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+--- Thread: The false economics of a used car (/showthread.php?tid=4783)
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The false economics of a used car - Evan - 09-15-2006
I went through a similar thought process when I was truck shopping, and now that I am looking for a nice daily driver I am coming to the same conclusions, so thought I would share and see what everyone else thinks. I had always assumed that used cars were the financially smarter move, but when I see cars with at or over half of their lifespan used up, but for half or more of their original cost, I started doing the math.
The comparison will be between a 5 year old BMW 3 series that books for 16k, and a new BMW 3 series that sells for about 2x that, 32k.
Assumptions are that with the new car you will sell it in 5 years for about 16k too. (which may actually be a low estimate depending on mileage)
You will drive on each car for about 90k miles (high estimate, but its what the 5 year old 3 series for 16k has on it)
then sell them at the end of that.
So the new car costs you 16k, and the old car costs you 16k- whatever a 10 year old BMW with 180k miles is worth, which probably approaches 0. Lets call it 3k generously.
These are relatively rough assumptions, and you are free to contest them if you wish.
So the difference between a new and used bmw 3 series in cost is only 3k.
Now is that cost worth it? lets break down the advantages and disadvantages of each
New car:
+Free scheduled maintence for 5 years (?)
+Warranty for the majority of the time you own it
+Newer styling, options, features, technology
-need more money up front
-higher monthly payment (that you get back more of when you sell)
-more accrued interest since the principal is larger
-3k more expensive (not factoring maintenence and repair) in the end
Used car
+lower accrued interest due to lower principal (but higher APR on a used car)
+lower monthly payment and down payment
-the 2nd 90k is NOT going to be as reliable as the first 90k
-you dont know how it was treated, accident history etc the first 90k
-repair costs
-old technology, styling, features, etc
Personally I think that 3k is going to be used up in the repair and maintenence cost delta between the new and used, making final costs pretty much a wash.
So the primary reason for buying used over new would really only be lack of upfront funds, and lack of ability to pay a larger monthly payment. Of course that monthly payment is a significant factor, especially when you already have bills, mortgage, etc. Personally since I already have a truck payment, I unfortunately cannot afford another large monthly payment.
But everything else (to me) seems to favor a new car.
And of course, the situation changes drastically when you decide to sell that new car sooner than 5 years or so.
this is dissapointing to me because I want a E46 as a DD, but now my logical brain wont let me get one, and I sure as shit cant afford an E90. Dammit.
- Sijray21 - 09-15-2006
up-front cost and insurance (especially since you NEED full coverage with a car on a lien.)
this is/was a big factor with me since i can't stand paying a lot for insurance. Although when you're talking about a high-value car you'll probably want full coverage insurance....i guess it depends on your specific situation.
What about the 335i
- .RJ - 09-15-2006
Well, I think your $13k E46 is going to be worth $6-7k when you are done with it, so that skews your comparison. You also neglected to include the insurance cost increase with the new car over the car that is 5 years old.
At the end of the day owning a used car is always cheaper... the $$ saved on payment will be much more than what is spent on maintenance. The extreme of it will be a beat up 20 year old car that you dont make payments on but are constantly doing work on. That said, its a personal choice I suppose, dictated by how much you want to spend.
- ScottyB - 09-15-2006
this is really interesting post. it is certainly a relative issue with alot of us.
i think a strong factor is also the type of vehicle. buying a used deisel pickup might be a smarter move than a used sports car. the reliability of that claim, of course, varies greatly from situation to situation.
nowadays new cars have some pretty fantastic warranties, it's hard to beat that especially if you cannot afford/cannot do your own maintainance.
- Evan - 09-15-2006
.RJ Wrote:Well, I think your $13k E46 is going to be worth $6-7k when you are done with it, so that skews your comparison.no chance in hell. look at 96 3 series with 180k miles currently for sale. No where near 6k.
Quote:You also neglected to include the insurance cost increase with the new car over the car that is 5 years old.true, insurance wasnt factored, although I doubt it is as significant a number as you think it is. My new WRX wasnt that much more than an old Jeep I was coming from, and my new Titan is cheaper to insure than my 15 year old miata.
you wouldnt know, because you have never owned a new car
Quote:At the end of the day owning a used car is always cheaper... the $$ saved on payment will be much more than what is spent on maintenance.We arent talking payments, we are talking final, overall cost. On a new car you get back much more of that payment when you sell it.
