Guest Post by Eric Peters
Buying a new car is always a bad decision – financially. It doesn’t matter which brand or make or model. You will always lose money.
It’s just a question of how much.
All new cars bleed value like the Titanic took on water after it hit the iceberg. Even the least-“leaky” ones, from brands with high resale value – Toyotas and Hondas, for instance.
Both make great cars – reliable, well-built, etc. But that’s not the issue.
Depreciation is.
Even the cars which depreciate less horribly than others – those Toyotas and Hondas – still lose about 20 percent of their value during the first 12 months you own them. If you buy a new car for $35,000 – which is the average price paid for a new car – you can expect to take a $7,000 haircut on the car during that first year.
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Not counting the additional money you spent on full coverage insurance (based on the replacement cost of a new car) and property taxes, in states/counties that get into your pocket that way, too.
After six or seven years, that $35,000-when-new car will probably have lost about half its value, $17,500. That’s not a haircut.
It’s a scalping.
If you buy used, you only get trimmed.
Maybe not even that.
There is a sweet spot for used cars – the point at which they’ve depreciated so much they won’t depreciate much more and so are now very affordable – you can probably afford to pay cash – but aren’t anywhere near the end of their days as reliable transportation.
That sweet spot is generally located about 10 years from new – at which point the average new car will have shed about two-thirds of its original retail value. In our example above, the $35,000 when-new-car will have depreciated by about $23,000 – possibly even more.
You should have no trouble picking it up for well under $10k.
But will you have trouble?
Enter the Fear.
The main reason – after New Car Fever – people sign up for debt servitude by purchasing a new car is the reassurance of the new car warranty. That they won’t have trouble with the car – and even if they do, the repairs won’t cost them anything.
So instead, they pay a fortune for the new car. Plus the insurance and taxes on the new car.
That’s guaranteed “trouble.” Not mechanical, necessarily. But financially, certainly.
It is true the used car will have been . . . used. This does not mean it will need repairs. It may, of course. But not necessarily.
The choice, then, is between the risk of possibly having to pay for a repair – vs. the absolute certainty of a fat car payment every month, for years and years to come. During which time you are absolutely guaranteed to lose money on your “investment.”
And, there’s this to consider:
A well-treated, well-maintained used car of fundamentally sound design can be less prone to trouble than a brand-new but poorly designed car. The used car will have a track record. If it has been reliable and largely trouble-free in the past, then it is a sound bet – based on actual experience – that it will continue to be a sound bet going forward.
Particularly if you have maintenance records for it, or knew the previous owner – and in either case have had the car thoroughly checked out before you buy it.
A new car is intangible in this respect. Unknown. Precisely because it is new. It may prove to be reliable. But it may not be. New cars are sometimes not reliable. You won’t know until after you’ve bought it – and driven it for a few years.
They are warranted, of course. But you still pay – in terms of the hassle of owning an unreliable car. And for the car itself.
A used car can be a better bet, reliability-wise.
Especially if it’s a known “good” make/model. Like the Toyota Camry or Honda Accord mentioned earlier. Earlier examples are safe bets, like going to a familiar restaurant. They were built in the millions – several hundred thousand every year – and most of the ones built during the past ten years are still going strong, with much more to go.
You’ll just pay a lot less to get there.
There are many such “good bets” out there.
The fundamental financial beauty of the used car sweet spot is that once a car gets there, it largely stays there. It won’t lose value at the same rate – or to the same degree – ever again.
It has plateaued.
The car you paid say $8,000 for this year will probably be worth about the same next year – in stark contrast to the new car, which as we’ve already talked about earlier will lose about 20 percent of its original value during the same span of time.
If the used car loses half its value after a few years, you’ve only lost $4,000 – as opposed to the $23,000 in our example above (the brand new car) not including the higher cost of insurance and taxes on the brand-new car.
Personal example:
I’ve been driving a 2002 Nissan Frontier pick-up with the four cylinder engine (avoid the V6!) since 2007 without it needing more than the usual things all cars – new or used – need, such as oil and filter changes, tires and brake work.
I paid $7,200 for it 11 years ago. It’s still worth about $4,000.
