There is nothing like the smell of a new car. You’re in a dealership looking at a car that you’ve been dreaming of for years, and there it is sitting on the floor waiting for an owner. You creep up on it. Look around the body, the tires. Ah, the smell of new tires. It’s a guy thing. You get inside and look at the instrument panel. You immediately notice that cars have changed a lot since you bought your last one eight years ago. Now the dashboard looks like a spaceship, and you want to take this thing for an intergalactic spin. On the right side of the dash lies the sticker price and you pick it up and look at it.
Unless you are rich or are willing to mortgage your life, this car that you are about ready to fall in love with is way out of your price range. But here comes the salesman. He’s got you by the collar telling you about all the different ways you can finance the car. They all seem upsetting and confusing. Your wife becomes disgusted and wants to leave before you get stupid and pull the trigger on a sale that will put an albatross around your neck for a long time. You get back in your old car with her and she starts talking about buying a used car. Of course, you had a used car in the back of your head from the beginning, but it’s so easy to get caught up in the allure of NEW. (AH THE SMELL) You knew the whole time you were flirting with this new sexy-looking car, how much you could save by buying a preowned vehicle with low mileage on it. A car is a depreciating asset.
Depending on what you paid for the car you could lose untold thousands the minute you drive it off the lot. It’s usually 20% of the value. So if you bought a car for forty-thousand dollars, you just lost eight-thousand dollars, while you drive the thing off with a big stupid smile on your face. So, why even think about it? There are some advantages to buying new, like the factory warranty and starting out with zero mileage. It makes sense to lease, which brings the monthly payment way down if you have a business that allows you to write-off the cost, but for the average Joe, it’s probably not worth it.
Your wife gets on the Internet and calls you over. You both take a cold hare look at how much you can save by buying a used car. You know this to be true, but you have deiced to ignore the facts, so here comes your first lesson. The average person owns 13 cars in a lifetime. If you average the numbers out and adjust for inflation, each car costs an average of $30,000. This is not a random number, it comes from the National Automobile Dealers Association. Instead of buying new and opted to buy a car that has been traded in early or come back from a three-year lease, your saving over a lifetime would amount to $130,000. That’s a lot of money. Keep in mind you can put a full factory warranty on a three-year-old car as long it hasn’t been abused or has some kind of insane mileage on it. Depending on the level of care you chose on the warranty the cost is probably going to be $2000 on the high side for three-year coverage. It’s not like the old days when you buy a used car, and they say good luck. With the warranty you are covered, almost to the degree, you would be covered in a new car. So, the used car purchase if done properly is low risk. Cars are more dependable now. I remember when a car got close to eighty-thousand miles, it was on its last leg. That’s not the case any longer. Some cars can go more than a hundred thousand miles before needing major repairs. I had a Nissan that was like that.
Here is a financial example of new and used car depreciation: You buy a new car for say $30,000. In three years, you get sick of looking at and trade it in. The dealer gives you $10,000 for it on a trade. Your total loss on depreciation is $20,000, That’s depressing. Whenever something you own depreciates like that it’s depressing. Now let’s look at used-car depreciation: You buy a car for the same $30,000 car, but this time it’s three years old. Now it’s selling for $15,000. Three years later you get sick of looking at that care and sell and trade it in. The dealer is in a good mood that day and gives you a whopping $10,000 for it. How much did you lose this time? You didn’t lose $15,000 like you would have if you popped for the new car. You played it smart, and the total loss of depreciation is now only $5,000. If you’re trading in cars all the time, that number is much easier to look at. And it makes sense to get rid of a car after three or four years.
Once most cars reach 70,000 miles or more, they begin to eat parts. You can pick up a second extended warranty, but they are loaded with all kinds of exclusions, that in the end will cost you money. On most extended warranties you have a two-hundred-dollar deductible, which means just for the dealer to diagnose the car and tell you what’s wrong with it costs two-bills. Then come to the repairs, and hold your breath hoping your part is covered. You looked all through the warranty pamphlet the warranty company sent you, and the part looks like it’s covered, but there are so many grey areas and room for interpretation inside of those warranties, it takes a car scholar to figure it out.
It used to be common for people to put down used cars by saying that it was just a way to buy someone else’s problems. That’s not true anymore. Here are two updates on old knocks against used cars of recent vintage.
Reliability: Cars have never been more dependable than they are today. It’s not uncommon for some cars to deliver more than 100,000 miles before needing major repairs. We’ve come to the end of this thread, and I see no reason to write a summation. I would just be repeating myself. All I’ll say before leaving if your rich and money is not an object buy new. If you can lease a new car and absorb the cost into your business, by all means, buy a new one. For the rest of us out on the frontline working hard and doing our jobs, buy used and save your money.
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