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#1
Old 06-18-2012, 04:20 PM
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Optimum car buying strategy to minimize total ownership costs

When is the optimum age to buy and sell a car to minimize total ownership costs? This isn't a question asking which car has the lowest costs--I can find many lists on the web for that. But this is more about a general strategy for buying and selling a car so that the total cost of ownership is minimized.

For example, these might be some strategies I could follow:

1. Buy the car new and sell after 3 years
2. Buy the car new and keep it for 20 years
2. Buy a 5-year-old car and sell after 4 years
3. Buy a 15-year-old car and sell after 1 year

Each scenario would have different outcomes based on expected depreciation and repair costs. In addition, rapid buying and selling would lead to higher costs from sales tax.

I'm posting this in GQ because I'm looking for more factual answers than anecdotal.

It seems sites like Edmunds, KBB, Consumer Reports, etc have the historical data for how the price for a car tends to decay over time as well as the reported maintenance costs over that same period. Given that set of data, it seems someone could come up with the optimum strategy for minimizing the total cost of vehicle ownership for a given car. So whether you want a Mercedes or a Corolla, there should be a strategy to minimize your costs.
#2
Old 06-18-2012, 04:34 PM
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Tell us where you live, local fuelprices, local tax regime, what your budget is, what level of banger you are comfortable with, what your transportation needa are, what kind of milage you intend to put on the car, what kind of car you like, do you care about the enviroment?

With that information we could start devising a stategy.

In general: buy a young secondhand 2-3 years old, maintain it well and drive it 'till the wheels fall of.
#3
Old 06-18-2012, 04:40 PM
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With used cars at record high prices, at least in the United States, the optimum strategy now seems to be:

1) Three year lease on a Honda, Toyota, Subaru, or Ford. You're buying the depreciation, which today is very low, especially with these brands. If depreciation rates pick up again, your lease cost will be below depreciation costs.

1) Buy, hold for three years, sell. Used car prices are beginning to fall, but they're expected to remain much higher than before the recession. Ignore the "don't buy a car in its first model year" rule if your intent is to sell after three years. For a new model, the design will probably still be the same when you sell, and depreciation won't be as bad as with a car that belongs to the previous model cycle.

A five year old car now doesn't cost as little as an equivalent used car before the recession. The warranty will likely be expired. Modern cars are very reliable, but you might still expect repairs and scheduled maintenance at the 60K/70K mile range that could make the cost of ownership similar to that of a new car.

15 year old car: depending on the state, you might have to spend a lot to bring it up to a point where it will pass inspection. A lot can go wrong at 150K; timing belt, head gaskets, suspension. I'd only recommend it if it's a car with some cult appeal, like a Japanese hatchback that is popular among the ricer/tuning crowd, or an old Volvo - something you can flip if you find the right deal.

Last edited by elmwood; 06-18-2012 at 04:42 PM.
#4
Old 06-18-2012, 04:57 PM
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The othr question is - what level of disruption can you tolerate. If you come out on a really cold day and can't start your car, is that serious or ho-hum?

I would suggest buy a car that is just off a 3-year lease, then drive it until repairs or nuisance failures start to get bad enough that you would rather pay for a replacement vehicle. The not-quite-joke is that a car loses 30 of its value when you drive it off the lot. Actually, it lose close to half its value in the first 3 years (or used to). SO let someone else absorb that cost.

Whether that's different in today's market, I don't know.

Last edited by md2000; 06-18-2012 at 04:58 PM.
#5
Old 06-18-2012, 05:00 PM
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Buying an 8-9 year old car @ ~90-110k miles and keeping it for 4-5 years is going to be the one of the most economical avenues, provided you buy a common, mass-produced car with average equipment.


^Educated guess based on previous discussion.
#6
Old 06-18-2012, 05:55 PM
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Buying new is a terrible idea because of the rapid depreciation. Some cars like Honda and Toyota do not depreciate as fast (because people assume if you sell a slightly used one it is still in good condition). But others lose 80% of their value in the first 5 years.

I don't have any math to back this up, but I would assume something 3-4 years old, then sell it after 3 years or so. If you get a good deal, you may be able to sell the car for about what you paid for it. Your best bet is finding something that is low maintenance/high reliability but that depreciates rapidly.

A Mercedes and a Corolla are going to be different. The Mercedes costs more and depreciates more.
#7
Old 06-18-2012, 06:13 PM
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Of course it depends on the specific model car, the depreciation rate of that vehicle, the reliability and repair costs of that vehicle, the current market for used cars, etc.

filmore, why don't you pick a model or two and run the numbers via the data available at those sites and report back? I've heard lots of strongly held WAGs but the exercise would be interesting.

Here's a start - Edmunds true cost to own a new Honda Civic 1.8 4 cyl 5 speed automatic is estimated at $32086, the true cost to own a 2007 of the same is estimated at $28,859.
#8
Old 06-18-2012, 09:35 PM
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This is definitely an IMHO topic, IMHO.

I am of the firm belief that if minimizing transportation cost is your only goal, buying cars in the sub-$1000 range and only performing the most basic maintenance (basically oil changes and any safety issues) and junking instead of performing major repairs is going to be by far the cheapest way to go. Most people don't use this strategy because it's horribly inconvenient and you end up driving horrible old jalopeys, so they pay more for a better car driving/owning experience.

