The economics of car ownership and buying new versus used

[IHateMyJob2004]

I think there is "common knowledge" that buying a used (2 year old ideally) car is the way to go.

Has anyone researched this on their own though via Excel?

If an F-150 gets to 150,000 miles it is basically worthless. So worth maybe $4K. Let's assume a new one is $30K. With 75K miles on it, it is worth about $12K.

So the depreciation for the first 75K miles is $18K. And the depreciation for the next 75K miles is $8K. Assume some repairs though in the second half of life. So let's say that this is $18K versus $11K. So you save $7K or so.

Actually, I guess I am seeing it now. Ya, used is the financial way to go.


What IO am really asking -----------------
I guess I am curious how much is actually saved on a monthly basis if you repeat the buy used versus buy new cycle every 5 years assuming that one puts 80K miles on a vehicle.

And my personal blathering-------------
Makes me wonder why I always buy new. It's always been a family thing to buy a lower end new car than a used car that may be nicer. I think this is rooted back to the 50,60s,70s,80s though as I am doing what my parents told me. But cars were not reliable like they are today. So why do I keep wanting to buy new?

 

[cabri]

Possibly because you are willing to pay the extra 25% premium for a new vehicle than a 2 yr old ??

If you have the extra funding available and prefer the status of a "NEW" vehicle then do it.

 

[Yuriman]

Depreciation happens with both time and miles. Most people buy "beaters" that are ~10-15 years old, with a moderate amount of miles, and this is no accident.

150,000 miles are not where I consider a vehicle to be worthless, either. I just passed 175k in mine and have not yet had *any* maintenance, other than a rear engine mount. Compression is still perfect, and the 5MT still shifts like it rolled off the lot, suspension is still fine. Heck, I'm still on the factory brake pads. The interior has some wear, but I'm not fussy about that. I paid $3500 for my car 25k miles ago, and expect to get at least 100,000 more miles out of it, possibly twice that.

EDIT: Should mention, this car was $20,000 new. Looks like I'm getting the second half of its life for ~20% of the cost.

 

[BurnItDwn]

In many cases, 2 year old 25-40k miles is best value "newish" used car, but not always any more.

Look at Subaru for an example. You pay 85-95% price of new, makes more sense to just buy new and get better financing rate, and you will know it wasnt beaten up / abused before you got it.


That said, for something like a Chrysler, where the car may lose 50% of its value after 2-3 years, it may be a great deal....

 

[Eug]

In many cases, 2 year old 25-40k miles is best value "newish" used car, but not always any more.

In the Prius thread, I said 2-4 years. At 3 years a ton of leased cars get returned, so the availability is much higher.

As mentioned I just bought a 2.5 year old Prius Plug-in with 18000 miles for 1/4 to 1/3rd off (depending if you include the government cash back deal in the calculation or not). Mine was not a lease return though. It was a dealer car.

Look at Subaru for an example. You pay 85-95% price of new, makes more sense to just buy new and get better financing rate, and you will know it wasnt beaten up / abused before you got it.

I get a better rate through my HELOC (3.35%), so unless I'm getting a 1.99% or 2.49% rate or something like that, I don't really care what the dealer's financing rate is.

Also, for some cars, you'll get a cash back incentive if you pay cash, but you lose that if you finance it through the dealer, so that makes using a HELOC even more attractive. Of course, that means you actually have to have access to a HELOC, and most people don't.

 

[garndawg]

Your basic assumption was "buy new every 5 years"...

I don't share this viewpoint. I buy the best price/value vehicle I can find and drive for 10+ years and 200K+ miles. Typically, that's a new vehicle with high dependability/resale numbers that I'm willing to drive for a decade. I also invest heavily in maintenance for dependability. (Had a transmission specialist tell me once that if everyone flipped for the $200 full tranny flush every 50k miles, he'd go out of business.)

Here's my last three vehicle purchases (granted I'll not see another deal like the Sequoia):

1999 Silverado 1500 Z71, loaded with everything except leather
Paid $29k in Oct '99 w/ 49 miles on odometer
~$1k worth of major maintenance every 100k (replacing everything made of rubber and flushing every drop of fluid in vehicle)
Sold vehicle in Nov '14 with 280k miles for $4500

2004 Toyota Sequoia, loaded Limited 4WD, purchased used in July '07 w/ 75k miles
Bought during the post Hurricane Rita panic when gas tipped over $5/gal
Purchase price $16k, with complete Toyota maintence records
~$1k Major Maintenance every 100k (to include timing belts)
Still going with clean oil analyses at just over 200k miles, planning for 300k

2015 Jeep Wrangler Rubicon Unlimited, ordered from factory Nov '15
Added hard top, otherwise base package to include 6-spd, $37k
Just past first tire rotation at 5k miles, with intent to purchase lifetime warranty and drive until wheels fall off

Taking the Z71, I paid about $31k (including finance costs), plus about $3k worth of maintenance over 15 years. That's a little less than $2k/year of capital expenses. The Sequoia is about $2500/year right now, not counting the resale recoup, and that will drop significantly lower in the coming years (in 2016, it'll be $2100/year; in 2017, down to $1900/yr).