Sweet spot!
If you pay cash – as I always do – you also won’t have paid the opportunity cost of having your money tied up for years in monthly car payments – and a rapidly depreciating appliance which is worth less and less the longer you own it.
You’ll be functionally richer with each passing month you didn’t have to make a monthly payment. Put that money in savings and you’ll have money for almost any repair that comes up.
And if it doesn’t come up, you’ll still have the money.
You ain’t going to get a hot woman with that junk for wheels!
I believe the author was describing how to save money. Someone should do a cost analysis on how much a ‘hot woman’ would cost.
If you have to do a cost analysis, you can’t afford one. If you are between 35 and 45 this warning should be going off in your head whenever a ‘hot woman’ is in the environment.
Hot Woman Cost Analysis…when that is all there is:
A. Leave before the hotness wears off…Cost nothing
B. Marry her before the hotness wears off…Cost everything
B is not from personal experience…just observation
I always left early.
(See IS for back up)
If that “Hot Woman” would reject you over your choice of transportation she’s probably a shallow, gold digging cunt who will marry you, then divorce you taking your car AND your house. Have fun with that. Thinking with your dick never works out in the long run.
I paid $500 for a 2004 Intrepid with 72,000 miles on it. Changed the battery and it passed inspection.
I’d argue 10 years is a bit spent for most used cars. For the average vehicle that is driven 12k miles annually you’re well past the first 100k miles. That usually means some expensive and major maintenance is ahead of you if you want to keep the vehicle reliable and safe. No owner selling at that mileage has done this either or else they wouldn’t be selling.
Up here in the land of 10 million potholes 100,000 miles will destroy a suspension. Springs and shocks are a must if you don’t want to bounce down the highway like a gangsta. Also very unsafe to not do this not inexpensive job. Brakes are usually shot at 100,000 miles. Tires – yep. Full tune up including new plug wires would be a strong recommendation. Vehicles with interference engines need a timing belt which any shop will take you to the cleaners for because they are bastards – the job is super easy. Water pump is probably also nearing its end-of-life. That’s also not accounting for an interior cabin that has 10 years of wear and smells in it. You can surely do it – and I’ve done it with the aforementioned Honda Accord, but while the maintenance was cheaper than a new car payment it wasn’t what I’d call economical. It’s a big pill to swallow to make a vehicle “reliable” for the 100,000 to 200,000 run.
I much prefer a 3yr old off-lease or similar vehicle around 30k miles. Sure, it might cost more than $5000 but the delta of all that maintenance vs. the cost of the 10 year old hooptie often is in my favor. Then I get about 70,000 miles of minimal maintenance life. Theoretically I’ll be taking good care of it for 5-6 years instead of some stranger beating the snot out of it and I’ll know if it’s something I like enough to drop $1000’s into for the next 100,000 or not.
If you do that with a decent Ford or Hyundai your savings are much better than that over the Honda or Toyota as well. All vehicles are pretty good these days so if you don’t give a damn find the make with the worst resale out there. Winning.
Good stuff. Thanks.
Aquapura said it for me. The salt alone eats cars. Where they sand instead, the grit destroys every moving component like grinding compound. Hogs out rubber bushings, and sands down the metal at the contact points, like sway bar bushings. 10 years on a car is too long. 12-15 on a truck.
Great article, Eric. And an even better comment, Aquapura
What star said….. Where I live the salt gets a car long before ten years unless it is undercoated since new. There are good deals to be had on New Vehicles. I bought my Truck in 07. It was 20G on the road. I still have it. Should be able to run it for about 5 more years. Not to shabby! Thing I have found is as long as you can resist the temptation to trade it in one doesn’t need worry about depreciation if yer just gonna drive it into ground. I am finding it hard to avoid the showroom when cars go for work. There is an appeal to shiny and new. It just the payments that suck. It is also tuff watching everyone driving something fancy when I am still rolling along in my old crappy truck. Still I am determined to drive it. The longer I do the higher my credit score… 840 baby and headed to 900…
I have spent all my life wanting to roll in a real fancy rig. Now that I am able I just can’t do it. My car is eight years old. It had some rust pop thru. A couple years back I had car touched up professionally to keep up appearances. It cost me 1500 bucks. It was money wasted. Not not…this time when rusties became a problem I did it myself. Didn’t turn out too bad. I even got correct colour match paint and made a patch using some sheet metal from a BBQ that I was throwing out.
