, and shoes are assets too.
There. I feel better now.
I actually tried to buy used, but when the incentive price of an 07 was the same as a certified preowned volvo, I took the new one. Oddly, the certified might have had a longer warranty, depending on the year. Certainly not an investment. Perhaps an insurance policy (safety features). Things like ESC and side curtain bags may be an argument for buying current cars over used.
What is emerging from the comments, just like there is a generation gap between folks that have Detroit Iron and folks that have imports.
There is a generation gap between folks that want a used vehicle to folks (usually younger) that have no desire for a used vehicle, no desire to spend money maintaining or reconditioning a vehicle.
Different ownership experience is expected, one wants to save money fool around with maintenance, the other is looking for the latest technology and safety features, understands the electronic unreliability of modern vehicles, prefers a “deal” on a new vehicle.
The Trader is a completely different animal. Traders tend to be single people who prefer to have a vehicle for a few years and move on. (Many Traders become Keepers when they finally find that one car that suits their tastes.)
I guess you’re not the first person to liken car ownership to dating, as indirectly as it was done here. I’d like to note that both activities also take up large amounts of money.
On that note, after a Dodge Neon, a Mazda3, a Honda Accord and a Ford Mustang, I’m still looking for “her”.
For Mr. Montgomery:
Accountant’s view of the glass half-full, glass half-empty debate
The glass isn’t half-empty or half-full. What you’re looking at is half a pint of depreciable assets sitting in a pint of capital infrastructure that can be amortized over two accounting periods.
— Elaine Barnaby, in Charles Stross’s Halting State
Cars will typically depreciate only so much and a lot of that depends on they car itself but there comes a point where a car will sell to someone looking for a beater or 1st car for their kid.
I was recently looking at some used cars in a kinda of what-if scenario. I looked at a 2002 Mazda Protégé 5 with 70k miles and they were around 9-10k, 03 Subaru WRX with 50k miles was around 13-14k and an 06 Dodge Charger SE was 14k with 15k miles. Significantly different cars but it tells you something. The WRX is a popular car and keeps a bit better value as it has some performance roots. The Protégé is a good car and functional with limited reliability issues while still being fun to drive. A comparable Ford Focus was 2-3k cheaper. The Charger has been overbuilt and not in demand. The SE is also the bottom trim but it is still surprising that after 1-2 years its worth about 50% of its MSRP.
Personally I would never buy a car older than 4-5 years. You most likely don’t know how the car was run and maintained and you could run into some serious maintenance expenses such as the transmission or engine. Modern cars also have a lot of electronics and there are lots of things that can go wrong. You are either making payments or you are making repairs, either way money is going out the door. Do you want scheduled, budgeted money or surprise money? Now if you a mechanically inclined I say buying an older car can be great if you can fix most things yourself as well as tell if a car is in good shape.
The rest is from my point of view and many might disagree:
A lot of people have to buy used homes (yes I know pre-existing is the PC term) do you really want to buy someone else’s car too? May as well just buy everything from Goodwill and consignment shops, eat the almost expired meat and 3 day old bread. This is taking it to the extreme a bit but it follows the same line of reasoning. Life is for living and working is to pay for the things that make life enjoyable. Beyond family and your home for some that’s a fast car, perhaps a big honking truck or to be swaddled in rich leather while getting a back massage as you commute in luxury.
I may buy used in the future but it will solely be to buy a car I wouldn’t normally be able to afford anyway.
Another good editorial and intelligent comments. I would second many of the points being made here.
I don’t think that there is any definitive answer to the “new or used” dilemma because it all depends of who you are and what you are looking for out of the deal. If you are mechanically savvy and confident then running a 5 -10 year old car make a lot of sense. If you can do all the work yourself and there fix most problems form little more than the cost of the parts then your cost of ownership will be very reasonable.
However, if you had to pay someone else to do all that routine maintenance and fixing the little things that will inevitably crop up then the financial equation may quickly tilt against this approach.
In looking for a good used car I would agree with the author that there are always certain vehicles that fall into the category of “unpopular but not actually bad or unreliable”. As has been pointed out in the comments, some cars are cheap used because they are crap and you may well live to regret it if you were suckered in by the cheap price. On the other hand other cars have poor resale value simply because they are “unfashionable” and most people just wouldn’t want to be seen in one- even though they may be generally sound ownership proposition – if you are secure enough in your own ego to drive around in a car that just isn’t hip and trendy others. Obviously many folks are not – judging by the number that spend thousands of dollars on the sort of cars they want to be seen in but really don’t actually need (see earlier comments about “image” truck buyers).
When looking for a nearly-new used vehicle (minivan) within the last 12 months or so I encountered the excessively high prices being asked for good used examples of the very reputable Honda and Toyota models. I acknowledge that these are good vehicles but felt that these prices were just not realistic. We were able to buy a brand new Kia Sedona for $17k – which would have got us a 2 – 3 year old Sienna or Odyssey with probably at least 40-50k on it? We plan to keep the Sedona 10 year so and drive it into the ground so rate of depreciation will be less of an issue on that one.
There is something to be said for the peace of mind of a good warranty (especially if it is 10 years) and as others have said – newer cars tend to have ever-improving technology on the. As the Sedona is a family hauler for my wife and kids it is reassuring that ti has every electronic safety gizmo you can think of – which you’d be unlikely to find on older vehicles?
As for my own car – I think I’d fall into your “keeper” archetype. My own car is nearly 10 years old, going strong and I hope to keep it for at least another 5 years. It is in that certain spot in its life-cycle where it is still a very nice reliable usable car but has depreciated to the point I would get little return if I sold it. The only real reason to get rid of a car like this is if you hate it or are bored and simply want something new.
Oh – there is an amusing UK website at http://bangernomics.tripod.com/ that celebrates the art of running an old used car on a veritable shoestring….. it relates to UK-market models obviously ( “banger” being the Brit-speak slang equivalent of “beater” ) but the sentiment would resonate with US enthusiasts.
Buying ~2 year old cars is the sweetspot for me. You’re still getting a car under warranty, but you’re not getting hit with 2 years of depreciation.
But it depends on the car. You will not save that much on a two year old Mini Coopper S versus a new one. OTOH, a $60K(sticker) BMW M3 w/20k miles can be had for low $40s in a careful private party search.
This is an interesting debate. My personal opinion is to buy a low milage 1-3 year old car and get rid of it around the 5-7 year mark. To me, it seems like you are able to get the greatest amount of reliability from a car that has low milage and still takes a major depreciation hit and then sell it when many of the expensive maintainence needs to be done at 80-100k. Thus far, I was able to get myself a 3 year old Nissan Altima for 50% off MSRP, a 3 year old Camry for my dad for 6k off sticker with only 17k miles on it, and a friend just bought a loaded 2006 v-6 mustang for 16k out the door. I plan to pick up a 1-2 year old car soon as my car is at the 7 year mark. I figure to buy a 17-20k car for 13-15k and put 40-50% down if I sell my Altima for about 6-7k (low average milage, fully loaded).
a car is a (depreciable) asset, but not an investment
Steve S. – You are either making payments or you are making repairs, either way money is going out the door. Do you want scheduled, budgeted money or surprise money?
I will disagree with the part you didn’t think I would disagree with. :)
First, you are only making payments if you borrow. While there is time value of money, only one tenth of one percent of us can dependably make money by borrowing.
Yes, there is an excellent point to surprise money vs. regular money, but the two aren’t even in the same ballpark. How many people are really in some trap where they have to have a super reliable car this week, and do not have a down payment?
If you will mine all your trusted friends and family to find a reasonably reliable car for around $3,000 or less, you will likely not spend more than 2k in a single year to keep it running. If you do, part it out and start over. At $300 per month, you have enough to buy another one in only 10 months. You also now have the original that is likely still worth close to what you paid. In two years you have enough to pay cash for a much nicer car, even if all you saved was the 300 a month you were going to spend on a payment. In about 5 years, you will now be way ahead, and likely be able to buy new or nearly new cars for cash FOR THE REST OF YOUR LIFE. Maybe one of the accountants can tell you how much that is worth, but I will bet it’s enough to make a HUGE difference in the comfort of your retirement.
