Buy New or Fix Old?
You hear this rationale presented all the time by people preparing to buy a new vehicle. Many people claim they will actually save money by getting rid of their current vehicle and buying a new one. Repair costs are eating them up, so they truly believe shifting to a new vehicle will be a financial boon, but does their thinking make any sense? A new study by the Automobile Club of Southern California indicates that buying a new car to save money is just a pipedream.
Don't get us wrong; we think there are a lot of good reasons to buy a new vehicle -- additional safety, better efficiency, more carrying capacity are among them -- but thinking you're going to save money by purchasing a new vehicle is a fallacy. The numbers don't back it up.
The Auto Club found the average driver of a new car spent between $8,000 and $10,000 on auto finance payments, insurance, gas, and other auto-related expenses last year. Looking closer at the figures it said that nationally, consumers owning a 2001 model-year car who drove 15,000 miles in the year paid an average of $7,650 or 51 cents per mile for the privilege. Those who drove their cars 20,000 miles a year paid an average of $9,160 or 45.8 cents per mile. Of course, motorists living in Southern California paid slightly more in each instance, but then they have all that sun and warm weather to deal with 365 days a year.
By way of comparison, the Auto Club also looked at the cost for owners of 1996 models whose cars were paid off. The results were illuminating. Drivers who logged 15,000 miles a year paid just $4,126 or 27.5 cents per mile. Those who put in 20,000 miles for the year got by even cheaper on a per-mile basis: 26.3 cents or a lump sum of $5,266.
Since new cars presumably have much lower repair and maintenance costs than older cars, how can this be?
The answer is that repair and maintenance costs are actually a relatively small portion of overall ownership costs -- a highly visible portion, yes, but a small portion. And the same thing can be said of fuel and lubrication costs. Some folks actively seek out higher fuel economy vehicles in an attempt to save money, but figures indicate if they are buying a new car to get better economy they are fooling themselves.
While gasoline and repair costs are in our face and thus get our attention, the biggest ownership costs for new cars in the first year of ownership are depreciation and financing. Once the car is paid off, the financing charges vanish and, at the same time, depreciation slows markedly. So even though repair and maintenance costs do increase as a vehicle ages, they are more than offset by declining depreciation costs and the absence of financing.
The bottomline answer: the cheapest way to enjoy automotive transportation is to keep it and fix it or, in stock market terms, buy and hold. The only better bet is borrowing someone else's car... but please do it with their permission.
The author of The Complete Idiot's Guide to Buying or Leasing a Car, Jack R. Nerad says the most economical car he ever owned was a 1965 Oldsmobile 442, which he bought for $600 and sold three years later for $600.