These days, cars last a REALLY long time-- it's generally to the point that the drivetrains last essentially forever and people only get rid of cars because they devolve into "clunkerdom" where the owners are just sick of looking at them, and they start letting the body fall into disrepair, but they still work mechanically. Buying cars that have passed into clunkerdom is extremely cheap, and though you might get a lemon or two, you're just as likely to get a car that will keep running long after you're sick of driving the stupid thing around. Even if you have to buy two lemons before you get a good runner, you're still ahead of buying even a modestly-priced used car. You can also get away with carrying only liability insurance, which is a huge savings depending on what your rates are like. (I just financed a $10k used truck for work and the difference in insurance from paying liability-only on my old rig is almost as much as the payment!)

But, this strategy assumes you don't care about occasional breakdowns and don't mind driving around in a terrible dilapidated car. So the question then becomes how much more are you willing pay for a non-terrible car and a less inconvenient ownership experience? You can move up the ladder from buying a $4-5k used car all the way up to the most expensive (but also most convenient) way of driving a car: leasing.

Last edited by GreasyJack; 06-18-2012 at 09:38 PM. Reason: tpyo
#9
Old 06-18-2012, 09:38 PM
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Originally Posted by md2000 View Post
The not-quite-joke is that a car loses 30 of its value when you drive it off the lot. Actually, it lose close to half its value in the first 3 years (or used to). SO let someone else absorb that cost.
Not any more. Check out some of the articles that have been appearing recently in The Truth About Cars. For the past few years, used cars have been appreciating in value. It's mainly because, with the shitty economy, there's increased demand for used cars, but a much smaller supply because people are holding on to their cars longer. High demand, low supply.

It looks like the market has peaked, but it'll take years before the US gets back to the pre-recession "cars lose half their value in three years" pricing, and we'll never have UK-style "here comes Jeremy in a five-year old BMW 6-series he bought for 900 quid, and here's James in a four-year old Mercedes C-Class he picked up for 850 nicker" prices.
#10
Old 06-19-2012, 08:48 AM
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Quote:
Originally Posted by md2000 View Post

I would suggest buy a car that is just off a 3-year lease, then drive it until repairs or nuisance failures start to get bad enough that you would rather pay for a replacement vehicle. The not-quite-joke is that a car loses 30 of its value when you drive it off the lot. Actually, it lose close to half its value in the first 3 years (or used to). SO let someone else absorb that cost.
Quote:
Originally Posted by Wesley Clark View Post
Buying new is a terrible idea because of the rapid depreciation. Some cars like Honda and Toyota do not depreciate as fast (because people assume if you sell a slightly used one it is still in good condition). But others lose 80% of their value in the first 5 years.
Does anyone have any examples of used cars less than a year old that sell for 70% of the new price? Or examples of 5 year old cars that sell for 20% of their new price?

Are we talking about cars in good condition here or cars that have incredibly high mileage, have been in major accidents or in a lake?
#11
Old 06-19-2012, 09:53 AM
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Originally Posted by elmwood View Post
It looks like the market has peaked, but it'll take years before the US gets back to the pre-recession "cars lose half their value in three years" pricing, and we'll never have UK-style "here comes Jeremy in a five-year old BMW 6-series he bought for 900 quid, and here's James in a four-year old Mercedes C-Class he picked up for 850 nicker" prices.
You'd need to add about ten years to your age estimates to get those prices in the UK. You'd get over 10,000 for a five-year old 6-series (lowest spec), even as a trade-in.
#12
Old 06-19-2012, 10:16 AM
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Adding to GreasyJack's post, when you're finally ready to junk your $1000 jalopy, you'll get a few hundred dollars in scrap value, to help buy your "new" $1000 jalopy.
#13
Old 06-19-2012, 10:19 AM
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I bought an off-lease 2008 BMW 330xi for $32,800last year while the going price for the equivalent new (in Canada, land of the retail gouge) is about $50,000.

Meanwhile, my $45,000 (new) BMW 323i was worth about $7,000 or so after 11 years. So they drop a lot more in the first few years.

The problem is, every car is different. SOme run great forever, some are lemons from day one. Number one strategy is to cut your losses and dump a lemon...?
#14
Old 06-19-2012, 10:24 AM
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Along with actual clunkers the "Cash for Clunkers" program destroyed a lot of perfectly good used vehicles, artificially inflating the price. I'd expect the answer to this question would change in a few years when the effect wears off
#15
Old 06-19-2012, 10:37 AM
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Quote:
Originally Posted by Mdcastleman View Post
Along with actual clunkers the "Cash for Clunkers" program destroyed a lot of perfectly good used vehicles, artificially inflating the price. I'd expect the answer to this question would change in a few years when the effect wears off
Except that the cars that are "missing" from the used car market are the 1-3 year old ones that should have been bought with the Cash for Clunkers program, not the mostly 10-20 year old trucks and SUV's that got traded in. Rest assured you can still get a 96 Explorer for next to nothing.
#16
Old 06-19-2012, 02:33 PM
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Originally Posted by DSeid View Post
Of course it depends on the specific model car, the depreciation rate of that vehicle, the reliability and repair costs of that vehicle, the current market for used cars, etc.

filmore, why don't you pick a model or two and run the numbers via the data available at those sites and report back? I've heard lots of strongly held WAGs but the exercise would be interesting.

Here's a start - Edmunds true cost to own a new Honda Civic 1.8 4 cyl 5 speed automatic is estimated at $32086, the true cost to own a 2007 of the same is estimated at $28,859.
A little over 3 grand doesn't seem like a big difference when you consider full warranty, the possiblity of promotions such as rebates and low interest financing, newest technology/safety, and 100% knowledge of maintenance on the new car.
#17
Old 06-19-2012, 02:35 PM
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Thanks for the link about Edmonds True Value. That's kinda what I was looking for, although I wish they had analyzed all their data to come up with a good overall strategy.