Buy 'em, keep 'em, maintain them w/ a preventive eye.

 

[exar333]

Your basic assumption was "buy new every 5 years"...

I don't share this viewpoint. I buy the best price/value vehicle I can find and drive for 10+ years and 200K+ miles. Typically, that's a new vehicle with high dependability/resale numbers that I'm willing to drive for a decade. I also invest heavily in maintenance for dependability. (Had a transmission specialist tell me once that if everyone flipped for the $200 full tranny flush every 50k miles, he'd go out of business.)

Here's my last three vehicle purchases (granted I'll not see another deal like the Sequoia):

1999 Silverado 1500 Z71, loaded with everything except leather
Paid $29k in Oct '99 w/ 49 miles on odometer
~$1k worth of major maintenance every 100k (replacing everything made of rubber and flushing every drop of fluid in vehicle)
Sold vehicle in Nov '14 with 280k miles for $4500

2004 Toyota Sequoia, loaded Limited 4WD, purchased used in July '07 w/ 75k miles
Bought during the post Hurricane Rita panic when gas tipped over $5/gal
Purchase price $16k, with complete Toyota maintence records
~$1k Major Maintenance every 100k (to include timing belts)
Still going with clean oil analyses at just over 200k miles, planning for 300k

2015 Jeep Wrangler Rubicon Unlimited, ordered from factory Nov '15
Added hard top, otherwise base package to include 6-spd, $37k
Just past first tire rotation at 5k miles, with intent to purchase lifetime warranty and drive until wheels fall off

Taking the Z71, I paid about $31k (including finance costs), plus about $3k worth of maintenance over 15 years. That's a little less than $2k/year of capital expenses. The Sequoia is about $2500/year right now, not counting the resale recoup, and that will drop significantly lower in the coming years (in 2016, it'll be $2100/year; in 2017, down to $1900/yr).

Buy 'em, keep 'em, maintain them w/ a preventive eye.

This.

If you buy for a long-term period, new/used really doesn't matter, other than your budget.

If you have $50k to spend, you can choose a MSRP vehicle (used) normally priced new, higher than that figure. Or get a $50k MSRP new one.

With a few exceptions, I generally buy long-term. Planning to replace the wife's car late this year and will be keeping my WRX for many more years. And yes, the WRX was MUCH better to get new. Little depreciation AND I know it wasn't abused.

 

[monkeydelmagico]

Used to be that way. Not as much for the past few years due to low sales and leases from 2008-2011. This drove up used car prices. Now that new cars have been selling at ever increasing rates we will begin to see used car prices trend downward (hopefully).

The first crop of 2012 leases are on lots now. Dealerships are keeping a higher percentage and using CPO programs to funnel sales through their in house finance guys. This inflates prices. Loosening the lending standards may also keep prices higher longer.

I believe buying new is the best way to go right now unless you can find a really good deal.

 

[monkeydelmagico]

That said, for something like a Chrysler, where the car may lose 50% of its value after 2-3 years, it may be a great deal....

+1 2012-2013 Chevy Impala's are selling for very little money at the moment. A two-three year old CPO warranty car, loaded with sunroof and leather with less than 30K miles for around $14K. Outstanding value.

 

[hanoverphist]

my mom and gramps always buy new, and give me crap for buying used. i like older cars, so i buy them. id rather buy a 1000 dollar car, put cash into fixing it on my own and having it last another 100k miles and have a car i like the looks of than spend 18-25k on a new car every 5-8 years. i have less into ownership and redo of all 4 of my vehicles than my mom has into her latest ford edge.

 

[WackyDan]

Bullshit.

I bought a new 2012 F-150 in January of 2012. I searched everywhere for a two to three year old truck to buy from private sellers. You know what I found? I lot of trucks with 40-70k already on them that while they may have had what I needed the asking price was too high and any negotiation lower was met with stupid BS...One guy was asking over the KBB/Edmonds perfect condition price because that is what he owed the bank.

So off to the dealer I went. What did I find? A ton of used trucks two years old marked at $29,999... I was able to negotiate a brand new 2012 loaded to the gills and with full factory warranty and zero miles for only $4k more than the used price....

The better deal was the new truck... Especially considering I keep my vehicles ten+ years.

So the two year old car logic doesn't always hold true depending the vehicle and vehicle class and also depends on how long you keep your vehicle.

