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Used cars, does the math work?
Old 10-17-2016, 11:01 AM   #1
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Used cars, does the math work?

Its time to replace the 25 year old car I've had for 10 years. Neither the heat nor AC work, the transmission and power steering are going, interior electrics are getting wonky, and the list goes on and on from there. Its time.

I've never bought a brand new car, but I'm having a hard time making the math work on a used one. I've been using Edmunds.com's TCO calculator and every time I do, buying new seems to work out about the same as buying used. Granted I would own it longer than 5 year, but longer ownership seems to favor new even more as initial depreciation becomes a smaller percentage of total cost.

Here's a few examples of cars for which I've actively shopped: Manual transmission compact hatches. Note that I've subtracted the financing component of the calculator here. In each case I've picked the lowest trim level that was common to both years. I don't want bells and whistles, just a reliable car.

2013 Subaru Crosstrek ($30075) vs 2016 Subaru Crosstrek ($28583).

2011 Mazda 3 ($25057) vs 2016 Mazda 3 ($23751)

2012 Subaru Impreza ($26506) vs 2016 Subaru Impreza ($25661)

I'm not cherry picking here, I'm shopping for these in the used market and new just doesn't seem to demand much of a premium. I'm assuming its the segment I'm shopping, manual wagons. It also doesn't help that the used supply of such a thing is severely constrained. I did notice the high end luxury market seems to work in the used market's favor, but this forum doesn't seem like a high end luxury car sort of place.

Is there something I'm missing? With numbers like this, why buy a used car?
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Old 10-17-2016, 11:15 AM   #2
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you aren't missing anything - I think you can get a really good deal on a 2016 subaru right now. Have you looked at the inventory at the subaru dealer in Colorado Springs? they will give you a quote that will in all likelihood be lower than a local dealer.
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Old 10-17-2016, 11:34 AM   #3
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I have always been able to get a new car at a price comparable to a low mile 2 year old used. Doesn't make scene, but that seems to be how the car business works.
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Old 10-17-2016, 12:00 PM   #4
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I don't automatically discount buying a brand new car, especially if the numbers work. I tend to like the idea that you are able to treat the car well throughout its entire life. When you buy used, you are rolling the dice on how the previous owner(s) treated it. Granted, most people aren't going to rag out a Honda Accord like they might a 911.

I also think this is especially true if you plan on keeping the car for a long time. If you go through cars every 4-5 years, then buying new is probably not the best decision.
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Old 10-17-2016, 12:02 PM   #5
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Looks about right. My experience is that you can buy new cheaper on makes like Toyota and Subaru that hold their resale values really well if you shop around and aren't afraid to buy away from home. On fast depreciating makes that are normally though of as "domestic" used can be a better value.
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Old 10-17-2016, 12:21 PM   #6
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Buying a new car can make sense especially if you plan to keep it for awhile. Also, it'll tend to have better resale value if you've been the only owner and kept records on all the maintenance.
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Old 10-17-2016, 12:30 PM   #7
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At times the old rule of buying a 1-2 year old low mileage vehicle for a large discount over new can still happen. But that strategy is largely a victim of its own success, since as the strategy caught on it increased the demand (and thus value) for "almost new" to the point where you can sometimes get just about as good a deal on a new car, where you still have the full warranty and no questions about how the vehicle has been treated and maintained while in use.

That said, yeah, if I can get an "almost new" vehicle for a sufficient discount to new, I'd go that way. But getting that discount is no longer a given in the market today. If the depreciation curve looks close to linear, I'd prefer new. If it does have a steep drop-off in the first 2-3 years I'd buy at the point where the curve begins to flatten and look more linear.
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Old 10-17-2016, 12:37 PM   #8
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I'm really not a big fan of that calculator. For a quick example of why, here's the numbers for depreciation on a randomly picked Ford Taurus sedan by model year:

2014 1st year depreciation $3,852, then ~$2k and slightly less each year after.
2015 1st year depreciation $12,848, then ~$2k and slightly less each year after.
2016 1st year depreciation $9,047, then ~$2.5k and slightly less each year after.

So, a new car depreciates (including driving it off the lot) $3k less than a 1 year old car, and that 1 year old car that will depreciate almost $2k less the following year than a car one year older than it did at the same age. Each of the cars is also projected to average almost $1k/year in preventative maintenance and the newer the car, the lower the estimated costs of maintenance and repairs for the same age (i.e. a 2 year old car would cost more in maintenance this year than the same car that is 1 year newer will cost next year).