Cost me about 40 bucks.
Which brings me to another question aboot depreciation…
Is it possible to have a BBQ last moar than 4 years. I have bought cheap ones and expensive ones and it doesn’t seem to matter. Three or four years and I am back at shops buying another one..
Personal exp. from sales (5-6 months a yr. only) from ’89 ’90 ’91): at a multi point dealer location (Chev., Nissan, Chrysler, Mazda) in a small central Okla. town:
The 3 yr. off lease cars were aka ‘smart cars’. Most often, they were from a nat’l car rental company like Budget, Hertz, etc. The vehicles would be sent to a dealer only auction, and it was not uncommon for a dealership conglomerate to purchase 300-500 in a single day, with the auction yard having 10 times that amount for sale. Example being ’91 Chrysler New Yorker 5th avenue. Sticker price, with shipping and delivery was around 21-23 grand. Dealer group, who would own maybe 1/2 doz. lots in as many cities, would pay a lot price (lot being any given number from 10-50 units, or more) of maybe 13-15 thousand ea., and they typically would have that 25-30 k miles. Car lot would display them right along side the brand new for $22 sticker, and would usually ‘price’ them at 18,995 (or when the ‘red tag sale was on $19,995 with red tag at, say, $17.995; which could be as much as $5 grand markup from purchase price), showing a ‘discount’ of maybe $4-5 thousand over the new one, and ONLY 25, ooo miles with the balance of factory warranty left. EASY sale, and the salesman (good ones) were rec’ing 30% of gross after pack (typically $300-$500 profit over cost of unit for dealership before commissions were calculated). Those ‘low miles’ were put on by renters, many times for party weekends or week long trips; read road hard and put away wet. I’ve seen the transports deliver 50 vehicles to one dealer, some with masking tape still found under the fenders, or doors…..”run that one back to the body shop and tell them to get the nail outta the tire, and the water outta the trunk”…..although some were pretty decent used cars as well.
Point being, things are not always as they appear, and when you go on a car lot, for used or new, the dealership has many ways to make big profits off of these ‘smart cars’.
On the same hand, a brand new vehicle can be discounted down to achieve about the same end cost as the ‘smart car’. Depending on customer rebates on the model, whether or not there are ‘dealer’ rebates (rebates from manuf. to dealer that many states do not require the customer to be informed of), invoice hold back money, 2% advertising expense. Generally speaking, a .875 factor to the bottom line sticker price will get you real close to a stripped down ‘wholesale’ cost of a new unit. Another factor can be the number of days the new unit has been on the lot for the big finance companies (GMAC, Ford Motor Credit, etc.), how the interest is calculated on the lot inventory (RARELY would a dealership own the $5 million inventory, but would finance on a floor plan)…..many variables, but, as I said, a shrewed negotiator, or a good salesman (incentivized to move a 180 day old unit) could put together a deal that would deliver a new for comparable price as the used model of like kind.
I could go on and on, but I COULD SELL (just had to set conscience aside). So, after hitting the spring ‘out of school’ season, summer months, and the ‘back to school’ selling season, I would flip the owner the bird (because they will push, push, push), get into one of the 100 or so used cars, and head home. I never would sign a ‘demo plan’ for salesmen (a whole other ball game in and off itself), I would just pick one of the used cars that had gas, and drive a different one every other day or so (45 mile drive one way). I’ve worked 12 hr. days, 6 days in a row; no sales, no money, then have an entire month come together and sell 15-18 units in 10 days.
Again, SO MANY factors considering the purchase of autos from a car lot, it boils down to a ‘good deal’ is one where the customer is happy with the purchase he made. I would only grab the work to earn the money to buy materials on our home as we went through the construction project…no money ever borrowed. So me and the government (annual taxes) are the owners from day one, and piss on the money changers.