I'm not talking about getting the cheapest car over time. I'm talking about trying to find that sweet spot between minimizing depreciation losses against rising repair costs regardless of the car you choose. For example, here's the True Value data for a new Cadillac CTS:

Code:
 Year 1 Year 2 Year 3 Year 4 Year 5 5 Yr Total
Depreciation $9,695 $3,475 $3,059 $2,711 $2,434 $21,374
Maintenance $46 $260 $143 $1,137 $2,008 $3,594
Repairs $0 $0 $0 $740 $1,139 $1,879
Here you can see a huge cost depreciation cost in the early years, but it gets less and less over time. However, that is offset by the rising maintenance and repairs costs that go up over time. By year five, the M&R costs are about $3000, which is comparable to the year 2/3 depreciation where there is almost no M&R costs. So a good strategy here might be to buy a 1-year-old car and sell it when it's about 4 -years-old, although there's the sales tax issue which would will add costs each time you buy a new car.

I'll have to play around with True Value and see what I can come up with.
#18
Old 06-19-2012, 03:07 PM
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One point regarding two of the possible strategies. One being buy new and keep it till you can't stand it anymore. The obvious variation on that being buy mildly used and keep it till you can't stand it anymore.

The large majority of the time the second one is going to be much more cost effective. The problem is when someone else has owned the car there is a slight chance they did something really stupid to or with the car that means very bad things are going to happen somewhere down the road.
#19
Old 06-19-2012, 03:13 PM
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You'd also have to factor in model year. Model styles are typically changed on a 3-5 year basis and I would guess each 'style' has its own depreciation and reliability characteristics.

I would also imagine there would be considerable regional differences - i.e. hot vs. cold climates.
#20
Old 06-19-2012, 03:24 PM
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Originally Posted by billfish678 View Post
The problem is when someone else has owned the car there is a slight chance they did something really stupid to or with the car that means very bad things are going to happen somewhere down the road.
Especially if it was a leased car, and they drove it hard, knowing that they wouldn't be having to worry about issues "down the road", as it were.
#21
Old 06-19-2012, 04:19 PM
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Quote:
Originally Posted by filmore View Post
So a good strategy here might be to buy a 1-year-old car and sell it when it's about 4 -years-old, although there's the sales tax issue which would will add costs each time you buy a new car.

I'll have to play around with True Value and see what I can come up with.
For what you're talking about, I remember reading buying a 2-year-old car and selling it at 5-years old is the "sweet spot," but I can't seem to find the article where I read it.
#22
Old 06-19-2012, 05:20 PM
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Clark Howard always says that if you buy a new car and keep it 7 years or more it's just as cheap as buying used. If you sell a new car quickly that is a bad idea.
#23
Old 06-19-2012, 05:47 PM
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Quote:
Originally Posted by Anachronism View Post
Does anyone have any examples of used cars less than a year old that sell for 70% of the new price? Or examples of 5 year old cars that sell for 20% of their new price?
I bought my 2002 Toyota Echo for $14,000 new.

For the past five years I have received offers from Toyota dealers to purchase my car for anywhere from $12,000 to $20,000.

Of course, anecdote is not data, but you asked for an example. Also, my car isn't a year old, it's 10 years old. It may also be an exception to the rule.

Anyhow - regardless of whether you purchase new or used regular oil changes is one of the cheapest and most effective maintenance things you can do. So I would say keeping up with the oil changes is an effective strategy to minimize ownership costs no matter how new or old the vehicle is.
#24
Old 06-19-2012, 06:44 PM
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FWIW Consumers Reports take on the issue (from 2008 with used car values of the time):
Quote:
On average, our findings show that you can save 32 percent in the first five years by buying a three-year-old car. Similarly, with a one- or two-year-old car, you can save 19 and 27 percent, respectively. ...
#25
Old 06-19-2012, 07:03 PM
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Originally Posted by Anachronism View Post
Does anyone have any examples of used cars less than a year old that sell for 70% of the new price? Or examples of 5 year old cars that sell for 20% of their new price?

Are we talking about cars in good condition here or cars that have incredibly high mileage, have been in major accidents or in a lake?
I bought a 9 year old car for about 8-10% of the cost of a new one.

The reason a 1 year old car loses so much value is the market assumes there is no reason to sell a 1 year old car unless it is a total lemon. Which is why Hondas and Toyotas do not depreciate nearly as fast (because people know they are reliable vehicles). The market for 1 year old cars is pretty scarce for a reason. Very few people make the commitment to buy a brand new car then get rid of it in a year unless the car has something wrong with it.

Browsing autotrader I found a few 2011 Lincolns that lost 30% of their value. However a 2011 could be 1 year old, 2 years old, 3 years old, etc.

Fleet vehicles, luxury autos, subcompact economy models, Lincolns and Jaguars all tend to depreciate faster.

http://answers.yahoo.com/question/in...8104047AArDC8t
#26
Old 06-19-2012, 07:08 PM
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Some people sell a car at 1 year old because they realize they need a different type of car. Or they can't afford the car. It's not just lemons that are sold quickly.
#27
Old 06-19-2012, 07:16 PM
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Originally Posted by Bijou Drains View Post
Some people sell a car at 1 year old because they realize they need a different type of car. Or they can't afford the car. It's not just lemons that are sold quickly.
Yeah, I bought a used Mazda 3 with 11K miles on it that was just over a year old for $12K. (Blue Book at the time was around $15K.) Damn thing runs like a dream and is about to hit 100K miles with absolutely no problems or major repairs (just normal stuff like brakes and spark plugs.) There were plenty of one or two year old cars on the lot. People sell them for a variety of reasons--the thought that a one year old car must be a lemon, frankly, never occurred to me.
#28
Old 06-19-2012, 09:30 PM
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Quote:
Originally Posted by Wesley Clark View Post
I bought a 9 year old car for about 8-10% of the cost of a new one.