The numbers the predictor puts out there just don't seem to hold any weight in the real world to me. I do 3-4 oil changes per year (~$20 each), new tires every 3-4 years (~$700), brakes every other year (~$180), misc fluids as needed (~$20/year on average). So my "maintenance" has run me ~$1,400 over the past 4 years yet edmunds tells me that preventative maintenance should be costing me over $2k/year on my car. Granted, I save a few hundred dollars over 4 years by doing brakes/fluids myself, but according to them I should have spent closer to $8k on maintenance items in the past 4 years, yet I've done all the manufacturer recommended maintenance on the car for 1/4 of that.

My point is that you should take that "total cost of ownership" with a massive grain of salt, like maybe the size of the Bonneville Salt Flats...
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Old 10-17-2016, 12:47 PM   #9
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I to have a 2001 Acura TL that I am looking to replace and had have been looking. I typically buy a three to 4 year old with lower than average miles and drive it until it drops. There must be a big depreciation in year three because I am seeing big difference in the Toyota Avalon Hybrid Limited.
I can get a 2013 w around 30K mile for about $23K current list $39K.

When shopping I use depreciation cost per 200,000 miles assume value is zero after 200K. So in this case if I can get new one at $36K it cost per mile is 18 cents $36K/200K. Used with 30K miles is 13.5 cents. $23K/170K.
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Old 10-17-2016, 01:57 PM   #10
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For 24 years, I carried a NADA Guidebook in my pocket--as an automobile professional. The most I would ever pay for a used car is the NADA Trade In value--adding/subtracting for options and mileage.

If I was going to buy a used car, I'd be going for a model with a sterling reputation for durability and a low incidence of problems. In many cases, that'd be cars/SUV's built by Honda and Toyota and certain models of Fords.

I'm not a fan of Subaru's as we don't see'em in our part of the country and dealers are few and far between. I do like certain models of Hyundai and Kia, but the price would have to be really right before I'd buy one. FCA (Chrysler) is mainly a truck/Jeep company and their autos are not top line in quality right now.

Buying vehicles is a tough decision. I'm driving a Lexus, Civic, Explorer and SuperDuty at the present time, and have gone 550,000 miles without a single warranty claim on my vehicles.
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Old 10-17-2016, 02:53 PM   #11
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My approach is to shop for used cars that take a good depreciation hit in the first few years, which eliminates the more popular, in demand vehicles. This approach pretty much eliminates Toyota, Honda, and as I live in a snowbelt area, Subaru. For those makes, it's probably worthwhile to concentrate on new vehicles.

Pretty much leaves me with GM, Ford, Kia, Hyundia, Mitsubishi. I've heard too much about problems with Chrysler/Fiat to consider them.

Best values I've gotten in recent years are minivans (but not Honda or Toyota). Way out of favor so I've bought several one year old vans for 60% MSRP and one three year old for 40% of new price.
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Old 10-17-2016, 03:54 PM   #12
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Originally Posted by RE2Boys View Post
My approach is to shop for used cars that take a good depreciation hit in the first few years, which eliminates the more popular, in demand vehicles. This approach pretty much eliminates Toyota, Honda, and as I live in a snowbelt area, Subaru. For those makes, it's probably worthwhile to concentrate on new vehicles.
Probably. On the other hand, historically depreciation is worst on makes and models with lousy history of reliability, which *could* potentially make it a false economy. Still I agree with you that for Hondas and Toyotas in particular, the depreciation curve is a lot closer to linear in most cases, and thus there is often little advantage to buying "new used" vehicles.

Now if you can identify a make and model with solid reliability history and a significant discount for buying slightly used, and it's what you are looking for, there is where the opportunity lies!
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Old 10-17-2016, 04:08 PM   #13
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Got a great deal on a pickup a few years ago. original owner passed of cancer and his two sons already had new trucks.

Got a great deal when I sold it and left the island too! With used vehicles we're talking not much room for negotiation maybe $500 wiggle room, the older ones drop to a point where it seems nobody wants to pay more than $1500-2000.
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Old 10-17-2016, 04:45 PM   #14
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If you compare a 2016 car to a 2001 car there are a lot of changes, for 2016 you get a backup camera standard. Likley a timer that turns the lights out after a period when you shut the car off at night. Tire pressure maint. feature that at least tells you when you have a low tire. Plus auto transmissions are now more efficient than manuals, (being 6 or 8 speed helps here, plus you can manually shift them, just no clutch needed). Then there is hill start assist where if stopped on a hill the brakes will hold until the accelerator is pushed down. Plus now in general a lot fewer options on the car they tend now to come in packages. Note that for 2016 at least the CD player has gone away, its just mp3 on usb flash or a player that can plug in.
If you look around you can find side blind spot detection, rear cross traffic alert, parking assist, adaptive cruise control etc. (tends to be on the higher end models however but depends on the model). But of course this does mean a lot more electronics and the car is almost a computer on wheels.
For a 25 year old car you probably still have a carb with all its troubles, they are gone away with fuel injection replacing it, so carb icing is history.
Plus air bags etc.
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Old 10-17-2016, 07:45 PM   #15
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Originally Posted by Lakewood90712 View Post
I have always been able to get a new car at a price comparable to a low mile 2 year old used. Doesn't make scene, but that seems to be how the car business works.
Yup. Me, too.