One last piece of advise: NEVER BE A PAYMENT BUYER !!!! (And don’t ever let a salesman see that you are excited about a particular model). If you wanted a payment of $400 per month for 4 yrs, it is dang easy to talk you into $430 per month ( a $1,440 bump, which would mean a $420 increase in my commission).
I’m sure the game has changed some in the last 25 yrs., especially the length of finance term. Figure the same monthly payment bump, but on a 72 month loan. “Buyer be ware”.
Valid comments but 1990 was a long time ago now. Pretty easy to run the VIN on a vehicle today and find out who it was registered to previously. I’ve always avoided rental returns. If you don’t want to do your homework drive a used Honda. Never encountered one of those on the rental lots. Avoid the Camry and anything Nissan – drove more than a dozen rental Camry’s last year and tons of Altimas and Rouge’s from Nissan. Rental lots are not all Detroit 3 metal these days.
Margins on used cars are super high so private sellers are my preference. Like any large purchase do your homework and you should be fine. Always have an independent mechanic check things out. It’s a bit of a crap shoot but protect yourself the best you can.
Do what I do. Buy a solid low mileage used car about 10-15 years old. Have it checked out by a mechanic then pay cash. Even if you have to replace the tranny or entire engine for a few thousand it still adds up to less than 12 months of $600+ car payments. Then drive it until it dies. I’m still driving an ’86 Runner I paid $1500 for nineteen years ago. Apart from exhaust and a slave cylinder the only parts I’ve replaced are routine maintenance items that apply to all cars like belts, hoses, brakes etc.
$1500 for 19 years of transportation with no breakdowns is pretty fucking cheap at slightly more than $75 per year.
Here’s a good deal.
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How about this one?
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Note to self: do not buy a used car from a guy named Steve C.
Good plan.
Well,one could always find a nice mid 70’s ford van body with no windows ect.,then,drop said body on a mid 70’s F-250 frame that tis 4X4,add a little spring lift/33″ tall tires on old school wagon wheels/decent soud system with 2 captains chairs and your into it for about 8 grand,but……,have a easy to work on vehicle/camper/toss in dirt or street bikes if wanted(a nice ramp helpful!),eh,you get the idea.I like building/rebuilding older stuff,find high mileage but low salt/rot vehicles and go nuts.I have vehicles that are a ease to work on/look bad ass/tough enuff for most situations ect .
I do have a Mazda 3 for mileage purposes,maintain well and am hoping for at least 200 thou miles with care,just spun the first 100 thou,100 thou to go!
A van like that would be very good for scaring the shit out of suburban parents or living in down-by-the-river.
Bonus!
Nice article and great advise for especially for young people. I have had both new and used cars. Driving something over 10 years old is a hassle, sure if you can put up with the inconvenience it can be the best value. I now choose 3 year old off lease vehicles, I avoid 50% of the depreciation with modest service for the first 5-6 years.
I have the money. I buy new cars. Get a 7 yr / 100,000 mile full factory warranty. I’ve had no car problems for over 20 years.
If Eric had bought the tacoma instead of the crappy nissan, his truck would be worth the same now as what he paid for it. Those things are like a fine wine, and are a better hedge against inflation than a lousy fucking savings account.
where are you finding decent low mile cars???
in minn,10 yo are rusted to shit and at the 200k range(IE:: used up)
my used car purchase rule was at 10 yo what side of $2000 was it
over 2k is too much for shit.(prove me wrong)
here imo a used car with 90-100k is75% of new car price and that’s
too much for shit.YMMV
I bought a ’98 Z71 single cab long box with new short-block for $900.
Sure, there’s over 200K on the spinner and massive dents (but no rust), but I can still work on it, because I CAN OPEN THE HOOD AND SEE THE ENGINE.
At $18/month for insurance, beats the hell out of trying to haul wood in a Prius, and cars keep out of my way…
Gary, go online and look up cars in Florida and California.
Mountain sates (CO, NM etc.). Low humidity, most don’t use salt on their roads
Myself, I pretty much only buy cars from the internet. So many more choices. And so many ways you can narrow your country-wide search (by cost, miles, year, model, etc etc., and any combination thereof).