The real value comes from living debt free. All the people I know that have become debt free start making better decisions immediately. They end up being MUCH more wealthy and happy than their peers.
As for the bit about used houses, never buy a new one either. They depreciate in real terms. If you buy one EXACTLY like the new one, in the same neighborhood, but only older, they will be worth the same amount of money in only a few years. The difference is depreciation in my book – even if they both appreciated.
Where we agree is the part you thought was arguable. It’s not, life is worth living. Spending money for happiness is a great idea. The problem is that if you borrow to do it, you will end up with less happiness for the money. If buying a new Ferrari makes you more happy than the money you have in the bank, great. Just don’t borrow. It WILL end up lessening your enjoyment of the car, and will make you less happy overall.
I will agree to some exceptions, like young professionals who have a well mapped out future. They can get a lot of value out of a new compact, the reliability that comes with it, and the budget value of the warranty. One key reason it works is that their utility for money is also going to change drastically. For almost everyone else, it’s a fools bargain.
veefiddy:
Things like ESC and side curtain bags may be an argument for buying current cars over used.
That’s exactly my rationale why we’ve gone with new vehicles.
We’re Keepers of vehicles >10 years and expect (and can afford) to lose the just about the entire value of an car. No car loans here – if we can’t write a check for it, we can’t afford it. It helps that our vehicles usually cost less than the average new transaction price.
The problem here is that we can’t often figure out how cars age. I had a Mercury Mystique, with the v-6 and eventually a few SVT parts. I do a lot of mileage fighting speeding tickets (for a living- http://www.speedlaw.net) and the car was worn out in four years and 100k. It still ran, but was clearly worn inside and getting loose all over. I take very good care of cars, but this one was a Kleenex. Worse, it was not really designed for repairs-all the clips were one use ! Let me also say the car was reliable-I didn’t get a lemon.
My next car was a BMW 3-er, and in exactly the same usage and maintenence, it is still tight at 140k at four years, and I anticipate at least another four years. It has ONE small rattle I can’t find :). The BMW is designed for repair and long service-whereas the Mercury was engineered to be cheap and make it to warranty, the BMW is designed for a ten year service life in everyday use.
The end result is that while the BMW was about twice the cost of the Mystique, it will most likely last three times as long. So, overall, it would come out less expensive, provided you can access the “game” (give us all your money) at that level. I figured out this sort of thing a few years back, calculating depreciation on three Taurii, and comparing it to owning one E -Class, and the MB won financially, never mind the intangible ego issues.
My other car, an eight year old SAAB, still runs well, save occasional small issues. I gasp when I see that even a Magnum, properly kitted, is a 40 K car, or that MB the Mrs. likes is 50 k.
When I even calculate the tax on that car, I can afford to repair the SAAB again. Still, it is reaching the end of reasonable service, and trying to figure out my next ten year car is very tough.
Separation of EGO and NEED is very important in this discussion-and ego is where the money comes from…I tell my wife we can afford transportation easily…it’s the ego-mobiles that are expensive…….
My take.
First, it’s true there is no one answer, as we all have different priorities.
For new cars I like to buy Hondas. The ownership costs in most cases are equal to the payments, + scheduled maintenance+ gas, oil, insurance – the kind of expenses that one would have regardless. (Though you could of course get PLPD on the older used car if you paid cash). I tend to keep cars 10 years, so I really have little residual left (but something, because it’s a Honda). After the first 5 years, the payments disappear. I take the depreciation as a cost of ownership, and it’s worth it to me for the peace of mind.
One thing to consider is that while it may be cheaper in terms of total outlay to fix an old car, the money just might be hard to come by. I can afford $425/mo for a car payment, but I already have plans for the rest of my money, including savings and investment. I wouldn’t like to have to come up with a thousand or two on short notice to keep my transport going. Buying new lets me know what my costs will be.
For used cars, I have two routes I’d go. One is to get a one or two year old car. These are new enough that one isn’t likely to have nasty suprises, yet a lot of depreciation cost can be avoided. I was recently looking at new Impalas, and found that I could save 6-7K just by getting one a year old. (but then there’s the nagging question – why’d someone trade it in if it’s only a year old? ) Especially with domestics, the depreciation in the first year or two can be substantial. Though this route makes sense, I hardly ever do this, prefering to have the new Honda.
The other route, that I have occassionally used, is what I call the “Rambler” method. Get an old (maybe really old) car that either barely depreciates or even slightly appreciates. For me old Ramblers have been good, because I could get them for a song, and they are simple and solid cars that are easy to work on, and parts are readily available. (well, mechanical parts anyway) A ’57 Chevy otoh doesn’t work as well because it’s hard to get a decent price. People want an arm and a leg for a clapped out POS 4 door sedan just because it’s a ’57 Chevy. I used this system when younger, but not so much anymore as I see the wisdom of having air bags and other safety equipment. There are idiot drivers out there.
My brother in law tookthe “Rambler” method to extremes. He’d buy Gremlins and Hornets for $50 (this was before they were retro cool and sought after) and drive them for a year or so, then when it needed a repair that exceeded $50, he’d get another one.
I’m a keeper who has had some good luck with this formula. Bought an 03 Century(decontented) in 04 with 23K on it(lease car I believe) for $9500(wife is a pit bull with dealer price). Very clean. Coming up on 4 years now with no repairs, just maintenance. In the 4 yrs I’ve owned it it has depreciated maybe $5K. I’m a low mileage driver, maybe 10-12K per year. Almost 5 years old now with 62K on it. With any luck it will be ready for my 12 year old son in 4 years. He can take it or leave it. It handles like a yacht and brakes like one too. Forces one to be a more careful driver.
Landcrusher
“If you will mine all your trusted friends and family to find a reasonably reliable car for around $3,000 or less, you will likely not spend more than 2k in a single year to keep it running. If you do, part it out and start over. At $300 per month, you have enough to buy another one in only 10 months. You also now have the original that is likely still worth close to what you paid. In two years you have enough to pay cash for a much nicer car, even if all you saved was the 300 a month you were going to spend on a payment. In about 5 years, you will now be way ahead, and likely be able to buy new or nearly new cars for cash FOR THE REST OF YOUR LIFE. Maybe one of the accountants can tell you how much that is worth, but I will bet it’s enough to make a HUGE difference in the comfort of your retirement.”
Food for thought.
One insurance point due to a tiny rear-ender in a car with bad brakes, when you’re young, can add a thousand bucks a year to your car costs. That can wipe out any pride in taking the economical route; just thought I’d warn you from personal experience.
Anyway, financially my approach is to ask myself what I need in a car to justify having one at all. Basically something that works. I set my baseline cost based on that, and then I move on to asking myself what I want. Anything above beatership is a cost that I consider throwing away on a luxury item… which I freely do, knowing I could do other things with that money.
Need: $300 car, like my old Sentra
Want: a car I derive pleasure from, not frustration, anger, self-loathing, stress over getting killed easily, and embarrassment
When I was traveling as a sales rep I used to buy 2 year old Windstars and drive them for at least 100K miles. I would generally have to put in a new transmission and maybe ac and there were alot of front end alignments and brake pads, etc. But it was worth the hassle because of the 50K mileage per year.
Now that I am retired I buy new and generally Honda or Toyota. I have an 04 Prius and an 06 Ridgeline. Both have only required regular maintenance. I don’t want to have to hassle with car problems any more. So I will probably keep buying the same brands after owning these cars for around 10 years. Maybe I will never buy another vehicle. Whatever, the hassle with higher maintenance vehicles is no longer worth the lower purchase price.
Veteran beater owner checking in. In my opinion there are only two ways to buy a car.
