Do You Need a New Car? Really?

I’m not an expert at buying cars. Due to the policy I will explain in a moment, I don’t do it much. However, in my misspent youth I had different objectives, giving me a chance to learn some pointers you might consider the next time you take the plunge.

The picture that heads this post is a graph of the percentage of a car’s original value that it might be worth at any time in its life, laid against the cost of repairs as the years go by. Depreciation, repair, fuel and insurance make up the bulk of the cost of owning a vehicle. There is little we can do about fuel and insurance, but let us look at the other two. As the years go by the resale value of the car drops, while the cost to repair it rises. Keeping track of how these change will give you a valuable tool in your choice as to when you actually buy and sell. The steepness of the slant on the red line tells you how much depreciation is costing you on a yearly basis. A flat line would be no depreciation at all. A steep blue line says your car is falling apart.

The First Shine: Years 1 to 3

The first year of its life the car loses an incredible amount of value. People who make a total wreck of a new vehicle discover that the act of driving a car off the lot devalues it by from 5 to 10 percent. On the other hand, repairs under warranty amount to little more than service charges.

By the end of the third year, the car has dropped a great deal in resale value, especially now that it is no longer protected, but it has cost little in repairs. If you’re rich, now is the time to trade it in, losing the maximum amount of money, but gaining the pleasure you can afford of owning a new, trouble-free vehicle.

Reliable Transportation: Years 4 to 9

From the third to the ninth year is an interesting time. Repair costs rise slowly, because it is still a relatively new car, and depreciation begins to level off. This is the “sweet spot” for car ownership. If you can time your purchase to the beginning of this period and sell the clunker before it starts falling apart, you will probably lose the least money.

The Tipping Point: Around 10

The key moment in a car’s life happens somewhere around the tenth year. At that point, it reaches the stage where the total cost of the repairs it needs amount to more than the car is worth. One would be advised to get rid of the car at this point because repairing it is pouring good money after bad. If your car cost $10,000, at ten years old it’s worth $2,000, and it wouldn’t be unusual to have $2,000 worth of repairs. The “clock spring” in my seatbelt/airbag system went last year, costing me about $800. Go figure.

The Reliable Old Clunker: Years 10 to 25.

However, there is another way to go, if you want to chance it. After ten years it seems that the good cars are still running fine and the lemons have all been weeded out. If they’re treated well, a certain percentage of cars will go a year or two or even five with little repair. At this stage, there is almost no depreciation because any functioning vehicle has a certain amount of value. If you are willing to risk the unreliability, you can keep that old car, or buy another old one, and run it for a few years. That stage is actually the least expensive time to own a car. We drove Linda’s 1974 Toyota Celica as our second car for 24 years without a major repair.

Common wisdom (probably influence by new-car dealers) suggests a compromise; you buy a new car, keep it for 10 years, then buy another. This gives you the best average overall, and you get to drive a new car sometimes.

The Story of My Life

My experience over the last fifty years has followed different parts of those graphs. When I was a student and a young working person, I bought old clunkers in the $200 to $500 range (1970s dollars). They lasted me a year or two before somebody ran into me and totalled them or they died a natural death.

During our early married-with-kids life, Linda and I worked in the middle range, buying cars three or four years old and keeping them for three to six years.

More recently, we raised our status. We bought a one-year-old car and kept it for 9 years. Most lately, we bought a brand new car. We have kept it for 10 years, and it has recently reached over a thousand dollars a year for repairs, although no catastrophes yet. Over the last 19 years and 2 cars, we have averaged $3,500 per year for depreciation and repairs.

We are now in line for another new car, the most expensive we have ever bought, the reasons for which will come to light in next week’s post.

Our Present Plight

I read an article a while ago that suggested that your next new car will be the last car you ever buy. This theory was based on the idea that ten years from now most transportation will be in driverless taxis that are fast, efficient, and inexpensive. In our own case, this prediction is even more likely to be true. By the time our new vehicle is hitting its reliability ceiling, we will be in our early eighties, and probably ought to be using public transit whether we want to or not.

Next week, next choice: Gas burner, hybrid, or electric?

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