So, three months ago, I bought a showroom condition 2005 Mercedes E500 for just $11k (orig price $65k +) … and it only has 32,000 miles on it! So, my “secrets”;
1. Give yourself PLENTY of time … at least 30 – 45 days … to find exactly what you’re looking for. America is a huge place with millions of cars so, you’ll find it or come close.
2. Know what you want! Don’t just randomly shop and hope.
3. Search the entire country. Why not? It only costs about $900 to ship a car coast to coast …. and if you’re saving thousands off the “blue book” price, it’s worth it. If you’re the type who must test drive a car, at least be willing to search a 200 mile radius. Do your search EVERY single day.
4. I will NEVER buy a car that has more than 2 owners. I strongly prefer only one owner cars.
5. It’s pretty damned easy to find out info about that one owner in today’s computer world. My other car, the ’95 Buick, was a one owner elderly woman … who sold her car when she moved into a nursing home. The Benz was a one owner — a retired doctor from Long Island. Buying a used car from an older person, if possible, is always a safe bet. I will NEVER buy a car from a Millennial, or younger … no exceptions. Most of them are morans who don’t give a fuck about properly maintaining a vehicle.
6. When you see a really good deal ACT ON IT PRONTO. Great deals just don’t last but a day or so, if that. I called the Benz dealer the morning it appeared, called him, told him I was coming to see him with a deposit. By the time I got there (it was over a three hour drive) he already had two other people lined up .. one of them a Jewish guy (really) wanted to come in with cash in hand before I showed up! Fortunately, the dealer had scruples and told the Joodude he had to wait until the next morning. Blah blah bl;ah … my point, again, is if you’re not the type who can pull the trigger when you see a good deal … cuz ya need to ‘think about it’ … then buying off the internet is probably not for you.
I’ve bought at least 7 cars via the Internet, and never had issues with any of them., and all were pretty damned good deals because of the above.
It cost more than $900 to ship a car coast to coast. John
“It cost more than $900 to ship a car coast to coast.” —— bluestem
Guess again, kumquat.
“According to CostHelper, shipping a four-door sedan can cost between $600 and $1,000, with the lower amount representing winter shipping – when business is less brisk – and the more expensive price reflecting summer months. Transporting a small van, truck or SUV from California to New York may cost $800 to $1,070.”
————- https://www.angieslist.com/articles/how-much-does-it-cost-ship-car.htm
Victory for the Gentiles!!!
When will your luck run out Stucky?, especially if you buy the car in northeast.
Had a 10 year old SUV, WD, 53,000 miles – Frame rusted, completely gone; junked it.
CT pre-treatment of roads for snow. Even the ST, Hwy Dept was losing their big trucks to the treatment.
Kokoda,why you really check em out before buying,I have bought many rust free vehicles in the north east but tis a very hard hunt at a minumum,I am lucky in that have friends/family in Cali. and Co. so as the few rust free north east vehicles disappear still have hunting grounds.I have literally(OK,at least literally in a mental sense)had vehicles jump up on their rear legs and say “James,buy me!”.So far,have been lucky.I ever buy a newer car will do accident checks ect. along with going over it but the stuff I like has many times had many drivers,passes my inspection I’m good.I admit have no problems dropping in new engine/transmission on the right vehicle,something a lot of folks do not want to deal with but when your stuck in the 60’s/70’s 4×4 mindset you do what you need to,plus,enjoy the hell out of resurecting old stuff.My only thing will not do is extensive body work,do not have the skills for that(yet).
james………….I bought that car new.
Kokoda,I would say every fall have the undercarriage oiled/sprayed,costs in N.H. about 60-70 bucks(do it yourself tis a mess and with me long flowing locks of beautiful hair I refuse!),this does seem to work well.I will say though not familiar with any new fangled chemicals the state dumping on your roads.I growing up in mass. saw the rot from the over salting ect.,tis a bitch and you need a lot of eds red to loosen bolts ect. when working on “lightly salted cars”.
Buy new, take care of it ;drive it for the rest of your life. Pay cash. 2008 Tacoma. 20yrs to go. $20K and 4WD.