1) New or slightly used vehicle where the warranty runs the length of the payments. The frustration of making payments on something you trust as far as you can throw is one of life’s less fun experiences.
2) Used for cash. My current daily driver cost $2200. I keep about $1500 in savings to cover surprise repairs. When something comes up I buy the parts, put it up on jack stands, and fix it. Then replace the car repair fund as quickly as possible. When you consider that a car payment is about $300 a month, or $3600 a year, you can justify quite a bit of repair costs.
Buying a new, quality Asian car and retaining it 10-years or more works for me.
When one buys a used vehicle he gets its remaining lifespan, whatever that may be. Most Honda, Toyota and Nissan products demonstrate superior long term reliability and durability.
It used to be, for example, that key parts were designed to last only 80,000 miles. That has increased, say GM executives, to well over 100,000 miles, with many parts specified to last 120,000 miles. – BusinessWeek, 9-7-2006
Detroit-3 cars are value engineered to fail soon after warranty expiration notwithstanding careful use and optimum preventive maintenance. Poorly maintained and abused examples, or the not so infrequent lemon, will fail even sooner.
I am amazed to see so many buy new or drive it into the ground folks here. I would warn people that you don’t know if you are actually capable of keeping a car for ten years until you actually have, so don’t use this to rationalize buy a fancy new car until you have proved it.
Still, if you do keep a car for ten years, then buying new has a much lower cost to you. Still, would a one year old certified pre-owned be just as good at less price? Certainly you don’t get a heck of a lot off without a serious haggle, but you do get even more warranty.
Also, how many of you are buying on time? Having once not had a payment for several years, I just couldn’t borrow money for a car ever again.
“I am amazed to see so many buy new or drive it into the ground folks here. I would warn people that you don’t know if you are actually capable of keeping a car for ten years until you actually have, so don’t use this to rationalize buy a fancy new car until you have proved it.”
I’ve proved it several times. Even my Ford Ranger is almost 10, so it’s a cinch the Hondas are going to go that long. All my prior Hondas did. My son’s ’89 Civic is, obviously, more than 10 years old.
I do like your idea of being payment free. Maybe I’ll try to get 5 more years out of the Ranger. By then I’ll have enough for a new buggy.
Or be smart and buy something like a VW R32. Some of those cars are still listing at 85% of their original MSRP…talk about resale!
What I’m getting from all of this..The most sensible car ownership guidelines are:
1.) Only purchase cash (don’t live beyond your means)
2.) Get the most reliable low maintenance car (like a Toyonda-san appliance)
3.) Own it until the cost of repairs doesn’t go above its residual value (10-15 years or more)
It’s funny because all the auto marketing gimmicks are trying to lure us to do the exact opposite – make an emotional purchase.
Emotions define our lives, imo. But despite what I said about wanting a new car next time, I haven’t even come close to doing it yet. Might not. Just kinda disillusioned with a sort-of-used car after a lifetime of really-used cars.
Having been one of those really-used car owners, I never understood the argument that you should get rid of a car when the repairs cost more than the car is worth. If the car’s worth $1500… it’s not easy to go find a $1500 car that’s just as good and won’t need that much money in repairs anytime soon.
If the repairs cost more than the cost of a replacement car (one actually being offered, not a theoretical one!) then I’d think hard about it. Easier to know and trust your own car than take a chance on a new-to-you beater.
For deals on used cars you gotta be in the loop. You have to watch watch watch and more watching. Huge chunks of time indeed.
As a former car salesman I’ll tell you being able to buy a used gem at wholesale plus 300 bucks and flip it after a few months (and taking the ire of the dealership for doing so) and make 2k is good stuff.
I bought a 97 base dakota in pretty good shape for 3000 when my dealership had a sticker on it of $6995(that was 2 years ago and in Canada). I still have this truck as I find it’s use it quite high for me at present but it’s a prime flip type car for a salesman.
My latest acquistion is an 02 Civic SIR (hatchback Si in USA) and I had to fight like mad with the dealer to get a price close to blackbook and had to ship it in from two province’s away as noone in town would play ball on a solid rare car like that. I’m sitting on 1500 to 2k in markup in my opinion…trouble is I like the car alot and am having trouble getting the motivation to flip it!
The deals are out there folks, it just takes time, watching, heavy duty haggling and patience.
I am pretty much in agreement w/ Landcrusher’s philosophy here. The one new car I bought I kept for more than 11 years, and the only reason I bought it new was because the depreciation was so little, less than 10% a year, in the first couple of years. My first car was a ’77 Toyota Corolla which I bought for $400 in ’85, and sold for $200 in ’93. No depreciation there!!! It served me very well. My current car is a ’99 Accord (stick) which I bought for $5,500 in November ’04, with 67k. It is serving me very well. I am currently considering buying a neighbor’s ’02 3-series (stick and clutch), with 58k for $14.7k. I’m trying to figure out if I will get enough additional joy from the BMW to make it worth it. Believe it or not I enjoy tossing the Honda around, and I love the sound of winding it up.
Meanwhile, a lot of $ did go towards retirement.
A lot of good remarks. Let me take a couple of ideas for now…
1) What ‘year old’ car will offer the biggest bang for the buck?
On average, it tends to be a seven to nine year old car that has been conservatively driven and well maintained. Tom & Ray Magliozzi (of NPR’s ‘Car Talk’) released a book by the same name which highlighted the fact that vehicles with minimal depreciation and minimal cost invariably result in the maximum ‘economic’ return. The studies they highlighted in their book showed that a seven to nine year old car that was kept for around five to seven years best achieved that value point.
As I mentioned in the ‘How to Buy A Used Car’ series, it’s best to start with online resources to narrow down your search. Dealer visits are frequently shared with Carfax (as are most title and accident issues). An experiened independent mechanic can inspect a vehicle AND perform preventive maintenance for a fraction of the cost of dealers. Finally, most vehicles today are designed to last anywhere from 200k to 275k on average if they are well maintained and conservatively driven.
2) Unpopular vehicles
For those who wanted a quick list of ‘unpopular’ vehicles… here are a few possibilities to consider.
Luxury Cars: Infiniti Q45, Mazda Millenia
Subcomapcts: Saturn SL1’s, Ford Escort, Mitsubishi Mirage/Lancer
Midsize Vehicles: Galant, Sonata, Kia Optima (which is a Sonata in drag), Buick Century/Regal, Ford Taurus and Mercury Sable (only with the Duratec engine), Dodge Intrepid / Chrysler Concorde (only with the 3.5L engine)
Wagons: Non-Turbo Volvos and Subaru Imprezas (especially in the South), Mercury Sable/Ford Taurus
Minivans: Ford Windstar/Freestar , Dodge Caravan / Plymouth Voyager, Mercury Monterey, Oldsmobile Silhouette
This list doesn’t mean you HAVE to get a Saturn, or a Corolla, or a Volvo, or a Miata (although the Miata/MX-5 really is by far the best in it’s class). It does mean that you may want to use the online resources that are out there, take the necessary precautions, and be patient.
2) A used car’s maintenance costs go up substantially as time goes on.
Not true at all. The maintenance costs of a vehicle increase gradually during the first four to five years (assuming an annual driving rate of 12,000 to 15,000 miles) and then plateaus in average overall cost during the next eight to twelve years (depending on product quality and driving habits).
The increasing cost during the early portion of the life cycle comes from the major service that typically needs to be done right around the 50,000 and 70,000 mark. There are a few exceptions to this rule. Some major services now take place at the 90,000 to 105,000 mile level. But by and large most vehicles have a cost structure that resemebles the following.
Maintenance Costs
Year 1: $200
Year 2: $400
Year 3: $600
Year 4: $1000 (major maintenance service)
Some folks naturally assume that it will just cost more and more as time goes on and jettison the vehicle before it reaches 120k. But the truth is exactly the opposite. The costs for the next several years, on average, will be right around the year 4 level.