Like my numbers show, the used car has lower cost of entry and lower monthly cost, where the new car cost is front loaded, that you get back when you sell it.
- Andy - 09-15-2006
Evan also picked a high initial cost vehicle with above average depreciation.
If you were to pick say a Miata, a used one would be a much better choice. Extremely reliable, cheap parts, no real changes throughout the years.
I could drop 9k on a NB chassis or 4k on a NA and use the remaining 5k for maintenance and supercharger.
- Evan - 09-15-2006
Andy Wrote:Evan also picked a high initial cost vehicle with above average depreciation.actually, the lower the depreciation, the more my point stands.
we are talking about % of useful life vs. %of cost of a new car.
So in a car that does not depreciate much, when the car has reached %50 of the useful life of the car, the car has only depreciated %40.
Thereby making it a smarter buy to get the new car (and take advantage of the low depreciation when you sell it)
when the car has a high depreciation, thats when its a smarter buy to get used
- .RJ - 09-15-2006
Evan Wrote:no chance in hell. look at 96 3 series with 180k miles currently for sale. No where near 6k.
KBB lists a range of $7400 (fair) to $8800 (excellent) for a '96 328i sedan with 180k miles.
Evan Wrote:although I doubt it is as significant a number as you think it is.
No, but it adds up over the cost of ownership. You are comparing the truck to the miata, to the wrx... all very different cars. Comparing a new car to a 10 y/o version of the same there is going to be a difference in cost.
Also, the sales and property taxes will be higher on the new car... and those you dont recover at the sale.
Buying a brand new car almost never makes financial sense... you buy a new car because you want a new car, with zero miles, and you pay for it. No other reason really.
- Beej - 09-15-2006
I don't really have time to completely wrap my head around the entire concept, but I agree with a good chunk of what you've presented. But I don't think that a line can be drawn between the two. In situations where you're looking at 5 year old cars with nearly 100k, then yeah, of course it's a bigger financial risk.
However, when you're looking at 1-3 year old cars with sub 30k miles, then I think you're looking at a better idea to buy used. With proper research and evaluation of the car, you can find out enough about it's history to be comfortable buying it.
- .RJ - 09-15-2006
Beej Wrote:1-3 year old cars with sub 30k miles... you can find out enough about it's history to be comfortable buying it.
If you're looking at a 30k bmw, it probably hasnt had its 2nd oil change dealer visit yet. Not much history to be known really.
- Beej - 09-15-2006
.RJ Wrote:I was thinking more along a general used car line than a specific make.Beej Wrote:1-3 year old cars with sub 30k miles... you can find out enough about it's history to be comfortable buying it.
If you're looking at a 30k bmw, it probably hasnt had its 2nd oil change dealer visit yet. Not much history to be known really.
If it has no history...don't buy it. I'm just saying that given the patience to find a car you're comfortable with, you can save a good amount of cash over buying new.
- .RJ - 09-15-2006
Beej Wrote:If it has no history...don't buy it.
Well, he did refer to the E46... just pointing out going by the owners manual and OBC-driven maintenance schedule, there wont be any history except for 1 dealer visit
- Evan - 09-15-2006
.RJ Wrote:KBB lists a range of $7400 (fair) to $8800 (excellent) for a '96 328i sedan with 180k miles.book value and what they are actually selling for arent related (not to mention the 328 is the top 3 series, and we are talking 325 which is the base 3 series.
just doing a quick gander I found this 94 with 140k miles for 2800
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Quote:No, but it adds up over the cost of ownership. You are comparing the truck to the miata, to the wrx... all very different cars. Comparing a new car to a 10 y/o version of the same there is going to be a difference in cost.of course there is going to be a difference, but its not that significant to sway the purchase IMO. There is going to be much more of a difference in repair and maintenence costs (not to mention inconvenience) in the used car to even worry much about insurance.
Quote:Also, the sales and property taxes will be higher on the new car... and those you dont recover at the sale.I agree, but you are still talking about nickel and dimes (and not all states have car tax), which dont even offset the advantages that a new car brings, and definately isnt enough to make the blanket statement
Quote:Buying a brand new car almost never makes financial sense...I put together my numbers, now if its so much of a bad financial idea to buy a used car, put together some that show it.