Browsing autotrader I found a few 2011 Lincolns that lost 30% of their value. However a 2011 could be 1 year old, 2 years old, 3 years old, etc.

Fleet vehicles, luxury autos, subcompact economy models, Lincolns and Jaguars all tend to depreciate faster.

http://answers.yahoo.com/question/in...8104047AArDC8t
Are you using the actual selling price of the Lincolns? A quick look over at edmunds shows that there are rebates for many Lincolns and they are going for around $2000 under MSRP new.

I probably should of been more specific in my request. I meant comparing retail price to retail price and 'average' selling price of a model, not a great deal someone found.

I hear the cars lose XX% of their value as soon as you drive them off the lot and XX% in the first 5 years and it never makes comes close with any model I look at when I browse cars for sale. Perhaps I happen to only like cars that don't depreciate.

The crowd that makes these claims often uses the MSRP as the new price even when a model is selling far below that. The also like to use the retail price for new and trade in price for used. The gap between retail and trade in is definitely an expense but it is not depreciation and not a factor when you are comparing buying new to used (unless you can get your used car at below retail price of course).

Thanks for the link, it was informative. The numbers quoted there are incredible.
#29
Old 06-19-2012, 09:42 PM
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Here's the deal. Yes, once your car drive off the lot, the price you can sell it to a dealer goes down quite a bit.

But that doesn't mean that the price the dealer will sell that car to you goes down that much.

Right now, a new car is likely the best deal. And, drive it until it's no longer safe.

Depreciation losses? Why would you give a fuck about that, if you're going to keep the car for years after it's fully depreciated? Besides, those are paper losses only.

True, if you can get a decent jalopy for $1000 that's not bad, but is it safe? Cars have really increased in safety and relaibility in the last decade.
#30
Old 06-19-2012, 09:51 PM
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Quote:
Originally Posted by md2000 View Post
I would suggest buy a car that is just off a 3-year lease, then drive it until repairs or nuisance failures start to get bad enough that you would rather pay for a replacement vehicle. The not-quite-joke is that a car loses 30 of its value when you drive it off the lot. Actually, it lose close to half its value in the first 3 years (or used to). SO let someone else absorb that cost.

Whether that's different in today's market, I don't know.
3 year old off lease cars are like hens teeth. Damn hard to find. Three years ago NOBODY was leasing cars. The new car market had imploded.


Quote:
Originally Posted by Wesley Clark View Post
Buying new is a terrible idea because of the rapid depreciation. Some cars like Honda and Toyota do not depreciate as fast (because people assume if you sell a slightly used one it is still in good condition). But others lose 80% of their value in the first 5 years.
With used car prices escalating the difference between new and used is not what it used to be. A very good friend of mine came to look at cars a couple of weeks ago. A one year old Santa Fe with 30K miles was $2,500 less than the comparable new unit. That was about 12% of the cost of the new car.

Quote:
Originally Posted by Mdcastleman View Post
Along with actual clunkers the "Cash for Clunkers" program destroyed a lot of perfectly good used vehicles, artificially inflating the price. I'd expect the answer to this question would change in a few years when the effect wears off
BWAHAHAHAHAHAHAHAHAHAHAHA.
You are joking, right?
Do you have any idea of the shit that was turned in under CfC?
I was a service manager during that time, and I got to blow up the engines before sending them to the scrap yard. There was not a single car that we took in that you would say was perfectly good even using the most elastic definition of the word I know of. Those cars were shitboxes.
#31
Old 06-20-2012, 08:27 AM
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It used to be feasible to buy a high mileage car, and drop a rebuilt engine into it. This would give you reliable transportation at a low cost. I don't know if you can do that now-engines are so complex.
I think the beast way is to buy a brand that isn't popular (Toyotas, Hondas, Nissans-have inflated used car valuations)-and drive it into the ground. Of course, when such a car experiences a major problem (engine, transmission) dump it.
#32
Old 06-20-2012, 12:56 PM
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Originally Posted by Bijou Drains View Post
Some people sell a car at 1 year old because they realize they need a different type of car. Or they can't afford the car. It's not just lemons that are sold quickly.
It's not just lemons that are sold quickly. However, the reason that the price drops so quickly for cars that are still fairly new is the general perception that most people do not sell new cars unless there is something wrong with them. Of course there are exceptions but the idea is to explain the pricing.
#33
Old 06-20-2012, 01:04 PM
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Originally Posted by suranyi View Post
It's not just lemons that are sold quickly. However, the reason that the price drops so quickly for cars that are still fairly new is the general perception that most people do not sell new cars unless there is something wrong with them. Of course there are exceptions but the idea is to explain the pricing.
Everyone is overlooking the two largest sources of 1 year old used cars, rentals and fleets. Hertz, Avis et al turn their at 12-18 months. Some large corporate fleets do the same.
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#34
Old 06-20-2012, 01:17 PM
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In 2001 I bought a 97' Corolla with 27K miles on it for $10K.
Drove it for 9 years with minimal maintenance (tires, brakes, wear&tear items) and then sold it for $3500 with 127K miles on it.
Minus the wear and tear maintenance that worked out to $722/year or $60/month.
#35
Old 12-16-2013, 09:07 PM
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I know it's a dead thread but it was the first thing that came up in a google search and it's a subject that's been on my mind.

