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Bad To Spend Less Than $XXXX On A Car?
Old 03-26-2011, 06:13 AM   #1
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Bad To Spend Less Than $XXXX On A Car?

I have no idea how much of a car is worth what, and how much consumers and dealers know that reflect that price to determine if there's some base price you should never go under when searching for some kind of car, regardless of year.

For example, say if you bought a brand new Civic now for $18,000. In five years, it's worth $15,000. In ten, $8,000. In fifteen years, $4,000. At what point can you say: this price reflects the fact that this car is going to be very difficult to maintain, its parts and pieces are probably starting to become so worn out that they're going to need replaced, the mileage is high enough to suggest bands, belts, springs, gaskets, whatever need replaced; it's best value for money if I were to instead spend a few thousand more upfront for a better car than spend the same thousands of dollars if not more over a short period of time to fix this one up?
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Old 03-26-2011, 06:29 AM   #2
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In theory, isn't that built in to the price?The cheaper car is cheaper because it has a shorter remaining life expectancy, higher expected maintenance costs, does not look as sharp, etc? (Hey, that sounds as much like me as it does my car.) Not sure how you would pull out just the maintenance angle.
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Old 03-26-2011, 06:38 AM   #3
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Problem is, you may not get a 'better' car, at least maintenance cost wise, for a few thousand more. Sure you might get leather and navigation etc. Using your Civic example, I think it's probably right up there on the reliability and low maintenance costs and it's reasonably priced.

You might want to look at Consumer Reports, they do good job with this sort of analysis
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Old 03-26-2011, 07:08 AM   #4
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Wow, I don't think there is $ number to answer your question, too many unknowns. If you find two 10 year old Honda Civics with similar mileage and cosmetic/visible condition, they will probably command about the same price used. But you'll have no way of knowing how they were driven. It will be difficult to know what major components have already been replaced, could be considerably different between the two cars. And it can be done, but it takes some effort to know if one has been in an accident. Just to name a few unknowns.

I've always thought the best approach is to buy cars at about 0-3 years old with the intention of keeping them until the wheels fall off. It is almost always cheaper to maintain a car than to buy a new one, probably out to 15-20 years. It's only when the inconvenience due to frequency of breakdowns just become intolerable. Though not as much with this audience, ego/status is the driving factor for most car buyers in the US at least. Replacing a car is rarely financially justified.
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Old 03-26-2011, 11:03 AM   #5
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I've always thought the best approach is to buy cars at about 0-3 years old with the intention of keeping them until the wheels fall off. It is almost always cheaper to maintain a car than to buy a new one, probably out to 15-20 years. It's only when the inconvenience due to frequency of breakdowns just become intolerable. Though not as much with this audience, ego/status is the driving factor for most car buyers in the US at least. Replacing a car is rarely financially justified.
I've read that the average age of the cars on the road has been creeping steadily upward to 12-15 years.

We used to focus exclusively on buying used cars at the 2-3-year point, but we've been perfectly happy with one that was almost six years old with 58K miles. (Now it's 14 years old and very close to 111,111 miles.) I suspect that a frugal ER with some mechanical skills and no fear could extend the life of a succession of 8-10-year old cars (or Ford F150s) for at least another 5-10 years by exchanging sweat equity for savings.

If I could get over my weakness for plug-in hybrids then we'd be shopping for 2003-2006 Honda Civics and Toyota Camrys.
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Old 03-26-2011, 12:01 PM   #6
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There is the depreciation curve which is all about newness/warranties and declines to the right, and then the maintenance curve which climbs to the right getting progressively steeper. Add these two curves together to give total cost of ownership. The sweet spot is from 3 to 10 years but will vary by model. The repair cycle tends to be lumpy where the average gets screwed by the repair of a transmission.
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Old 03-26-2011, 01:12 PM   #7
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I've always figured there is no clear cutoff or crossover point. An older car is more likely to have something fail in the next year than a newer car. But it's a probability, not a certainty.

If you want an opinion from someone who's willing to make an educated guess, I'd try Edmund's "True Cost to Own" which shows explicit lines for Depreciation, Maintenance, and Repairs for specific models and model years. Here's a sample for a 2005 Civic Sedan.

 Year 1Year 2Year 3Year 4Year 55 Yr Total
Depreciation$753$660$581$515$462$2,971
Taxes & Fees$489$65$65$65$65$749
Financing$294$236$174$108$39$851
Fuel$1,405$1,447$1,491$1,535$1,581$7,459
Insurance$678$702$727$752$778$3,637
Maintenance$1,054$664$676$714$235$3,343
Repairs$376$436$508$590$684$2,594
True Cost to Own $5,049$4,210$4,222$4,279$3,844$21,604

2005 Honda Civic 1.7L 4-cyl. 5-speed Manual True Cost to Own

I don't know why their Maintenance line is so variable. Here's what they say
Quote:
Maintenance

This is the estimated expense of the two types of maintenance: scheduled and unscheduled. Scheduled maintenance is the performance of factory-recommended items at periodic mileage and/or calendar intervals. Unscheduled maintenance includes wheel alignment and the replacement of items such as the battery, brakes, headlamps, hoses, exhaust system parts, taillight/turn signal bulbs, tires and wiper blades/inserts.