- G.Irish - 09-15-2006
Well the BMW free maintenance only goes to 4 years/50k miles. After that you'd have to pay extra to extend it. Also note that at $32k you are getting a BMW with ZERO options. Leatherette is ok but you wouldn't be getting a lot of the nice stuff with it. The used BMW is going to be more well optioned.
Straight off the bat I wouldn't go with a BMW with 90k miles on it because repairs not only cost you money but will cost you time. A better compromise would be something with 50k-60k miles. Unless you want to stretch your budget and buy an E46 M3.
I would do what Lee did, get a used IS300 (except I'd get a manual). Guaranteed to be more reliable than the BMW and fairly expensive. It doesn't really give up much if anything against the E46 325. Even a G35 coupe might work although I think their interiors are a bit crude compared to the other 2 (and I don't like the shifter).
- white_2kgt - 09-15-2006
This is VERY vehicle specific, BMW's hold their value well, when I got my Expedition it had 33k miles on it and was 2 years old, I paid less than 1/2 of the original Sticker. There is NO way it would have been smarter to buy it brand new AND a got new car finance rate on my loan, for 5 years
.
- .RJ - 09-15-2006
Evan Wrote:book value and what they are actually selling for arent related (not to mention the 328 is the top 3 series, and we are talking 325 which is the base 3 series.
just doing a quick gander I found this 94 with 140k miles for 2800
328 was the only 3-series sold in '96.
Age will be a bigger factor than mileage, so a '94 skews the point.
Evan Wrote:of course there is going to be a difference, but its not that significant to sway the purchase IMO.
What is significant then? If it is $30/month, that is $1800 over 5 years. Thats significant to me.
Evan Wrote:I agree, but you are still talking about nickel and dimes
$32k sales tax = $1142
$16k sales tax = $571
Certainly not nickles and dimes on sales tax..... and if you want to roll that into the financing you get to pay interest on it too.
- Mike - 09-15-2006
i don't feel like going in to all the details, but in my research i've found the best buy to be a car with 30-50k miles. 30 is still a bit early, but around 50 the depreciation really tapers off. that is all, carry on.
- Maengelito - 09-15-2006
most of the points i'd bring up (for both sides) have already been brought up by people here. however, there are tons of intangibles when buying a new vs used car. a dealer maintained bmw is all well and good as they recommend an oil change at 15k. my brother who's got an E46 325 (that he's thinking of selling btw evan) is paranoid about the 15k intervals despite what i tell him. he changes the oil with castrol syntech inbetween the intervals. conversely, you could have some stupid slut similar to the one pete bought his E36 from that probably doesnt even know where oil goes. drastic data points, i know, but you get my point. also, with a new car, its awesome getting it new, but until you get that first scratch (and no matter how careful you are, you WILL get that first scratch) you are super paranoid about where you park it, where you leave it, what its next to, etc. no mcdonalds drive-thru for fear of the fries stinking up the car. (once that smell is in there, there's no getting it out)
personally, i like the feel of a new car (STi still drives like its new) but i like not really caring about the used car. john dropped his motorcycle on my miata and i could give two flying fucks. if he had done that on my suby, i'd be a bit upset.
take that for what you will, just my thoughts
- Evan - 09-15-2006
.RJ Wrote:Age will be a bigger factor than mileage, so a '94 skews the point.only 2 years older and 20k less miles isnt skewing much. bottom line 180k mile bmws arent selling for 7k
.RJ Wrote:What is significant then? If it is $30/month, that is $1800 over 5 years. Thats significant to me.and significant also is the inconvenience of wrenching on a car, potentially getting stranded, tow costs, AAA costs, 4 years of mainentnece and oil changes etc. Not to mention cost of broken parts and the chance that the used car is a complete wreck.
All of that adds up as well. Id pay $30 a month for a more reliable car.
- Mike - 09-15-2006
ok, let's use my car as an example.
-original owner bought for 31k, sold the car for probably 19k four years later... that is 3k a year loss.
-i bought for 21k (i overpaid for exactly what i wanted), and if i were to keep it until it is paid off (4 more years) it will have 110k miles and will likely sell for about 10k... that is 2k a year loss. we all know hondas are bulletproof until 110k miles (cost me $60 in maintenance over the past year)... i'm saving 5k (not mentioning property taxes and insurance) over the course of my ownership.