I think this question has to be asked with explicit assumptions. For example, an average single professional is likely to have the following assumptions:
1. reliability is required (career progression is far more important than saving a few hundred or a few thousand)
2. daily driven - only vehicle (implies all-weather, minimal down time for maintenance/repairs)
3. parts and labor for maintenance/repair will be paid for at a reputable shop when necessary (not performed by the owner)
4. owner is not mechanically inclined (not a fixer-upper, not a vehicle that the owner has to pay meticulous attention to)

Maybe they would have another assumption or two, but I think this tends to skew the optimum selection toward something newer, perhaps in the 3-5 year old range that may still be under warranty or just out of warranty in order to ensure that the car is mechanically sound and to increase reliability and reduce downtime or need for frequent repair or inspection.

On the other hand, if you've got a guy like me with tools, and a lift in my garage.
1. not dependant on for transportation (multiple vehicles owned). car can undergo long periods of down-time
2. no taxes paid on purchase (military living in Germany)
3. mechanically inclined (can do basic repair/maintenance fix-up cars at minimal cost)

This completely changes the dynamic, and I could buy and sell cars at a profit if I were inclined to spend my time doing so. This would lead me toward older higher mileage cars with minor annoyances and easily repairable problems that the owner doesn't want. My strategy could be to look for significantly discounted vehicles in the 10-15 year old range that are common cars I can find in any junkyard to source parts for next to nothing. Here in Germany, an example 93-02ish BMW 3-series with 120-150k miles (200-280k km), because these cars are ubiquitous.

In the states, I'd be looking for '02 and earlier corollas, '04 and earlier Focuses, accords/civics, etc...

I don't actively try to make money, but recently sold an '02 Accord I bought just a year ago for $500 more than purchase price. I put 500-700 into it in that time, but that still means I drove a car for a year for nothing more than the cost of gas and insurance)

My current car is a '97 BMW 318i I paid $1,750 for and have dropped in another $300-400 in maintenance on. I expect to sell this car next summer for $2k-$2,500.

Here are some basic and somewhat common sense tenets for anyone:
- don't buy new. depreciation doesn't stop until somewhere after a car is 10 years old on most vehicles. Usually it's closer to 15. Pick the age that's the best compromise for you.
- Get the car everyone isn't praising or talking about. The popular ones are usually over-hyped and over-valued (lots of imports are examples). These cars retain resale value, and are great purchases for those who are willing to waste money on new cars, but the awesome resale value only makes them more expensive to the bargain hunter. Ironically, imports' parts usually cost the most to replace.
- stick to common cars that you can find in junkyards. If the car is too old, too new, too rare, or has a big cult-like following (mustangs, vettes, etc...), you're not likely to find cheap parts for it in the boneyards. Conversely, the corolla was the best selling car in America for many years. You will find 5-10 in every junkyard you visit. This is really key, because you can save hundreds of dollars on a single part. For example, my best friend once pulled perfectly good 5.0L Ford engine short block out of a junkyard and had a mustang with a blown engine running again for 3 more years for $50 before he sold it! Little body parts, mirrors, interior trim, etc can be had for pocket change instead of paying hundreds for the same thing from a dealership.
- Always look for your next car. If you're financially savvy enough to keep a little money on the side, you can pounce on that deal that you'll only come across once or twice a year. You get a car for a couple thousand less than it's worth, and can move on from the last one, flip the new purchase, or wait until a better market to sell it.

You don't have to lose money on cars if you choose not to. There's a reason there are so many dealerships and used car lots in the world. You probably shouldn't try flipping cars if you depend on others for mechanical advice, though. That would be a recipe to get burned on some bad deals.
#36
Old 12-17-2013, 09:19 AM
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Get the cheapest possible insurance and always be saving money (in a fund) for car repairs. Chances are you won't get into an accident and then at the end you can just pocket the money. Look up your state's lowest legal minimum requirements and get that and nothing more.
#37
Old 12-19-2013, 10:46 AM
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Quote:
Originally Posted by jk1985 View Post
Get the cheapest possible insurance and always be saving money (in a fund) for car repairs. Chances are you won't get into an accident and then at the end you can just pocket the money. Look up your state's lowest legal minimum requirements and get that and nothing more.
In the state I live in the minimum insurance covers $30,000 personal injury per person up to $60,000 per accident, with property damage coverage capped at $25,000. I'd be too nervous to drive with coverage so meager. When was the last time you heard of someone getting sued for $30,000? Hell, you could run into a parked Range Rover and do $50,000 in property damage without breaking a sweat.
#38
Old 12-19-2013, 10:50 AM
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Quote:
Originally Posted by Bijou Drains View Post
Some people sell a car at 1 year old because they realize they need a different type of car. Or they can't afford the car. It's not just lemons that are sold quickly.
Realtors often do that, because they need a new or near-new car for their clients.

I've always purchased a car at the end of the model year and paid cash for it. You can save a LOT of money that way.
#39
Old 12-19-2013, 10:54 AM
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The Tappet Brothers addressed this issue, it's all about trade-offs.