 

[Eug]

Used to be that way. Not as much for the past few years due to low sales and leases from 2008-2011. This drove up used car prices. Now that new cars have been selling at ever increasing rates we will begin to see used car prices trend downward (hopefully).

The first crop of 2012 leases are on lots now. Dealerships are keeping a higher percentage and using CPO programs to funnel sales through their in house finance guys. This inflates prices. Loosening the lending standards may also keep prices higher longer.

I believe buying new is the best way to go right now unless you can find a really good deal.

The CPO programs price them high often, but you can still negotiate significant discounts.

For my car I didn't even know what the listing price was because in the computer it was listed at $43500 after fees and taxes (with original price $48500 new), but clearly that wasn't an appropriate amount for a 2.5 year-old car. Even the salesman said that had to be a mistake. Turns out it was just the price they had it years ago, and hadn't bother changing it in the computer since they were using it as a company car.

I offered $27500 as a wild guess low ball, but non-CPO. They came back at $31000 and after some haggling and internet comparisons I was doing on the fly, we finally settled on $29000 with CPO. I found out later that they had listed the price a few months ago at $36000 as a dealer demo, on one of those car sales classified sites.

Now, this is an unusual situation, in that I got a CPO price from a dealer for a cheap private sale type of price, but it does show you that those CPO prices are sometimes very negotiable.

 

[NutBucket]

I get a better rate through my HELOC (3.35%), so unless I'm getting a 1.99% or 2.49% rate or something like that, I don't really care what the dealer's financing rate is.

Also, for some cars, you'll get a cash back incentive if you pay cash, but you lose that if you finance it through the dealer, so that makes using a HELOC even more attractive. Of course, that means you actually have to have access to a HELOC, and most people don't.

My last 2 car purchases were financed through the dealer. I knew what rate I could get elsewhere (sub 2%) and the dealer beat the rate both times. I didn't sacrifice any incentives. The dealer isn't required to finance through the manufacturer's financing arm; GMC did my loan with Chase and Subaru with BofA.

So really there's nothing to lose by financing through the dealer as long as you do your research ahead of time.

 

[Eug]

My last 2 car purchases were financed through the dealer. I knew what rate I could get elsewhere (sub 2%) and the dealer beat the rate both times. I didn't sacrifice any incentives. The dealer isn't required to finance through the manufacturer's financing arm; GMC did my loan with Chase and Subaru with BofA.

Good point. My Toyota dealer wanted something like 3.99% or 4.99% and would only finance through Toyota.

In my case it's kinda moot though. I have some money coming in soon so most of the cost won't be financed anyway.

Money is extra pay, plus the payout for my totalled Prius 2004. I was very pleasantly surprised to find out they were paying me almost CAD$9000 for that (which was almost $8000, plus tax on top).

 

[NutBucket]

I agree. When I purchased a Honda and Toyota the dealers didn't play ball at all with financing. I ended up financing both through my credit union. Their loss.....

 

[Midwayman]

I'd had instances where it made sense to buy new. When I got my Acura TL for instance I only paid about $1k more than used ones were going for with low miles. I a subaru legacy before that I got about $2k less than new when I sold it 4 years later.

Most of time I figure the best value is on just off lease cars. Low miles, still quite a bit of warranty left, and the worst part of depreciation is over.

 

[Eug]

I'd had instances where it made sense to buy new. When I got my Acura TL for instance I only paid about $1k more than used ones were going for with low miles. I a subaru legacy before that I got about $2k less than new when I sold it 4 years later.

Yes, that happens.

I bought a 2001 Prius that was almost a year old, driven as a dealer demo, with low 4-digit mileage. Only got $1000 off.

However, I didn't mind too much because the car was basically non-existent, and waits for new cars was something like 6 months. So, essentially I paid a premium over classic used to get a tech toy immediately. (That was North America's first hybrid.)

Most of time I figure the best value is on just off lease cars. Low miles, still quite a bit of warranty left, and the worst part of depreciation is over.

I agree, but your two points do go to show you, there is no one option for everyone, for all potential car purchases.

 

[inachu]

If you prefer saving up for the parts to fix the car or truck then do it but as is life not everyone has the money to fix something that goes bad and when money is super tight then it is best to get a stable car or truck that lasts so it is better to buy new.

 

[exar333]

One thing to keep in mind....

Some CPO programs actually have a BETTER bumper-to-bumper warranty vs. a new car. Often to 75k or even longer. So you may get the car for marginally less, but the warranty is better vs. new. This is NOT universal, but does apply to some car companies (other CPO warranties may be much less, or just drivetrain extensions to OMW)

 

[angminas]

If you prefer saving up for the parts to fix the car or truck then do it but as is life not everyone has the money to fix something that goes bad and when money is super tight then it is best to get a stable car or truck that lasts so it is better to buy new.