Year 5: 300
Year 6: 850
Year 7: 600
Year 8: 1150
Year 9: 850
Some years you will just need a few oil changes and an air filter. Other years you will need to perform one or two major services. Such as replacing a compressor or changing a timing belt. But on average, given the millions of vehicles out there, the average annual cost over those next eight to twelve years will be somewhere between year 3 and year 4. This was also highlighted in the book, ‘Car Talk’, which I’m obviously endorsing at this point ;)
On a personal note, I have on occassion driven 100+ miles in an 18 to 20 year old vehicle that I bought directly from an auction or a dealer’s inventory. An older Volvo 240, Chevy Lumina, Saab 900, Ford Bronco, or any of the hundreds of other models that are out there (with a few exceptions) can be exceptional buys if they have been treated the right way.
Just as a footnote… even back in 1989, the average Volvo was designed to withstand 17 years of use and abuse in the Swedish arctic. Today, most cars will typically last on average between 15 to 20 years and 200,000 to 275,000 miles. Even a four year old car that has 50k on it still has a very long life ahead IF it has been driven and maintained properly. In strictly economic terms, it also represents a far better value versus a new car.
3) Are new cars bad values then?
Absolutely not. The one key thing I have learned in my auction work is that ‘value’ is all about a person’s perception.
New cars are a better buy if at least one of the three are true:
1) You want absolutely no uncertainty about ‘wear and tear’ issues and you’re not an expert in these matters.
2) You make enough money to make it a cash payment.
3) There is something out there that represents your dream car… and you don’t want to wait.
I actually started out in this ‘have to buy new’ group not too long ago. Back in 1994 (okay it’s been quite a while, but please give me a break) yours truly bought a red Toyota Camry coupe for the drive out price of $20,900.
I planned to keep it for 12 years. Did so. Drove it for 240k, and sold it for $2500. And you know what? It wasn’t the wrong decision. Buying a new car then enabled me to focus on the things that really mattered to me. There are a lot of people that simply don’t want to think about cars, and beyond the economic proposition of ownership, the Camry did a wonderful job.
To put it another way, your footwear may very well have a greater impact on your life than the car that you drive. Most cars of today are used for ‘A to B’ transportation. For non-enthusiasts, a new car can represent peace of mind and a perceived elimination of uncertainty. For the enthusiast, a new car also represents the very best in the marketplace. Both are fine because they both represent what is most ‘valued’.
And that’s the point. Used cars are typically better economic values, but your values may be elsewhere. Figure out what you like, do your due diligence, and go with it.
With only a few exceptions, I usually purchase new and then keep a vehicle for 8-10 years. I like knowing how it has been treated and serviced from the very start. Because I take good care of my cars and trucks from the very beginning (in terms of both treatment and maintenance), keeping them for a decade isn’t that difficult.
I also buy new because the interest on used-car loans for anything that can be considered late-model is just too high. Often it wipes out any advantage in purchasing a 1-3 year old vehicle. Yes, I understand the benefits of paying cash. But I am not rich and the reality is if I simply put money away every month for that eventual total-cash purchase, something will always come along to use up that money. Like the furnace and central air conditioning system I recently needed to replace.
In the rare cases that I didn’t keep a car for a long time, it was during a period when I was putting very high mileage on my vehicles. In that case, I bought new but inexpensive cars (always under 15K in 2007 dollars). Then I’d put 200K on them and essentially throw them away. But because I took care of them, repair costs – even in the 100-200K range – weren’t unreasonable. And even with the cars I keep for a long time, it’s difficult to get me to pay more than 20K.
Just like several have already mentioned – we all have our specific needs and situations.
Dynamic,
You won’t regret going cash. I have converted many people, and everyone who has tried it loves it.
Steve,
Even more good stuff! Do you have any advice about signs that your car is truly done? It seems to me that even replacing my crusher’s engine would be a good decision, but the crusher isn’t like most cars. My real concern is Mom’s ’89 Maxima. It only has 60k miles on it. I was thinking about putting in a new interior, but of course, she is angling for me to buy her a new car. Aside from the interior starting to show wear, her car still looks pretty much new, and still costs less than $1,000 a year to replace aging parts (nothing could possibly fail due to wear).
Speedlaw, I’m going to shock you and suggest you consider a Hyundai Sonata with the 2.4 four cylinder engine (stick or automatic, your call) for your next car to replace the old Saab.
Why? Because I did a lot of reading of automotive journal type stuff when the new Sonata car was still in the oven, and this new Theta four cylinder engine is engineered and intended to last 250,000 miles. And the four speed automatic transmission is apparently a shared piece with an earlier Toyota Camry unit (i.e. proven reliable). Plus the long warrantee (for initial owner). And the overall excellent value of the cars.
I’ve owned a Saab and the Hyundai is way more car. Ours is a 2007, four/automatic, built in Alabama.
The fit and finish on the car is light years ahead of anything GM makes. I walk out into the garage to put the dog in or out and just stop and stare at the paint finish, it’s so good. It’s WAY better than the 2002 Sonata was, and equals the quality of our 2008 Prius.
I have a fair amount of mechanical ability. I do all my own work except for AC — ROI doesn’t justify owning AC tools.
For years now I’ve been purchasing cars with with low miles and clean bodies/interiors, but with known mechanical issues. I offer the owners a bit more than they could get on a trade, and I let them know that I’m aware of the mechanical problems and have taken them into consideration — in other words, I’m not going to start harassing them when I get the car home.
I repair the cars for very little money, parts are now cheaply available from national chains like Autozone, junk yards and eBay(cheap car parts heaven).
Some times I feel sorry for the mechanically ignorant. Uhm, not really, you all are keeping me rolling for almost nothing.
The Hyundai Sonata is an excellent choice. My advice is to simply go out and test drive all the ones that are out there that interest you. You’ll most likely find that there are twenty shades of quiet in this segment and most everything worth considering will give you over 30 mpg in four cylinder form. The Hyundai should be good for at least 15 years and 200,000+ miles.
Funny you mention the Maxima, Landcrusher. I’m right now in the process of replacing the seats on a red 1991 Toyota Celica GT-S that was a one owner Southern car (no rust) with only 66,000 miles. what you may want to do is reupholster the seats with top quality leather, replace all the hoses, fluids, struts, and filters, offer $300 for a paintless dent repair place to get all the dents out, get a top quality paint job if there’s serious paint fade (For $500 you should be able to get an excellent basecoat/clearcoat, don’t be afraid to haggle) and give it a thorough detail inside and out. I’m not sure how much wear is involved here. But doing all of these things should cost less than $1500 and the Maxima will literally drive and feel better than brand new.
By the way, I consider the Maxima to be the first good looking sports sedan of contemporary times. A lot of the design themes in that particular car (elliptical curves, a sports oriented design and layout, ergonomics) are not too different from many of today’s mainstream sedans.
Buying a car with cash. Not something I think I’d ever be able to do unless I hit lotto. Buddy of mine at work is a lot like you Landcrusher; very practical, keeps cars for 10 years. Sold his Achieva with 190k miles and bought a new car for about 19k which he’ll keep for another 9-10 years. I just couldn’t do that to myself. At that rate I’d have only 4-5 cars left before I would go into a home or something. The best I could do is 5-6 years, I start itching for something new (or new to me) after 2-3. If I could I’d have a stable of fun cars and just pick what I wanted to drive that day; like women have shoes.
I can do it with a TV or dishwasher or some other appliance; run it until its dead but not a car. Cars and driving just mean too much to me. It’s why I don’t have a beater; I can’t subject myself to being in a car I loathe for 3-4 months out of the year.
Driving is a passion. It wasn’t always that way but I find it is more now that I can afford nice sport scars. I will eventually get into racing when I can dedicate money for a track car at some point. I enjoy my hour commute each day (no stop and go). It’s peaceful or exciting or whatever I want it to be, it’s my “me” time before I start job #1 in the morning and job #2 in the evening when I get home. I don’t make calls in my car or eat in it if I can help it; my focus is driving, the connection between man and machine.