I just bought a new pick-up, and I'm going to pay 20 Pizza-Pies worth of money per month. At the other extreme, I could have used the 20 Pizza-Pies worth of money and bought a junker, and drive it into the ground in 3 months. In the first case, I'm eating Top Raman every day, in the second case I'm eating Pizza every day. The down side of the second case is I'll have to walk home once every three months.
#40
Old 12-19-2013, 11:05 AM
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Been devoting some time to this question lately, as my GF needs another car soon (tranny is on the way out).

My personal strategy seems to work (buy a 5y used car in reasonable shape, drive it for another 10-15y more), but is it optimal?

I happen to live with a big car auction site in my town (where I got my most recent car), last month they sold 1800 cars.

Pumping the auction data from November 2013 into Excel, the median used auction car (lots of these are trade-in's) is 10y old, 150k miles, and auctions for $2k with a mostly bell shaped distribution.

Based on my analysis there's not much difference in the strategies really. I personally try to shoot for $0.10 per mile driven for capital cost (incl. maintenance)of the car on a daily driver.

For example, buy a car that is "near death" for $1k and grind 7k extra miles out of it, then junk it for $300 when something significant (engine/tranny) breaks.

Or get a somewhat used car for $10k with 30k miles on the clock, then get another 100k miles more with minimal maintenance and some small resale value. Cars these days can last 200k, but the "issues" usually start showing up about the 130k mark.

Buying new is generally more expensive than used, but not by as wide a margin as people think. When fuel is factored in it is pretty close, about $0.30 a mile driven with fuel cost baked in for a new shiny thing vs. an old beater for the long run projection. The beater has less capital cost, but higher fuel cost and conversely for the newer car it saves on fuel and repairs which compensates well. Don't forget insurance, taxes, and safety. Insurance costs are higher in a new box usually, but an old box can be more dangerous in an accident. Where I live the yearly registration tax is pretty flat.

But still, buying used wins out - by 5-10 cents a mile depending on how new and how used. Seems that the "last gasp" cars actually have the best economics if you can afford to miss a day here and there when they finally give up the ghost. But like I said, you're talking 25 cents/mile vs 35/mile for the extreme comparisons, it's not all that stark really. Seems obvious really, if there was a universally good strategy everyone would do it.

The kind of cars I've been analyzing are unpretentious daily driver sedans - Ford, Nissan, Honda, Toyota. Hummers need not apply.

Hope this helps? Obviously, your mileage may vary... Bad luck can happen with any car and an unscrupulous seller can really take you for a ride, figuratively speaking.
#41
Old 12-19-2013, 11:18 AM
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Posts: 25,868
The current episode of the public radio program This American Life is called 129 Cars. It basically follows the sales staff of a car dealer over the course of a month as they attempt to sell 129 cars. That's the sales goal set by the manufacturer and will qualify them for a bonus check. At the end of the month, the dealer is really willing to sell cars cheaply, even below cost, if it means making the goal. So it really is true that car dealers will give a better discount at month end. The transcript is here.

Last edited by Dewey Finn; 12-19-2013 at 11:18 AM.
#42
Old 12-19-2013, 11:18 AM
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Join Date: Nov 2003
Posts: 4,870
I usually assume I'm getting taken on the purchase, so for me, buying a new vehicle and driving it 15 to 20 years seems best by minimizing the number of purchases. I'm always amazed by people who claim to get great deals on vehicles. That dealer sells more cars in a month than you'll buy in a lifetime, and you got the better of him in a deal? I buy new, and I've never kept a vehicle less than 15 years, and that was in upstate New York, where road salt kills more cars than Hal Needham.
#43
Old 12-20-2013, 12:22 AM
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iming belts can be killers, and show up as early as 80,000 mi. (I tried to put the $700 repair off as long as possible. Luckily, that stretch of 101 was heavily patrolled). It died at 100K*

I'm going to be bold and suggest you decide at least make and one or two models.
Find the maintenance schedules, and work backward - a fleet car which has had impeccable maintenance and JUST finished the last big work for another 80,000 miles may give you 80,000 of the cheapest miles available

*-The car was an '87 Acura Legend coupe. The routine to replace the belt involved disconnecting just about every connection to the engine, then (partially) hoisting the engine to get to the lower bolts. This is insane.
#44
Old 12-20-2013, 03:54 AM
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Join Date: Dec 2013
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But 90% of the replacement cost for timing belts is maintenance. A belt, pulley, and tensioner can usually be had for less than $100. If you've got a jack and basic tools, you can probably find a how-to video on youtube that covers what you need to do for your specific make/model. The most difficult thing to do is ensuring the cam(s) are aligned correctly with the crankshaft, but even that is not difficult. By the way, if you're looking into cars with a timing belt, it's important to know if it's an interference or non-interference motor. Non-interference motors can be run until the belt goes without worry for engine damage. With an intereference motor, you MUST stay on the manufacturer's recommended maintenance schedule or risk junking a motor if the belt goes. Normally, the car will start running like hell before the belt completely goes.

With timing chains, I couldn't care less if the motor is interference or non-interference.
#45
Old 12-20-2013, 04:13 AM
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Join Date: Dec 2013
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Thrasymachus, thanks for the good info and analysis, but you left out your data, which leaves me with some questions.

1. Did you take costs for insurance/repair/maintenance/financing or anything else into account in your cost/mile calculations?
2. If you took repairs into your calculations, how did you determine average costs? This is something I struggle to find data on for model years more than a few years old as edmunds true cost of ownership doesn't allow you to select 10+ years old cars.
3. What fuel mileage data did you use for your comparisons? EPA? I use fueleconomy.gov. I don't see a huge difference in gasoline engine fuel mileage from the late 90s through today. For example in a comparison between model years 2002 and 2014, the base model manual transmission focus got an EPA rating (adjusted for modern ratings) 25/32mpg for MY2002, and 26/36 for MY2014. Their figures show a $150/year annual fuel cost differential for the focus. The same comparison for the Toyota Corolla shows a 28/37 vs. 28/38 for the Corolla with no cost differential.