Except that buying new means you will have less money. A lot less. (Don't forget the ridiculous insurance on a financed new car.) It varies by the deal, needs of the consumer, specific car, etc, but buying a 10+ year old car with 100k+ and fixing it as needed typically saves a TREMENDOUS amount of money over a similar new or even 2-3yo car, even after the more frequent repairs. The extra money you would have spent on a new car every month can go into savings, where it earns interest for you instead of for the finance company. Then when the car blows a head gasket, you can pay the 2k to rebuild the engine in cash instead of being stuck and financing 10k on a replacement car which is a whole new bundle of question marks and could blow its own head gasket tomorrow.

 

[exar333]

Except that buying new means you will have less money. A lot less. (Don't forget the ridiculous insurance on a financed new car.) It varies by the deal, needs of the consumer, specific car, etc, but buying a 10+ year old car with 100k+ and fixing it as needed typically saves a TREMENDOUS amount of money over a similar new or even 2-3yo car, even after the more frequent repairs. The extra money you would have spent on a new car every month can go into savings, where it earns interest for you instead of for the finance company. Then when the car blows a head gasket, you can pay the 2k to rebuild the engine in cash instead of being stuck and financing 10k on a replacement car which is a whole new bundle of question marks and could blow its own head gasket tomorrow.

What?

New cars generally are not much more vs. older cars to insure, assuming apples-to-apples coverage. Sure, if you live in the country and get away with liability (or even no coverage, in some states) but full coverage is full coverage. Newer cars are much safer vs. older ones and often that can make them cheaper for the same policy.

Also - financing a car these days is pretty much free, if you have good credit. 1-2% on the car amount and you can invest the funds and make more than that pretty easily.

Edit: Again, new can make a lot of sense if you plan to drive it for 100k+

 

[NutBucket]

Apparently comprehensive/collision insurance is ridiculous. I guess so if you car isn't worth anything....

 

[BurnItDwn]

In the Prius thread, I said 2-4 years. At 3 years a ton of leased cars get returned, so the availability is much higher.

As mentioned I just bought a 2.5 year old Prius Plug-in with 18000 miles for 1/4 to 1/3rd off (depending if you include the government cash back deal in the calculation or not). Mine was not a lease return though. It was a dealer car.


I get a better rate through my HELOC (3.35%), so unless I'm getting a 1.99% or 2.49% rate or something like that, I don't really care what the dealer's financing rate is.

Also, for some cars, you'll get a cash back incentive if you pay cash, but you lose that if you finance it through the dealer, so that makes using a HELOC even more attractive. Of course, that means you actually have to have access to a HELOC, and most people don't.

If you go to a bank or credit union and get a car loan, used cars are usually 1/2 to 1 pct higher. Also, many new cars off 0% financing but no used cars.

My example was Subaru because, well, if I wanted a used 2012 or 2013 forester XT, which went for like 26K or 27K new ... would still be around 22K, and if you bought an extended warranty, would be pretty much the same price as a brand new one.

I mentioned Chrysler, because in 2002 I bought a 1999 Chrysler 300m (which was 30K new), for 15K with 25K miles on it....


Now, a prius is a very high volume car. There is a big demand, but also a very big supply. Forester XT has decently high demand, and extremely low supply on the used market....

 

[Eug]

New cars generally are not much more vs. older cars to insure, assuming apples-to-apples coverage. Sure, if you live in the country and get away with liability (or even no coverage, in some states) but full coverage is full coverage. Newer cars are much safer vs. older ones and often that can make them cheaper for the same policy.

Yup. Surprised me.

My 2012 Toyota Prius Plug-in top-of-the-line model with 29000 km costs less to insure than my wife's 68000 mk 2008 Toyota Yaris LE automatic, which is middle of the range for the Yaris, but which overall has kinda low end features.

The 2015 top of the line Prius Plug-in is $48469 all in.
The 2015 Yaris LE automatic is $21066 all in.

Prices in Canadian dollars.

Also - financing a car these days is pretty much free, if you have good credit. 1-2% on the car amount and you can invest the funds and make more than that pretty easily.

Edit: Again, new can make a lot of sense if you plan to drive it for 100k+

With Toyota, some of the popular cars have higher finance rates. The high volume but high inventory cars or else the less popular cars have lower finance rates.

 

[angminas]

Apparently comprehensive/collision insurance is ridiculous. I guess so if you car isn't worth anything....

It's ridiculously expensive on a new car. I don't carry collision, because I don't buy new and I don't crash my car.

Financially speaking, it's usually a good idea to have a car that isn't worth anything. Unless you need a status symbol to get a promotion at work or something, a car is a lousy place to keep value, because it will continue to depreciate. The money spent on a more valuable car could have been invested in something that will appreciate. New cars are usually "better", but that better is extremely expensive.