Repairs

This is the estimated expense for repairs not covered by the vehicle manufacturer's warranties over the five years from the date of purchase, assuming 15,000 miles are driven annually. We estimate this expense based on the cost of a typical "zero deductible" extended warranty for the vehicle, minus the estimated amount of that cost that consists of the warranty provider's overhead and profit.
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Old 03-27-2011, 12:29 PM   #8
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One of the most telling lines is that the sum of depreciation and fuel is half the 5-year costs. And I bet if they used market value rather than depreciation, it would be even steeper/more dramatic. Also, if they used GM instead of Honda, there would be more depreciation.
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Old 03-27-2011, 12:35 PM   #9
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For example, say if you bought a brand new Civic now for $18,000. In five years, it's worth $15,000. In ten, $8,000. In fifteen years, $4,000.
I don't believe your numbers.

Civics hold their value well...

However, If new ones can be had for $18k, then (almost) nobody will pay $15k for a 5 year old car. Perhaps dealers will try to get that amount and then bargain down from there.
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Old 03-27-2011, 03:53 PM   #10
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One of the most telling lines is that the sum of depreciation and fuel is half the 5-year costs. And I bet if they used market value rather than depreciation, it would be even steeper/more dramatic. Also, if they used GM instead of Honda, there would be more depreciation.
Edmunds says they estimate depreciation based on the fair market value to buy (transaction price, not MSRP, for a new car) less the eventual sale price to a private party (presumably a higher number than trade in).
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Old 03-27-2011, 04:30 PM   #11
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I don't believe your numbers.

Civics hold their value well...

However, If new ones can be had for $18k, then (almost) nobody will pay $15k for a 5 year old car. Perhaps dealers will try to get that amount and then bargain down from there.
That is correct, the actual numbers for depreciation for economy cars in the 5 year old range are -40% of new for the very best cars, and -80% of new for the worst cars. This also assumes you don't hit on what eventually becomes a classic (which is very rare, especially in the economy range). That means using an $18k new value as an example, the very best car at retaining its value (such as a mini), would be worth $10,800, and the very worst (large van/truck), would be worth $3600. Older large vans/trucks are particularly bad because they are very expensive to insure and upkeep. Keep in mind this is the economy car price range, so the lowest value retaining cars are brushing the very bottom, where the prices of cars level out.

People often underestimate how extreme the value loss is over the first five years. You always pay more by getting a new car, regardless of the model and make, it is just less extreme in some cases.
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Old 03-27-2011, 04:47 PM   #12
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I bought a 2001 Nissan Maxima QX in late 2004. It has a 3.0 litre V6, which is a high-end luxury engine in Europe, and automatic transmission. The original owner had bought it will all the options: full leather, built-in talking navigation system (in 2001!), and even added one of those petrol-driven pre-warmup systems so you can drive it straight away on a freezing morning even if you don't have a garage. He paid 45,000 Euros for that. 3.5 years and 44,000 kilometres later, I paid 14,500 Euros - because almost nobody here wants a car that does 18 mpg around town with gas at $8 a gallon. At today's exchange rate, he paid close to $1.55 per mile in depreciation. (Actually, his company did, so the taxpayer picked up close to half.)

I got a rock-solid reliable cruiser. It's now ten years old with 170,000 kilometres on it. Apart from the exhaust line, the battery and the alternator - the last two of which cost about one-third of the same parts on the equivalent Mercedes-Benz - I haven't changed anything except tyres and brake components. My depreciation is about 16 cents per mile, and I get 27 mpg on the highway, which is where I do most of my driving.
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Old 03-27-2011, 05:35 PM   #13
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Something that is nearly always ignored in this type of analysis, but important to me, is assigning a cost to the lost time and the aggravation of having one's car break down at inconvenient times in inconvenient places.

Some people are easy-going and really don't mind a bit if/when their car breaks down. In fact, they may even like it and find it to be an interesting topic of conversation for weeks. They just have it towed to a mechanic and fixed, or perhaps fix it themselves. But others feel their time is worth money too, and do not tolerate the aggravation as placidly as others.
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Old 03-27-2011, 06:16 PM   #14
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Something that is nearly always ignored in this type of analysis, but important to me, is assigning a cost to the lost time and the aggravation of having one's car break down at inconvenient times in inconvenient places.

Some people are easy-going and really don't mind a bit if/when their car breaks down. In fact, they may even like it and find it to be an interesting topic of conversation for weeks. They just have it towed to a mechanic and fixed, or perhaps fix it themselves. But others feel their time is worth money too, and do not tolerate the aggravation as placidly as others.
I have a friend who thinks like you do. She leases and gets a new car every two years. More power to her.
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Old 03-27-2011, 06:29 PM   #15
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I have a friend who thinks like you do. She leases and gets a new car every two years. More power to her.
I just buy a Toyota every ten years (but would buy sooner if they started breaking down). More power to me.

I do buy cars more frequently than I would if I thought of nothing beyond repair costs. I think the latter is unrealistic unless one's time is worth nothing and one has the patience of a saint.
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Old 03-28-2011, 07:27 AM   #16
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Another thing that's often ignored in this context is safety. Compare the safety equipment on the older car vs what's available on a new one.
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Old 03-28-2011, 08:21 AM   #17
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Another thing that's often ignored in this context is safety. Compare the safety equipment on the older car vs what's available on a new one.
It is true. A good car driven lightly will be obsolete (in some respects) before it is worn out.
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