I’ve had mixed luck buying cars off the ‘net, but generally if you find a decent brand with 100k or under, and if you’re lucky enough to have a provable 1 owner carfax or such, that’s what gets my attention. Best used car out there right now is the ’12 Prius Plug-in. First 9 or 10 miles free on the charge and 60 mpg otherwise. With $4+ gas that means more $ in your pocket.
I drive a 2011 Chrysler 200S retractable, hardtop convertible. It has the Pentastar 6, weighs a ton and cannot get past 30 mpg on the freeway, but it’s solid, rides great has a huge trunk and is the best convertible for the money (that fiat chrysler could not make money on it is the reason it is not made anymore).
My only bitch is that the motor that runs the automatic clampy things that secure the top to the windshield frame has broken and I have had the fucking replacement on back order since last September. WTF??? This is too much fucking automation. How hard is it to just have manual clamps to secure the top like it was done for the past 70 years?
I still love my ’04 F-150; just rolled over 235k. Picked it up in ’09 at 104k, fairly cheap, & haven’t spent much on it. I’m a mechanic’s son, so I keep up with maintenance. No rust, hell, the paint isn’t even faded.
The trick is to not live in places God warns you people aren’t supposed to live. Snow is a good indicator of that. Lots of snow is a strong indicator.
I have to admit, the compass/outside temperature indicator quit a couple of years ago, but I think I’ll survive.
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Jumping in on the cost of a hot woman. My wife never goes on Burning Platform, so let that attest to the plain lack of agenda in play. My wife was and is breathtakingly beautiful, trim, big busted, pleasant in conversation, smart and able, self aware sufficient to be admonished once in a while and take it the right way. When we met, I was driving a 10 y/o Ford Escort. She got much less of a wedding/reception/wedding ring than I’da liked to have given her, but she didn’t want to wait to save the money for a fancy deal, so we got married in her parents’ living room. We buy used cars and we buy our furniture at thrift stores because we like the charm and quality of older things. She can cook and garden and she cans our surplus. Her biggest burning desire when we got married was to be a stay at home mom. I was thrilled the day she quit her job. I am blessed far more than I deserve, no doubt. If your hot woman is costing you too much, you’re doing it wrong.
Boo, bob! If your so happy, why are you slumming on a doom porn site, gloating? Lucky dawg!
Bought a 2005 stick shift Camry (yes, you could find them back then) on Dec. 30th (one of the best day of the year to buy a new car) and even had a coupon from the dealership. Paid just $5000 more than we paid for our Corolla 10 years earlier. Its now 12 1/2 years old, has 165,000 miles on it, and because it was assembled in Japan (not Kentucky), it has NEVER been subjected to any of Toyota’s recalls that impacted so many Camrys. A VERY worthwhile new car purchase.
Bought a 2004 used Toyota 4-Runner with only 65,000 miles on it, paid great money, and have had no issues whatsoever with it. New 4-Runners at the time were over $45,000.
Given all the crap you are now FORCED to take on a car, and despite having had 4 great new car purchases over the decades from Toyota (all of which made it to well over 100,000 miles – 1 was 195,000), I will never purchase a new car again. Our used 4-Runner sealed the deal. Get it checked out before you purchase, use synthetic oil to give the engine its best chance, and a rock-solid car like a Toyota will give you many, many years.
I bought 3 Toyota Corollas in the last 20 years. First one lasted 175K miles in 14.5 years and the engine passed away. I was not happy about it. The second one is still running well. The third one has been driven for 125K miles within 3.5 years and it is running well.
I wouldn’t bather buying a new car. Buying an economy car for a good price (like last year’s model), and drive it for 15-20 years.
My oldest Civic (2001) has 311000 miles on it and it is still a economical and dependable car I use for commuting to work 146 miles per week
I just had a friend tell me if I bought a rolling shell of a Ford ranger he could put a brand new diesel 4 cylinder and transmission into it that will not only last over 500,000 miles but would also get 35 miles to the gallon. I think I know what my next vehicle is going to be.
…and she likes mowing the lawn…go figure. 🙂