Quote:
Originally Posted by Thrasymachus View Post
Been devoting some time to this question lately, as my GF needs another car soon (tranny is on the way out).

My personal strategy seems to work (buy a 5y used car in reasonable shape, drive it for another 10-15y more), but is it optimal?

I happen to live with a big car auction site in my town (where I got my most recent car), last month they sold 1800 cars.

Pumping the auction data from November 2013 into Excel, the median used auction car (lots of these are trade-in's) is 10y old, 150k miles, and auctions for $2k with a mostly bell shaped distribution.

Based on my analysis there's not much difference in the strategies really. I personally try to shoot for $0.10 per mile driven for capital cost (incl. maintenance)of the car on a daily driver.

For example, buy a car that is "near death" for $1k and grind 7k extra miles out of it, then junk it for $300 when something significant (engine/tranny) breaks.

Or get a somewhat used car for $10k with 30k miles on the clock, then get another 100k miles more with minimal maintenance and some small resale value. Cars these days can last 200k, but the "issues" usually start showing up about the 130k mark.

Buying new is generally more expensive than used, but not by as wide a margin as people think. When fuel is factored in it is pretty close, about $0.30 a mile driven with fuel cost baked in for a new shiny thing vs. an old beater for the long run projection. The beater has less capital cost, but higher fuel cost and conversely for the newer car it saves on fuel and repairs which compensates well. Don't forget insurance, taxes, and safety. Insurance costs are higher in a new box usually, but an old box can be more dangerous in an accident. Where I live the yearly registration tax is pretty flat.

But still, buying used wins out - by 5-10 cents a mile depending on how new and how used. Seems that the "last gasp" cars actually have the best economics if you can afford to miss a day here and there when they finally give up the ghost. But like I said, you're talking 25 cents/mile vs 35/mile for the extreme comparisons, it's not all that stark really. Seems obvious really, if there was a universally good strategy everyone would do it.

The kind of cars I've been analyzing are unpretentious daily driver sedans - Ford, Nissan, Honda, Toyota. Hummers need not apply.

Hope this helps? Obviously, your mileage may vary... Bad luck can happen with any car and an unscrupulous seller can really take you for a ride, figuratively speaking.
#46
Old 12-23-2013, 04:30 PM
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Location: Mercer Island, WA
Posts: 195
Quote:
Thrasymachus, thanks for the good info and analysis, but you left out your data, which leaves me with some questions.
Thanks Chris42163. To help elucidate:

1. I used a total cost model, but with two key simplifications. No financing (all cash basis 2013 dollars), and no assigned cost for my time (I do my own work, and figure on a Saturday every couple months for maintenance time as the working limit)

I'm unfortunately one of those people that doesn't need a loan for a new car (a reasonably sized one anyway) - although I could have factored the differential between spending and investing the dollars I didn't bother with this explicitly. E.G., buying a cheap car and earning dividends with the leftovers rather than spending 1000's more all up isn't considered, but the tax/ins/fuel/maintenance dollars are all included.

2. Plug in knowns, solve for unknowns. Obviously maintenance cost has to be a a bit of a guess, but that's how you solve this sort of future problem - get all the stuff you know about into the model, then plug in numbers that seem plausible for the stuff that isn't known and judge the reasonableness.

After 2 decades of car ownership I have a fair number of receipts and used this as a starting point - a new car is about $50/y for maintenance; basically oil, filters, wiper blades, maybe a "rock chip kit" or something each year; then brake pads and tranny fluid every few years, etc.... I'm not a 3000 mile oil weenie, used full synthetic always for 10k+ oil changes. I just checked the timing chain & tensioner on my ~215k daily driver (one of the first things that goes on that particular engine) a few weeks ago and it looks great.

An old beater (like my 215k, 22y old daily-driving box) is more like $250/y - in the last two years I bought a half-shaft, battery, O2 sensor, alternator, various belts and bulbs, sparkplugs, blower motor, and of course some Bondo! The year before that I hardly bought anything, just wiper blades since they were getting kinda streaky.

In between those two endpoints I figure it's more or less linearly increasing. You can get "surprises" but most of the time modern cars just run. Big stuff like tires, cat converter, new heater core, etc., gets spread out over YEARS of not really doing anything much at all. Plus, this conservatively guards for bad luck, I don't think the "bathtub curve" of maintenance cost is real.

Also, I do my own work (this is key!) - it's much more inexpensive and I have a vested interest in not screwing it up either. Unlike the shops, whose business model is charge to "fix" it, then charge again to fix it some more! If you go to convenience lube places and AAA shops or conversely get free dealer maintenance for the first five years or something then obviously that's a different story each way.

At some point you do hit the "dead transmission" bugaboo with automatics which is basically a wall in the maintenance cost trendline. But my GF won't drive anything else, so I'm stuck there.

3. For fuel I use the "official" EPA #'s since it seems to be the least biased, but be aware that those are posted for when the model was new, i.e. "in its heyday." On my aforementioned daily box I have low-ish compression and probably aging sensors, which is taking my efficiency down a healthy notch; used to get mid-30's mpg, now it's mid-20's. I used to track that in a spreadsheet a few years ago, but now I just do a little mental math after noting how many gallons went in as I reset the trip OD. So I used real numbers for my cars and posted EPA #'s for new ones, and then a fudge factor deduction for the used ones (-10% at ten years, -20% for 20 years from the EPA#'s).

