New car prices are out of control

[Kev]

There was a guy my dad knew who did a pretty cool thing - he saved up for a new car and paid cash for it, then kept paying the monthly fee (what it would have been) into his savings account. Whenever he wanted a new car, he traded in his current one (which was always fairly new because he bought new ones) and covered the difference with what he had put in his car savings account. So basically he got the freedom to pick up whatever ride he wanted, whenever he wanted, but only had to shell out a monthly payment for the rest of his life instead of coming up with down payments or the full amount over and over again. Really interesting approach. Not the most cost-effective method, but his monthly car payment was basically fixed for life, so he didn't have to worry about that, and if he wanted something new, he could pick something up basically whenever he wanted.

Wow, this is one of the worst ideas I've ever heard.

 

[JulesMaximus]

I bought my car new with a 5 year loan at 1.9% interest. I put zero money down on it and the sales price was roughly $25,000 OTD.

 

[Kev]

Except it doesn't work that way much anymore. Used car prices are totally out of whack. When I bought my last car, a Fit, the prices on year old private sale used Fits were within a thousand bucks of new.

Yeah I think it's simply because people are keeping their cars a lot longer so there isn't enough supply of used cars.

 

[lxskllr]

Wow, this is one of the worst ideas I've ever heard.

What's wrong with it? I think the frequent change is silly, but it sounds like a solid scheme to me.

 

[Exterous]

Why does it bother you so much what people spend their money on? Go buy a clunker and be happy driving it. If someone wants to drive a $30K car, it's no sweat off your back.

Because Americans are - by a large majority - terrible with money and we voted that society pays for it.

According to the BLS the average american spends $2800 on vehicle purchases or auto loan repayments but only has ~$3800 in savings. The average price of a new car (~$31,000) is more than the average retirement account (~24,000). Used is better but there is a disconnect in how we handle money.

 

[Yourself]

I think I'll go shopping for a new truck this weekend. My '10 RAM is too close to being paid off.

 

[WackyDan]

My previous truck was a 99 Dodge Dakota bought new in 1998 for just under $20k. Kept it for 13 years up until January 2012's purchase of a new F-150 that stickered for $42k which I picked up for $34k. Put $22k down. Plan on paying it off by end of year two and I'll keep it between 12 and 15 years provided there are no major issues or accidents.

Wife's car is a 2005 Malibu we bought new during the employee discount craze for just under $20k and paid it off in three years and have owned it coming up on 8 years. It is such a huge piece of shit car that I'm hoping it lasts until year 10, but hoping to push it until 12 years.

My Spyder was bought half with cash and paid for in two years.

Math isn't hard.. .Money isn't like calculus... pretty easy to manage if you put your mind to it. Yes I make a great living, but I bought a cheap manageable house to fix up, and am debt free other than the new truck and mortgage. Being in that position financial is liberating. I know too many people that need to lease a new car every two or three years, and try to keep up with the Jones... I'm still trying to figure out what exactly that buys them...

 

[Kev]

What's wrong with it? I think the frequent change is silly, but it sounds like a solid scheme to me.

I don't think it's wise to basically guarantee yourself a neverending car payment vs. actually putting that money in investments that have potential for growth.

 

[Exterous]

What's wrong with it? I think the frequent change is silly, but it sounds like a solid scheme to me.

There are certainly worse ideas however:

With the low interest rates on auto loans you can typically get at this time a better idea is to invest the money for the length of the loan. For example:

Buy a new $25,000 car with a 1.9% loan for 5 years. Total repayment is $26,226.00

Take the cash you would have used to buy the car and invest it for those 5 years. Assuming a ROR well below average at 5% that will get you $31,907

 

[kranky]

I witnessed a co-worker get burned a few years ago. New college grad that we hired, and he ran out and bought a top-of-the-line pickup truck. Even with a 5 year loan his payment was around 20% of his net income. Not 6 months later, he has a fight with his live-in gf and she moves out. He can't afford the rent by himself plus school loan payments plus the truck payment and everything else.

So he naively goes back to the truck dealer and explains he has to trade it in for something cheaper. The dealer says no problem, he just needs to bring $6,000 to cover the depreciation. Which of course he didn't have so he had to keep it.

He ended up taking in a roommate out of desperation to get him through until his lease was up, then he moved into a dump apartment for a couple years.

 

[uclaLabrat]

Except it doesn't work that way much anymore. Used car prices are totally out of whack. When I bought my last car, a Fit, the prices on year old private sale used Fits were within a thousand bucks of new.

Annnnd this...I got a 2007 element brand new just below invoice and it was 2-3K less than some of the one year old used models. Maybe they had more options?

 

[Nintendesert]

I agree, the OP is poor.

 

[SearchMaster]

I witnessed a co-worker get burned a few years ago. New college grad that we hired, and he ran out and bought a top-of-the-line pickup truck. Even with a 5 year loan his payment was around 20% of his net income. Not 6 months later, he has a fight with his live-in gf and she moves out. He can't afford the rent by himself plus school loan payments plus the truck payment and everything else.

So he naively goes back to the truck dealer and explains he has to trade it in for something cheaper. The dealer says no problem, he just needs to bring $6,000 to cover the depreciation. Which of course he didn't have so he had to keep it.

He ended up taking in a roommate out of desperation to get him through until his lease was up, then he moved into a dump apartment for a couple years.

Yep, that's why there's a critical difference between "I can afford it" and "I can make the payments as long as nothing in my life changes for the next 5-6 years".

 

[lxskllr]

I don't think it's wise to basically guarantee yourself a neverending car payment vs. actually putting that money in investments that have potential for growth.