Every time we've been in the market for a car we started off looking at 2-3 years old cars. Basically, they were the price of a new car minus the milage allowance for the miles on the odometer. It is no different than the dealer reducing the price of a new car by $1000 by removing $1000 of accessories.

So we've always ended up buying new.

The sole exception was once getting a great deal on a 3 year old BMW Z4 that had just come off a 3 year lease. But I think that was just because those cars had an enormous 1st & 2nd year depreciation.
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Old 10-17-2016, 08:44 PM   #16
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This is good stuff to know. I'm going to buy my first ever new car soon (1-2 years) and now I won't even need to feel guilty.

It it's a whole 10% discount for a 2 yr 30,000 miler, why not buy new?
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Old 10-17-2016, 09:42 PM   #17
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I can't say much about the cars that are only several years old, but I know if you go a little older you can get some real deals. When shopping for used Honda/Toyota minivans earlier this year I settled on the 2008-2010 model years as offering the largest discount to MSRP for new vehicles while not being over the hill in terms of maintenance and reliability.

I ended up with a $7900 2009 Toyota Sienna with 111k miles at a price less than 1/3 the new MSRP for the same model (and it's a Toyota!). So far zero* maintenance eight months into ownership though I figure I'll need new tires and a couple of oil changes in the next several years, plus spark plug change at 120k miles in another year or two (which I can DIY for $50-75).

I'm not messing with any total cost of ownership calculators because I'm very confident taking 2/3 off the purchase price, saving tons on sales tax and annual property tax, and not needing to insure it because it's relatively low value saves me a lot of money versus buying new.


* Oops, had to replace all 3 windshield wipers right after buying it and that cost $15 at walmart and about 5 minutes (that rear wiper was tricky for some reason).
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Old 10-18-2016, 04:00 AM   #18
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Here to +1 on most posts.

The math does work for high volume low end models. The depreciation curve has flattened, and in some cases even inverted.

Part of the dynamic is that there is always a factory producing more than they are selling, and they want the thing off the lot.

Another part of the dynamic is that the old wisdom "buy nearly new, avoid the price markup" has become so widespread that it is frequently false.
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Old 10-18-2016, 05:50 AM   #19
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Take a look at 2-3 yr old Lincolns. New ones depreciate like a rock. I have found 2-3 year old MKZ's, with 20k +/- miles selling for 50% of MSRP. Bumper to bumper warranty to 48k/4 yrs (in case you inherit a problem). And our Lincoln dealer gives free rentals when servicing. As long as you are looking at 5 year plus ownership, the depreciation works in your favor. Added bonus, most factory repairs can be done by your local Ford dealer.

Don't get me wrong-I love Honda and Toyota, etc. But my only experience with a Lexus resulted in getting a bad transmission rebuilt at 125k miles. Quoted $6,500 at Lexus dealership (25 miles away-ugh). Said they had to use a factory rebuilt unit. Local tranny shop charged $2800 (had to buy parts from Lexus) and apologized for the high price. Said any american car would have been about $1700. Something to think about. (BTW, only tranny problem I have ever had with owning over 30 vehicles.)
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Old 10-18-2016, 07:20 AM   #20
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Quote:
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.... Is there something I'm missing? With numbers like this, why buy a used car?
Your conclusion that new is preferable is the same as what I have come to. Back in the 80s, 90s and early 00s I always bought "gently" used cars with a year or so left on the bumper-to-bumper warranty as I got a substantial discount and the peace-of-mind of a year left on the warranty. IME in the mid 00s the discount melted away and I have bought new since then. Especially in your case since you keep the vehicle for a long time.

One caution about buying new... the cars typically on dealer lots are at higher trim levels and loaded with expensive options that I could care less about so by ordering instead of buying off the lot I was able to get the trim level and options that I wanted and valued and was willing to pay for.

Another tip.... expand your search to 200 miles using TrueCar or some similar buying service. My local dealer was unwilling to do much dickering at all on our 2016 Outback (they were sold in many cases before they were delivered to the dealer or shortly thereafter and I knew that to be true since I frequently drive by their lot) but once I had some viable competitive quotes and told them that I prefered to deal locally but they needed to reduce their price then they got real.... I then chose to pay a little more to deal locally rather than drive 200 miles for the car.
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