Life is short and can be brutally short. As long as you don’t have any more debt than house and car, are not upside down on a loan and are saving for retirement and the children I say carpe diem.
What happens on newer vehicles when the O2 sensors start to fail at around 90-100 miles, Mass Air flow Sensors that fail at approximately the same mileage. How much does it cost?
Check engine light comes on, a few ingition coils are defetive enough to turn on the light.
ABS light comes on, the ABS module is defective, the SRS light comes on, a seat belt buckle is defective, the SRS light comes the actual module is defective. What is the cost of these black boxes?
What is the normal life expectancy of an automatic transmission, 120,000 miles?
How long does a catalytic converter last, that a vehicle can still pass emission tests?
When does any vehicle still perform as per factory specs, and when does it perform as per “shoe string” specs.
At what mileage does a vehicle reach a critical wear and tear “replacement” juncture?
Depreciation? What’s that?
Seriously, I bought a 1979 Mercedes-Benz 240D for $1,700 in January of 2005, and just sold it(with 30k additional miles) for $2,500 =)
The Commuter, though– not so much. 1998 neon bought in 1997 for $14k, have driven 162,000 miles since with plenty of oil changes, but no repairs or even giant maintenance (no timing belt change, no oxygen sensors, no alignments) It’s economical as all get out, but now that I’m looking for a 40mpg replacement(comparable to what it is– zippy coupe with a big back seat and 40mpg unloaded) they want me to pay fees to take it=)
The ins and outs are going to vary by the individual, but in my experience– the happiest people I’ve ever known in my life have always owned 10 year old beaters, and have driven them hard.
I only hope my last days can be lived out in such a manner– boy cars have it good.
Amen, amen, amen. Well, not sure about the Buick thing, but right on about the cost of ownership vs. the cost of gas. Every time I hear about a family buying a 3rd car as a gas-sipping commuter vehicle in response to higher fuel prices and concern over global warming, I’m not sure if I should laugh at the sheer economic and environmental lunacy of such an act, or cry at the woeful state of America’s public education system.
I just wish the idiots listing their cars in the paper/autotrader/craigslist would actually read this.
No, your 15 year old 3-series is NOT worth $10,000. No matter how great you think it is.
I sell vehicles on Craigslist. Acrually, I’m pretty much the only one who provides the ownership history of the vehicles.
It’s interesting to me ho much of a difference in disclosure there is between the automotive classified sites. Ebay does a great job (God I wish Craigslist had a ‘feedback’ mechanism), Autortrader is very much a hit or miss, and Craigslist is becoming more like the Wild West with minimal oversight.
I just wish the idiots listing their cars in the paper/autotrader/craigslist would actually read this.
No, your 15 year old 3-series is NOT worth $10,000. No matter how great you think it is.
It’s worth it if someone is dumb enough to pay that much.
Over on one of the 4×4 forums where I post, someone was talking about the legendary reliability of the mid-80’s Toyota Land Cruiser. He pointed out that recently someone paid $15k for an FJ-60 with about 200k on the clock. IMO that is flat out ridiculous, no matter how much you like those old Land Cruisers. Unless it’s got a briefcase with $10,000 cash in the back seat, nothing that has 200,000 miles on it is worth 15 g’s. But hey, if he can get it, power to him. PT Barnum and all that.
Steve, I think I generally agree with you, but have a couple of issues with the article. First of all, the number crunching on depreciation assumes that there is no value in the use of the vehicle over its lifetime. Seems to me if there was no value in the use of the vehicle, then people wouldn’t buy them. Obviously most of us value the use we get from our rides, so the depreciation can be thought of as the value of the use the vehicle has provided.
I recently sold my motorcycle. I purchased the bike in 2005 with less than 2k on the odometer for $5k and sold it in August of this year with 27k for $3600. Now, you could look at that as $1400 worth of depreciation, or you could say that I paid $1400 to rent a motorcycle for 2.5 years and put 25,000 miles on it. Obviously it’s not perfect math since I also maintained, registered and insured the bike, but the point is that the use had value, too, it wasn’t just a depreciating asset.
Second, there seem to be a lot of new=warranty and used=no warranty assumptions here. I like to get the best of both worlds by buying recent used (2-4 years old.) Consider that most Japanese cars now have 5/60 powertrain warranties, which means that purchasing a 3 year old vehicle with 40k on the odometer still gets you 20k worth of warranty in most cases. Sure, it’s not bumper-to-bumper but my experience has been that most things either fail very quickly (i.e in the original warranty period) or not at all (or at least not until after the 100k point.)
Of course, having said that, I also have to admit that as a used-only buyer, I am something of a parasite: That is, I can’t buy a used car until someone else buys it as a new car (and takes that huge depreciation hit!) first.
Martin, you can pretty much think of an expense any way you wish. You can think of a pair of fuzzy dice as an ‘investment’ in the Chinese economy if you like. Whatever rocks your proverbial boat. However, the question then becomes, are you going to ever get that money back? If you’re not, it’s an expense.
You can argue that a warranty adds value to a car purchase. Absolutely. However, it will also usually add up in the price for the vehicle as well. A couple of weeks ago I bought a gold 2002 Hyundai Sonata with 110k and plenty of options (side airbags, cd player, manumatic shifter) for $3200. I also saw a far worse Sonata of the same exact year go through the lane and get nearly $6000. The only difference was that the buyer already had a customer lined up who absolutely had to get a car with a warranty. He did, but the premium for it was steep and they completely ignored the car’s ownership history (it had two accidents, one moderate, one severe).
If the warranty and lower miles are worth it to you as a consumer. That’s absolutely fine. In fact, many pre-certified models out there represent the cream of the crop of the used car market. However, if you’re looking at the economics of ownership, and the role depreciation has within it, then I have to stand behind what’s already been mentioned by Tom & Ray Magliozzi. The seven to nine year old vehicle that has been conservatively driven and well maintained, will usually offer the best bang for the buck in the retail market.
Landcrusher
Talked to my wife last night about your idea – no payments- she loved it. It wouldn’t have occured to us, so thank you.
On the plus side, we’ll never have a car loan again. On the negative side, I have to drive my Ranger another 5 years. (It’s only got 122K on it, so it’s doable) I guess it’s true – there’s no such thing as a free lunch.
Thanks again.
Steve_S,
I say carpe diem as well. And we are not far off on the debt thing. As long as you never go upside down, it’s not the worst thing. Especially if you are borrowing so that you still have savings in the bank to cover a few months with no income.
However, I think you should consider two things. One, I bought the ’97 Crusher in 2002. Normally, I would be looking to trade again, but this thing is just so solid. Second, consider the math.
Figure out how much you spent on your car since day one, and divide it by the months you have had it. Include all the finances, taxes, etc. Now, start budgeting that much for car expense every month, even after you don’t have a payment. Keep at it as long as you can stand it, and watch the money grow. Even if you can’t wait long enough that you can trade for cash, you will see that you have a lot more to put down. Since you are not buying cash, try to get the most carpe for your diem. Buy a fun, but inexpensive car, like a mazda speed 3, or whatever. Get as short a term as you can while staying in your budget. Hopefully, this will be your last loan.
I am betting that as the money grows, you will find you enjoy the bank account more than a new car. If you don’t, then by all means spend the money. Also, I know that once you get to the cash level, you will be able to buy more car for the money EVERY TIME until you stop driving. If you are an enthusiast, I suspect you would have more fun with a 5 year old Porsche than a new Nissan 350Z. If you have the cash to put aside for the repairs, you can make that choice. Or, you can get a used 350Z and afford to chip it, put on high performance wheels and tires, etc.
You can carpe more dies with cash if you stop borrowing against future dies as soon as possible.