I see it as doing better than many people who constantly pay interest just to have something new to ride in, without investments to backup the loss. I also agree with Exterous' point, but I find simple solutions more appealing. It's always good having liquid assets. With that kind of savings plan, he can put off a car purchase if the cash is needed for something else. His method doesn't maximize income, but it also minimizes risk. I'd bet he was in a better position than the majority when the economy went tits up.

 

[NutBucket]

It boggles my mind how people are willing to take on a payment for 5 years with total prices of cars being close to half of their home's value sometimes.

Hmmm, that means when we buy a house this year we should be able to easily afford a G55 AMG for the wife and Range Rover for me...and still have some left over to keep our 3 current vehicles.

Point is, don't generalize My wife and I are certainly not rich but based on your above comment my example isn't terribly inaccurate. Its all a matter of where you live and the type of lifestyle you want.

 

[SAWYER]

I would never buy a new car but I couldn't care less how much money people spend on cars. It is none of my business or concern

 

[rh71]

Eh? I'd like to see these houses.

you can easily have this cozy and quaint home for $80k!

http://www.mlsli.com/homes-for-sale/NY/Wyandanch/11798/S-39-28th-St-78780820

It's in a down and going town, but you know... minor details...

 

[amdhunter]

lots of people who aren't into cars in this thread. Maybe you spend stupid amounts on computer parts instead when someone else does fine with a $400 laptop. Same thing, different scales.

Anyway, you can get a mid-size car like a Sonata for $22k and it has a 5-star safety rating, 10 year warranty, and gets 30mpg+. That's what my wife did even though she makes stupid money. She's not into cars. I would have an M5 if I were her. Sex on wheels.

Some people here don't understand it seemingly because they feel others' likes are dumb.

:thumbsup:

 

[skillyho]

Ehh, I'm kind of torn on this issue...actually no I'm not. I like new cars.

I drove a '91 car from 2000-2004 (cost 4k at purchase)...then I drove a '97 car from 2004-2007 (cost 2k at purchase). I *hated* the repairs, the downtime, the having to "get a loaner"..."car is in the shop"...etc over all of those years.

After graduating college and saving up for a little over a year I got my first new car for around $22k (SUV). I traded that in a while back and have another brand new car that was around $31k (SUV). I don't regret it. I don't miss the uncertainty of worrying which random part is going to break on my beater and leave me stranded.

What's the point of going to school and busting your butt all work-week to not having something nice? I don't need leather, moon-roof and the premium sound system...but I wanted those things to give value to the reason I get up each morning. Here's my first #Yolo but...you really do only live once. Can't take it with you. As long as you're aren't uncomfortable, have savings and can handle your bills - enjoy life.

 

[veri745]

Actually, I think Allstate does something for us as far as towing goes. Only used it once, but definitely a good point.

Yeah, roadside assistance through my insurance is like $8/yr, not a big cost at all.

 

[Tweak155]

<snip>
Math isn't hard.. .Money isn't like calculus... pretty easy to manage if you put your mind to it. Yes I make a great living, but I bought a cheap manageable house to fix up, and am debt free other than the new truck and mortgage. Being in that position financial is liberating. I know too many people that need to lease a new car every two or three years, and try to keep up with the Jones... I'm still trying to figure out what exactly that buys them...

Lol.

 

[AstroManLuca]

were you living month to month that you had no savings? Why do people always equate annual salary with what they can afford with one-time or semi-rare purchases?

My wife and I both paid cash for our cars and we each don't make 150k.

Most people don't have $30k in cash sitting around. And if they are smart, they shouldn't want to blow it all on a new car when you can get a perfectly good used one for less than half that.

 

[IceBergSLiM]

I'm glad I got the nice car thing out of my system when I was young and dumb and could enjoy it the most. It messed me up financially for a few years but it wsa fun as hell. And I won't be in my mid 20's ever again so welll welll well worth it in my book.

 

[AstroManLuca]

Ehh, I'm kind of torn on this issue...actually no I'm not. I like new cars.

I drove a '91 car from 2000-2004 (cost 4k at purchase)...then I drove a '97 car from 2004-2007 (cost 2k at purchase). I *hated* the repairs, the downtime, the having to "get a loaner"..."car is in the shop"...etc over all of those years.

After graduating college and saving up for a little over a year I got my first new car for around $22k (SUV). I traded that in a while back and have another brand new car that was around $31k (SUV). I don't regret it. I don't miss the uncertainty of worrying which random part is going to break on my beater and leave me stranded.

What's the point of going to school and busting your butt all work-week to not having something nice? I don't need leather, moon-roof and the premium sound system...but I wanted those things to give value to the reason I get up each morning. Here's my first #Yolo but...you really do only live once. Can't take it with you. As long as you're aren't uncomfortable, have savings and can handle your bills - enjoy life.

How much did you trade it in for? How much was the market value of the car? I've never understood trading cars in except for the super-rich and old people who don't have the time. Last time I sold a car it took me a week and I got about $2k more than I would have trading it in.

Also you do know that it's possible to get a newer used car that isn't an old beater, and it's still much cheaper than buying new, right? Driving a 15-year-old used car that you got for pocket change isn't fully representative of used cars. I'm not saying you're wrong for liking new cars, you're entitled to your opinion and you can spend your money however you like. But I'd feel ripped off if I paid $22k for a new car when I could get one just a couple years old and still practically new for $16k.

 

[veri745]

you can easily have this cozy and quaint home for $80k!

http://www.mlsli.com/homes-for-sale/NY/Wyandanch/11798/S-39-28th-St-78780820

It's in a down and going town, but you know... minor details...

http://www.trulia.com/property/3086318179-1800-6th-St-SW-Willmar-MN-56201