Still not bad, but that becomes a stiff penalty function for taking on long commutes with old cars. Which reminds me - I figured $3.50/gal in 2013 dollars for gas for the future average. It's cheaper right now, but it can and probably will go up again even though inflation will make it not hurt as much. How much is hard to say, seems reasonable to plan defensively though.

Hope this helps!
#47
Old 12-23-2013, 07:26 PM
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Join Date: Aug 2001
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Quote:
Originally Posted by Chris42163 View Post
By the way, if you're looking into cars with a timing belt, it's important to know if it's an interference or non-interference motor. Non-interference motors can be run until the belt goes without worry for engine damage. With an intereference motor, you MUST stay on the manufacturer's recommended maintenance schedule or risk junking a motor if the belt goes. Normally, the car will start running like hell before the belt completely goes.

With timing chains, I couldn't care less if the motor is interference or non-interference.
Virtually all modern car engines are interference engines, are they not?
#48
Old 12-24-2013, 03:34 PM
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Posts: 16,451
Quote:
Originally Posted by Dewey Finn View Post
The current episode of the public radio program This American Life is called 129 Cars. It basically follows the sales staff of a car dealer over the course of a month as they attempt to sell 129 cars. That's the sales goal set by the manufacturer and will qualify them for a bonus check. At the end of the month, the dealer is really willing to sell cars cheaply, even below cost, if it means making the goal. So it really is true that car dealers will give a better discount at month end. The transcript is here.
I'm a service manager for a car dealership. Dealers have several streams of income. Profit from the actual purchase (invoice on car vs sale price) is just one stream.
I have seen dealers take some pretty good sized losers on this part of the sale, because they can make it up in other places.
People have asked when they can get the best deal on a new car. I tell them shop on a month that ends on a Tues or Wed, and it has been raining or snowing for several days. Go in about 7pm.
The sales manager will be going nuts trying to make his quota and there is a better than even chance the factory has called and put a couple of grand in cash to help the dealer make sales quota. At this point they will bend over backwards to get a deal done.
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#49
Old 12-31-2013, 02:11 AM
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Quote:
Originally Posted by Thrasymachus View Post
Thanks Chris42163. To help elucidate:

1. I used a total cost model, but with two key simplifications. No financing (all cash basis 2013 dollars), and no assigned cost for my time (I do my own work, and figure on a Saturday every couple months for maintenance time as the working limit)

I'm unfortunately one of those people that doesn't need a loan for a new car (a reasonably sized one anyway) - although I could have factored the differential between spending and investing the dollars I didn't bother with this explicitly.
All appropriate assumptions, but I think your point about the opportunity cost of pulling out of investments is actually a very valid reason not to buy a new one. Buying a $2k car instead of a $20k car means you don't pull $18k of investments. Assuming a conservative average of 8% growth in a simple mixed domestic/international/bond index fund portfolio, you should earn $1,440 in your first year, which is certainly enough to cover way more than the maintenance of the reliable daily driver you've chosen, and it would more than offset the value of a factory warranty.

Other than that, I think you're $250/year assumption for maintenance & reliability is really low. I do my own work too for the most part, and I usually figure $3,000 for my three cars, though the majority of that goes to pay for parts and repair on my Corvette, which everything is expensive on, it's been problematic, and I usually buy new OEM parts for it. I also a hell of a lot of miles on my beater. I think I've gone 8-9k miles in the last 2 months. I'm sure I'm on the high side of things, but driving 50-70k miles/year means I know I'll spring for a new set of tires & brakes + 8 or 9 oil changes in an average year.

Quote:
I'm not a 3000 mile oil weenie, used full synthetic always for 10k+ oil changes.
Funny you said that! I change it every 10km (6,200 miles) on my beater for the simple fact that it's easy to remember with regular oil. On the vette, I change it at the factory recommended 7,500 mile intervals with synth. I know guys that'll run synthetic 15k+ miles. They'll change the filters at regular intervals, but recycle the oil.

Thanks for elaborating on everything. I really appreciate your insight.
#50
Old 12-31-2013, 02:21 AM
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Quote:
Originally Posted by Ximenean View Post
Virtually all modern car engines are interference engines, are they not?
Can't speak to brand new cars, but in the 10-ish year old category, there are plenty of cars that are non-interference. There are a lot of unreliable products out there that will tell what they are. I recommend just going to an appropriate car forum and searching or asking around.

Just as an example, I'm considering a 2003-2005 focus as my next "beater." In '03 & '04 there were 3 different 4 cylinder engines with 4 different derivations altogether. The economy motor was SOHC 110-hp 2.0L that was an interference motor with a timing belt. It was known as the "SPI" motor. The next level up was a sportier DOHC 130hp "ZETEC" that was also a 2.0L with a timing belt, but it was non-interference. Stepping up a bit there was a 140hp 2.3L engine they put in the top end models that was built by Mazda back when Ford owned a large % of their company. This motor was known as the "Duratec 2.3." It came with a timing chain and would be my motor of choice during those model years. Finally, they had a performance version of the ZETEC motor that made 170hp and was an interference engine. They put that one in the SVT Focus.

I can also say off the top of my head that the old Ford 302 (5.0L) motors came in both interference and non-interference versions. But, they were all timing chain driven.

I just prefer timing chains because they last damn near forever, and the risk of failure or engine destruction is extremely low.
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