If I am weirding anyone out with my financial fanaticism I apologize, but it’s a passion.
Everybody,
Not to start another semantics war, but think about a warranty as insurance. You are insuring yourself against a big repair bill. All warranties contain profit. A warranty only saves a very few people in a hundred money. Everyone else in the pool of risk pays for those repairs. The manufacturer, or after market warranty company also takes in a profit on the deal. Even when they say they “lost” money due to repairs, car manufacturers are just making an accounting trick. In reality, they just didn’t make as much on the car and/or it’s warranty as they originally planned. If an after market warranty company lost money, it would likely fold immediately and leave you hanging.
The only reason you “need” a warranty is that you are buying a car you probably can’t afford if you ever want to retire. The younger you are, the more this matters. If you are not maxing out your 401k matching or IRA limit, you likely are driving too much car.
Last thing, someone mentioned a 200k car not being worth 15k. If anyone knows of a Defender I can get that has 200k but is in otherwise good condition, I would be happy to make an offer of 15k.
Landcrusher: Excellent, thoughtful financial advice. I am going to repeat this to everyone I know who ever asks me about buying a new car and who needs to worry about socking money away for retirement.
I just hope they do as you say, not as I do. :)
“swaddled in rich leather while getting a back massage as you commute in luxury.”
Yessssss, that is what I want. What is it?
A couple of points that I have to ask about in this thread.
The first is the issue of repairs. While, in theory, repairs should stay at a similar rate, I also believe that this has to do with location. Being a northeastern guy for most of my life, I can tell you that the somtimes severe weather can wreak havoc on a vehicle. If you don’t have a garage for your vehicle, there is only so much weather metal components can take without breaking, thus are increasing your chances of repair every year. Hell, my seven year old car has already had some part failures due to rust from when I lived in Upstate NY. Living in Virginia now,having an older car is not as big of a deal.
I also think that reliability depends on outside factors. Living alone and needing to get to work/school, I need a reliable car and having it in the shop is a major issue. There are only so many times you can hit a friend up for a ride. So, I think that the new car issue depends on circumstances as well. As for the more car for the money issue, that is why you get a 2-4 year old appliance and then spend some of the money you save on a 10-15 year old sports car to drive the hell out of.
This was a good editorial, with some excellent advice from the community. But one myth I would question is this idea that because interest rates can be higher on used cars, new cars are a better buy.
This is simply a case of poor math.
If you financed a $20K new car over 5 years at 6%, your monthly payments would be $387. Compare that to the same car, but a year old selling for $15K, financed at 8%. The payments are still $387 per month, but for only 45 months. Meaning you save $6,000.
The only people who can logically claim that the additional interest on a used car justifies purchase of a new car are new car sales reps.
Sherborn,
I haven’t borrowed money on a car in years, but I do recall back in the day that the terms for used cars were often so short that the payments were much higher. Is this no longer the case?
Most people focus on the interest rate, which is usually a “something point 9” and lose focus or are not interested in looking at the entire cost.
People will pay more money for a “something point 9” deal, than a better price at a higher rate. Especially when franchised dealers offer CPO vehicles at “something point 9” rates.
In locations with a good climate older cars, and many aspects of this thread are very sensible. In locations with an harsher climate accompanied by extensive use of road salt during the winter months, vehicles tend to deteriorate quicker, and require additional maintenance.
FINALLY! After 64 comments falling on either side of the new/used debate, AGR mentions the one possibility which offers new car peace of mind for a used car price: Certified Pre-Owned (CPO) cars. They are fully reconditioned, mechanically sound, have a clean CarFax and a lengthy warranty. Plus, as AGR points out, they can usually be financed at a “something point 9” interest rate. (Hyundai lovers to the contrary, Saab has one of the best CPO programs in the industry–at least, according to Intellichoice.) So, to all you would-be car shoppers debating the merits of new vs. used, for all the reasons you’ve mentioned: price, condition, warranty, etc., the winner is CPO.
Landcrusher:
Paying cash is not always the way to go. If you can snag a 0% deal while affording to pay cash, you can earn interest on your money while making payments. on a $30,000 car, you could easily get back $2500 or more by keeping the money in your pocket instead of giving it to the Man immediately. Years ago I was going to buy a 2-4 year old car for $14-$16K. Instead, I bought a new one for $18K at 1.9%. Accounting for the devaluation of the dollar due to inflation, I came out $76 *ahead*. So is the $3000 difference worth it? To knock off 3 years and 50,000 miles? You betcha.
Consider a new 4runner for appx $28K at 0% (2007 sales incentive). Its competition was a 2004 Grand Cherokee for $13,000 cash. Accounting for the lost interest on the $13,000 and the GAINED interest on keeping $30K at the bank and chipping away at it monthly, and accounting for estimated repairs (edmunds) on the Cherokee, the end-of-five-year costs were:
Cherokee: $21K
4Runner: $26K
$5000 over five years for a NEW 4runner versus an OLD Cherokee? Making payments on the 4runner vs. paying cash for the Jeep!? You’re darn right! Some of this stuff is somewhat counterintuitive, so you’ve GOT to crunch the numbers. And you’ve got to wait for sales incentives.
The catch is you’ve got to have money in the bank to be able to earn interest on it to play games like this. So, yeah, for the most part Landcrusher is right: SAVE. My most recent purchase was an 8-year-old japanese car for cash.
iNeon :
“the happiest people I’ve ever known in my life have always owned 10 year old beaters, and have driven them hard.”
I’ve had more fun with beaters and rental cars than I have with the one nice car I bought new and cared about. Lesson learned; money saved.
I drive 1988 BMW 528es and maintain them in my driveway. Parts are cheap, either used or new off the internet. They have proven to be quite reliable and are a blast to drive. I consider car maintenance to be a hobby.
Paying to get a car fixed is a PITA, because it requires conforming to somebody elses schedule. Also modern car repair seems to consist of throwing parts at a problem until the customer tires of the game and gives up. My annual upkeep is usually less than 500$ and provides me hours of fun to boot.
Manufacturers through their franchised dealers have created a new vehicle line with CPO, and are going further downstream to grab additional profits.
Used vehicles that do not fit CPO parameters are still a viable discussion from how most people view used vehicles. Recent model used vehicles have a new version called CPO.
In most instances CPO vehicles are lease returns, with the CPO program to bolster values of lease returns.
Manufacturers with their franchised dealers are trying to make money twice with the same vehicle. Once when it was new, then as a CPO. On the premise that most vehicles are quite reliable up to at least 100,000 miles,its out once when new for 50,000 miles, and out again as a CPO on a walk away lease for another 50,000 miles.
The CPO vehicle from a same make franchised dealer, is more attractive than the same vehicle for thousands less from an independent dealer.
NickNick,
There are two general problems with the borrow to save methodology. First, you can usually get a better deal cash than you can 0 APR. Often they tell you so right on the commercial. Even when they claim it isn’t so, I think they are up to no good. They aren’t taking risk for nothing, they plan to get something for their trouble. Second, I have heard several personal finance guru’s talk about this and they all say the same thing – It won’t work for 95% of the population because they will some how blow it. Either they will spend the money rather than invest it, or they will invest it badly, or whatever. The truth is that if you pay cash you make a better buying decision on the car than if you borrow. The interest you will earn will not have more value than paying cash in the first place.
Andy D.
You are the man. Anyone who claims to love cars ought to be more like you. If you make cars your hobby, then you can justify a lot more money spent on cars. Only you actually get a lot more value for your money, so you don’t have to spend more. The savings is part of the fun, BRILLIANT! I need to learn to do more repairs!
CPO’s
CPO’s are usually better than buying new, but only for the savvy buyer. They will try to sell you a CPO for more than the new car if you let them. Caveat Emptor. If you are spending 25k on a CPO vs. 25k for a lesser model that is new, then fine. What not to do is justify borrowing because it’s a CPO. Avoid borrowing in the first place.
