Comments on: Buying A New Car or Used Car? Things To Think About

By: varios

varios — Mon, 21 Mar 2011 19:58:53 +0000

What would you buy and why on this very specific case.
Money: Around $29.000

Options:
2011 Accord EX-V6: New
2008 Lexus ES350: 44,000 miles.

Not choosingby size/speed. I’m more into Efficiency/Engine and it’ll probably stay 3years with me. Big question might be Which car is better? The smart choice will be a new “regular” Accord or an Older “lil-luxury” Lexus.

Looking into what I think is good in the marked… honda, toyota, lexus, audi (not any more expensive than that) but well, dont know much about cars in general… then so hard to decide.

Comments are really welcomed, even long ones !!
Need more orientation in the Why … this or that one.

Thanks

By: wolf max

wolf max — Mon, 23 Aug 2010 17:49:36 +0000

i’d say use the 23% 15% scale and adjust for repairs and insurance after 3 year point in some simple arbitrary way (or note how its nearly impossible).

i would like to see a 3 buyer comparison:

(a) keepers – (1) buys a new 30k vehicle and keeps it for say 9 years vs (2) buys same vehicle 2 years old and keeps it for 7 years vs (3) buys same vehicle 4 years old and keeps it for 5

(b) traders – where every 3 years (4) buys a new 30k vehicle vs (5) buys same vehicle 2 years old vs (6) buys same vehicle 4 years old

and possibly more scenario sets like 6 years, 12 years, and 18 years.

By: Daniel

Daniel — Mon, 02 Aug 2010 17:00:07 +0000

There are other variables – inflation – (or deflation),and price fluctuations. Over the last couple of years , here in the U.K., new car prices have been rising, I bought my very small car new for £5750 3 years ago, the same model is now £6999. This rise is partly due to inflation and changes in exchange rates of the U.K. pound against the Euro. Peaks and troughs in new car sales lead to over and under supply in later years in the second hand market, therefore price fluctuations. At the moment there is strong demand for small second hand cars but new cars are not selling too well and the new car dealers are running good promtions. So I should be able to get a good deal on my car and a good price on a new car.

By: Jack

Jack — Tue, 09 Mar 2010 15:03:59 +0000

Good advice and disucussions. My main comment is about financing a vehicule.

I’ve owned two used vehicules so far and have only had to do regular maintenance on them which is obviously good peace of mind.
Lately, i’ve been looking at buying new simply because the cost per month for a used car just doesn’t make sense (in the long range..)
I know the interest rates might not be as high in other provinces but in Ontario, the average going interest rate to finance a used vehicule is about 8%, if you finance it over 6 years or more I believe.

A new vehicule is about 3.8% for a 6 year financing. So you end up paying a lot closer to the MSRP of the new vehicule in the long run simply because of the interest rates.

The asking price of the used vehicule is obviously less because of the depreciation but if your planing on financing for a few years, it’s usually more beneficial to go new, even though the vehicule might be more expensive to start off with.

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By: Portsider47

Portsider47 — Fri, 11 Dec 2009 02:58:54 +0000

What has been forgotten is the differing interest cost of purchasing a more expensive (new) vehicle vs. purchasing one that is say 2 y.o. I think the true comparisons are:
(a) keepers – (1) buys a new vehicle and keeps it for say 8 years vs (2) buys a 2 y.o vehicle and keeps it for 8.
(b) traders – (3) buys a new vehicle every 3 years while (4) buys a 2 y.o vehicle every 3 years. I’ll let some wizard do the math on the 23% & 15% scale, but of course in the keepers example person (2) would in theory have a slightly higher repair costs since their years 7 and 8 are actually 9 & 10 for the vehicle while (1)’s comparative is their years 1 & 2 where the repairs might be under warranty or non-existent [(1)'s years 3-8 repairs would be assumed to be the same as (2)'s 1-6 years']. Similarly, in the traders example person (4) would have the higher repair costs. I think you can forget quantifying repairs, peace of mind or all the other intangibles of owning a newer vehicle and just say that if those factors are overriding for you, then go with the new car if it seems to out-weigh the math for you.

By: Nadim

Nadim — Sun, 02 Aug 2009 03:55:27 +0000

You ask any person who works at a dealership and they will tell you after 1 month of owning a car, you can ruin it for the next person. I would buy new unless you are buying the car from a retired person who never drove it in rush hour traffic and the car is only 5-6 years old.

I have grown up driving cars over 15 to 20 years old, and I’ve found myself to be very satisfied. Now that I’m older, I will treat myself to new

By: Allen

Allen — Tue, 21 Apr 2009 19:14:37 +0000

Gates,

Thanks for adding that dimension to the analysis. That just shows how complicated it can be in determining the best course of action to take. Total cost of expected ownership for the given periods need to factored in. I am sure those numbers can vary wildly from model to model, year to year.

By: Four Pillars

Four Pillars — Thu, 02 Apr 2009 12:49:58 +0000

Gates – the main point of the article is to look at depreciation to try to get some feeling for the buy new/used scenarios. In all my scenarios I’m assuming similar mileage.

“What’s the cheapest way to drive”? No, that wasn’t my question – not everyone is looking to reduce their costs to the bare minimum on every activity/purchase.

Your right about the maintenance/repairs – to do a proper analysis, this should be included.

This post wasn’t supposed to be a definitive answer to whether someone should buy new or used, it was mainly me playing around with some numbers to look at (sort of) real life depreciation scenarios.

By: Gates VP

Gates VP — Tue, 31 Mar 2009 21:25:12 +0000

Hey Mike;

I think that you made one untenable assumptions, which is why there is so much back and forth on the topic.

A car does not depreciate by some flat annual percentage, it depreciates by use.

Age, and age-related calculations, such as your depreciation of 20%, are really just short-hands for tracking some change in value. But obviously, a 10-year old Civic with 300k is not somehow worth 20% less than the 9-year old Civic with 300k.

The big problem is that you’re not really answering your own question. Your underlying question is “what’s the cheapest way to drive?”. But driving is about putting miles on a car, it’s not about “aging” some depreciating asset. Maintenance is about mitigating the depreciation of those miles.

So if you’re not measuring both Maintenance and Miles then you can’t really paint a very good picture of your underlying cost of driving.

In Scenario 1 for example, you make the assumption that owning a car for 9 years will cost more in maintenance than owning a 3-year old car. But this assumption is far from correct. The cost of car maintenance is far less from years 0 to 2 than it is in 3 to 5. If you look at the expected life-span of car parts, they start dying off around the 45k to 60k miles mark. At an average of 10k to 15k miles per year, buying a 3-year old car typically means that you are inheriting a certain liability of care.

If you assume even mileage and quality expectations from both parties then the used car owner actually has higher maintenance. He’ll have three major repair cycles instead of two. And unless he drives the car until it needs it’s next set of repairs, he will not get full value from those fixes.

Think of it this way. Assume that you buy a car with 45k miles and sell it with 90k miles. The alternator dies at 60k miles and requires a replacement. The alternator had a lifetime of 60k miles which you paid for in full, but you only got 45k miles of driving out of it.

If you keep buying 3 year old cars (scenario 1), you have to replace 3 alternators in 9 years. One for each car. But if you buy the new car you will buy 2 alternators in those 9 years.

So at the end of the day, I just think that you’re following the wrong assumption and it’s leading to some faulty conclusions. Of course, YMMV.