NICKNICK:
In your example of a new Toyota 4runner vs a used Jeep Grand Cherokee, I have some issues with your calculations and (un-stated) assumptions.
Based on the numbers that you came up with, I don’t understand your earned interest on the principal of $30,000. What percentage are you basing it on? I’m assuming for my example an interest rate of 5%, which is what you can earn with a good money market account. I’m also assuming that these figures are “out the door” including all taxes and fees. I don’t know what trim of each model you’re comparing against, so I made assumptions on that as well. Furthermore, in order to look at monthly payments and not depreciation is to assume that you’re not selling the car at the end of the five years and even more so that at the end of five years it will literally have to rot on your back porch (as otherwise for years 6 and onwards you would incur additional costs of insurance, gas, maintenance, and repairs).
Your figures are correct only if
a) you account for depreciation in the monthly costs and sell your car at the end of the five years
b) your earned interest on the principal is 5%. If you invest your money in the stock market and earn 10% annual interest (good luck with that, I know, but this is a theoretical argument), the used car becomes a much better bet.
c) you ignore the fact that true inflation figures in the US are completely distorted by the government and Federal Reserve. Suffice it to say, w/out getting too technical, that the total amount of dollars in circulation worldwide increased by almost 14% in 2006. This figure is called M3 and consists mostly of electronic dollars all over the world (there are only US $300 billion in CASH in the world). The Fed stopped publishing M3 (saying that the $2 million a year it cost to publish it was “too expensive” – and the gross income of the Fed is $25 BILLION) in March of 2006 (right after Iran opened its oil bourse, trading oil barrels for euros). Only through keeping interest rates artificially low does the Fed stop us from realizing that once the rest of the world collects the monetary debts of the US, inflation will hit double digits (like it did in the 70’s).
I clearly don’t agree with looking at solely monthly costs over the five years of ownership (as opposed to relative value based on depreciation). But I will give my calculations below both based on monthly costs (with your car rotting on your back porch at the end of five years) as well as based on depreciation (and your car is sold after five years).
If you have $30,000 to invest however you choose, and it’s either to buy a the new or the used cars in your example, for the sake of the argument, ALL of the remainder will automatically be invested in the money market fund at 5%. Also, your argument neglects differences in depreciation, insurance, gas and maintenance between the two vehicles (you’re only accounting for repairs). My numbers are based on edmunds.com, so they are only accurate as averages, but they still prove my point. So, over a five year period:
1) New car (Toyota 4runner Sport Ed. 4.0L V-6 5A): 5% interest earned on a principal of $30,000 that is reduced by $466.67 monthly for the car payments is $3,600. Total payments of $28,000 for the car reduced by $3,600 equals to a cost of $24,400. Add to that additional costs of $27,740 including: insurance ($10,415), fuel ($11,780), maintenance ($4,880), and repairs ($665) – all figures from edmunds.com. Total cost over 5 years (accounting for compounded interest earned on money saved on bank and not accounting for inflation): $52,140.
2) Used car (Jeep Grand Cheerokee Laredo):
5% interest earned on a principal of $17,000 (initial $30,000 in the bank minus $13,000 paid in cash for car) is $4,696.78. Cash payment of $13,000 for the car is reduced by $4,696.78 and equals to $8,303.22. Add to that additional costs of $31,862, including: insurance ($8,330), fuel ($12,695), maintenance ($7,393), and repairs ($3,444) – all figures from edmunds.com. Total cost over 5 years (accounting for compounded interest earned on money saved on bank and not accounting for inflation): $40,165.22.
So, if at the end of five years either car is left to dessicate on your back porch, the new car costs you $11,974.78, if you calculate only based on monthly costs (car payment and other).
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However, if you calculate based on depreciation instead:
New Toyota: $15,200 in depreciation and $27,740 in additional costs minus $3,600 in interest earned on stocks = $39,340 in costs.
Used Jeep: $6,313 in depreciation and $31,862 in additional costs minus $4,696.78 in interest earned on stocks = $33,478.22 in costs.
The new Toyots costs $5,861 more than the used Jeep if you sell either car at the end of the five year period.
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Eido Cohen – I think the assumptions NICKNICK was making were based on a conservative 5% savings rate rather than the stock market. But your argument about the used car looking better if you can make 10% in the stock market is wrong, the more you make on your money, the better the new car looks because you’re keeping that money. And your arguments about the true interest rates being higher are also wrong. I do agree with you about the whole M2 vs M3 thing. I was suspicious when the fed said they were going to quit reporting M2. But, inflation also helps you when you finance the new car at 0% (or low%). Because 4 years from now, you’ll be still paying the same monthly payment, but in tomorrow’s (more) worthless dollars. In fact with my mortgage and car payment fixed i want inflation to skyrocket, it’ll make my house and car feel cheap.
The reason NICKNICK posted those numbers is because we already did those calculations because each of us was considering a new ’07 4runner when they were running the 0% incentive. I ended up buying one and took the 0% finance over the cash on the hood because after crunching the numbers including savings rates and inflation the 0% looked a couple of thousand better after 4 years.
I have a google spreadsheet here: http://spreadsheets.google.com/pub?key=pziqUx97ZjkJ2dV0uZ3IvSA
that works through the numbers. I don’t think I can set up google spreadsheets to be editable by everyone, so if you want a copy to put in your own numbers, let me know. The fist column is the month number, the second column is the payment, the third is what the payment feels like in today’s dollars, the forth cash on hand if you decided if you put the whole loan amount in the bank the day you buy the car, and the fifth what that cash will feel like in todays dollars.
I think we need to offer a few points of reference before this becomes a veritable death spiral.
For the CPO folks, I have seen too many examples of vehicles that were marketed and were simply not up to snuff. In fact, there’s quite a few dealers out there who will market a frame damaged vehicle that way. If you decide to go this way, I would still encourage you to get an independent mechanic that specializes in that make to inspect it before you buy.
Another problem you have to deal with is the HIGHLY inflated price of these vehicles. Most new car dealers have very substantial overheads. It’s very easy in this business to lose well over 50k a month and the cost of the entire ‘presentation’ of vehicles to the public usually runs well into the seven figures. Most of the premium of the CPO vehicles reflect the need to recuperate all of these fixed costs. Especially since it’s much easier to compare and contrast new cars vs. used cars.
My advice is to…
1) Use Ebay’s ‘finished items’ section as a general guidance to the real market value of the vehicles. Look for several listings of vehicles that were sold at ‘no reserve’. Or, go to your local bank and receive a copy of the Manheim Market Report that will usually list the wholesale and retail valuations of the vehicle. Keep in mind that ‘retail’ units are ones that have already received the reconditioning expenses (tires, fluids, eliminating dings, dents and scratches) that wholesale units have not.
2) Use Carfax and Autocheck, to get a firm grasp of the vehicle’s history and hire an established auto repair facility to inspect the vehicle.
3) Find out the potential wear issues of the vehicle before you buy it. There are plenty of enthusiast sites that are either dedicated to a particular model or contain reviews from folks who have actually owned the car. This information will give you a lot more perspective on what you can expect if you decide to buy.
I prefer private owners, car buying services and Ebay sellers who have at least 30 positive feedbacks related to automotive purchases. If you take the time to read the literature related to buying a used car (and follow up on it), you’ll be far better off than just showing up at a dealership for a CPO vehicle.
BTW: franchise dealers (as well as independents) have been making 2 (or more) profits on the same car since the days of Henry Ford. They’re called “trade-ins”. The difference between a “used car” and a CPO car isn’t whether or not there is a profit involved. (Last I looked, “profit” wasn’t a dirty word. How many of us work for free?) The difference is condition, warranty, and salability.
A trade in was and still is out of the sphere of influence of manufacturers its always been in the sphere of influence of dealers be it franchised or independent.
A lease return is a different “trade in” its in the sphere of influence of manufacturers through their captive finance companies.
Different dynamics come into play with lease returns, recapturing residual values, diminishing residual value losses.
Dear AGR, as much as I appreciated your original post touting the benefits of CPO cars, I can’t (in all fairness) let your most recent post slide by without comment. By definition, a “trade-in” is just as eligible to be cerified as a “lease turn-in” as long as they meet the necessary qualifying criteria. Before the days of residual insurance (circa 1994 and before), there was a quantifiable difference betweeen trade-ins and lease turn-ins. Since then, however, the fact of residual insurance has made lease turn-ins every bit as flexible a marketing commodity as trade-ins. While what you say was valid 10-15 years ago, the “dynamics” nowadays are much more similar than your most recent post would suggest.
Here’s is what I’ve done. It doesn’t seem to fit in any category.
Graduated college in December 2004.
– 2004 Toyota Matrix XR, auto., bought new in Oct. 2003 (below sticker, but loaded with power everthing, alloy wheels). 1 mile on odometer, ordered from factory. As of now, it has 75,000 miles and have not spent any money outside of routine maintenance. Used for commuting each day 70-90 miles each day, 6 days a week, when I started working in Jan. 2005. Several trips monthly to NYC/Northern NJ from SE VA, where small wagon is practical. Unlike usual Toyotas, it remains flat when tearing around freeway ramps, wish this was the norm instead of the exception in the Toyota lineup, but they know the game, and the game (read: American people) want appliance vehicles. But anyways, to get back on track, this Toyota seems to be running fine. THIS CAR IS MY MILEAGE MULE. I plan to drive it until no longer financially practical to keep it running, 10 years I’m guessing or 200,000 miles.
– 2004 Acura TSX, 6sp manual, bought 3 years used just recently from an uncle in NJ. 46,000 miles. I got a “family” discount I’d like to think. It has minor dents, it did live in Jersey! Only had it a few weeks, but runs sweet, my auto Toyota is such a bore compared to this, but I do things in my industrial-oriented Toyota (park next to big 2-door cars, not slow down over speed bumps, dodge cabs, carry muddy objects-type things) that I’d never do in this finely engineered Acura. THIS IS MY VACATION / ROAD TRIP CAR. (EXCEPT TO NORTHEAST, USE SAID TOYOTA)
So, I like to think I’m a keeper. My dad is the ultimate keeper. He bought a 1981 Toyota Cressida (anyone remember when all 6-pot power from the Yo was I-6 RWD?) and kept it as his primary car until 1999 when he bought a Honda Odyssey, his only car…er…van…er…vehicle (besides the Cressida) to this day.
scottdh, we would have to agree to disagree, or to partially agree, your points are valid, although the dynamics today are quite different.
A “trade in” and a “lease return” perceived the same by the “potential customer” follow different paths, with different players, different agendas to become CPO vehicles.
The dynamics that come into play on a lease return from a walk away lease that has a book value higher than the market value(captive finance/manufacturer), are distinct from the dynamics of the trade in(dealer) that is taken in trade at market value.
I bought a car new that was not readily available on the used market for my area at the time ( hyundai XG350) and at 7000 miles a problem developed that was covered under warranty. Granted the warranty is transferable and all that but it was nice to have it fixed for me. I wanted this car because I liked it, looking at all the depreciation costs is a nice exercise but if it keeps you from buying what you WANT, then that is a problem.
I think if you like a new model and want it now, buy new. IF a previous model appeals then you can reap the benefits of used.
I guess it’s OK to play with spreadsheets and calculate how quickly dollars blow off the hood of your chosen whip, but to many people it comes down to cash flow, not the opportunity cost, interest lost or any other semi-hypothetical financial projections. Then there’s whether a new(er) car is needed or merely wanted.
Buy a well-maintained, carefully selected used ride for say, $10-15K. Keep it for 10 years and spend an average of about $1K a year on it for all maintenance, including occasional tires. Assuming you maintain it well, you can dump it after a decade and you still get $1-2K for it. The total spent may be about the same as you’d pay for a new car costing $24K-30K –on which you’d still pay maintenance costs for 6-7 years after the warranty goes away– but the monthly nut is less, along with lower costs for registration, taxes, insurance, etc. That makes the older car easier for lots of people to afford, either due to economic circumstance or preference for how they use disposable income.
I’ve bought just 2 new cars over the 39 years I’ve owned cars and while I don’t have records for any but the current fleet of three, I’m pretty sure the used cars were a lot cheaper to buy and own than the new ones. I am of the “keeper” brigade that buys a car and usually doesn’t let it go for at least decade or until it has 150K or so on the clock. One car stayed in the household for 20 years. A preference for DIY maintenance and using indy mechanics also drops the overall cost.
My current rides (one is in my daughter’s care at college) are all Saabs, which are wonderfully undervalued in the used car market. While quirky and not appealing to German car snobs and afficionados of Japanese blandness, are great values as “keeper” used cars. Similar values are in place with used second-tier Japanese marques and with used Bimmers, Audis and Mercedes, albeit with somewhat higher entry costs.
In my book, new cars are only a good deal if you keep them a long time and don’t mind the high upfront cost.
My last whip was a ’92 Honda Accord Wagon EX, which I bought in ’99 for $7k (it had a $20k sticker) with 73k miles on the clock. I put over 140k miles on it, and my TOTAL repair bill (not including routine maintenance like tires, oil changes, filter changes, belt changes, etc.) was $1,200 over 7 years. I sold it to a family member for $1,500, which makes my capital cost per mile (defined as purchase cost + repairs/miles driven) a pretty remarkable 4.7 cents per mile. The car was comfortable, functioned well, was powerful enough, had the carrying capacity of a sport-ute, and cleaned up well enough to take my wife on the town. In short, a bargain. My accountant friends and I joke constantly about the mythical “dime a mile” cars, and this was the best example. They are out there if you are diligent and willing to ignor the common wisdom. My “new” ride? I picked up a ’97 Audi A-6 Quatro Avant–absolutely loaded—in Chi-town(a great place to pick up cars for Keepers like me. Chicago upscale new car buyers only buy premium marques, and tend to maintain them.) It had 78k when I bought it and I plan to drive it until it has 200k on it…my mechanic says the Audis of this vintage are fairly bulletproof, just watch for oil leaks….only cost my $9k (two years ago) which was roughly a quarter of the sticker…so the depreciation hit was born by the previous owner….again, I am looking at a potential nickel a mile car….The great thing about this strategy is that you have many years to sift the vehicles of your dreams and check the websites and blogs about performance, long-term reliability, etc. before you make a choice. My car is comfortable, well-equipped, safe, and above-all wallet friendly. Only cost to-date: replacing the front struts at a cost of $700. Being a ‘careful keeper’ is the only way to buy!
beken: replace the “Century” with “Lesabre”, same year, and you have the experience we had with Buick. Crap. Similar repairs, plus electrical problems and the genuine plastic engine. A used car probably would have been better.
John
My recent experience: Needed to replace a 2001 Acura TL that has broken down twice and stranded my wife (once in the middle of nowhere down in Mississippi). Fortunately for us we had enough money saved up to where we could pay cash for a car as long as we kept it to under $17k. After doing some research I decided we should consider post ’06 Hyundai Sonata’s due to safety features/reliability/value.
I knew to keep it under our budget (after taxes/fees/etc…) it would have to be a used one. I’ve never had to shop for my own car before so it was a new experience for sure! I think we drove 4 or 5 cars and made offers on each of those before finally closing a deal on an ’06 4cyl with 10,900 miles for $15k out the door.
I’ve been quite pleased with it and believe I made a good purchase but it was much harder and took a lot longer to get things done than I had anticipated. However, if I had really been in a pinch and had to replace a car in a much more immediate time frame, I’m not sure what we would have done.
Now I need to keep my 2000 Saturn SL1 running for a few more years so I can save up enough to pay cash out for it’s replacement! :P