Tuesday, January 12, 2010

Rethinking the Conventional Wisdom on Used Cars

Just about every PF-type site out there has a post about how buying a used car will save you tons of money over new. So when my parents gave me some money for a car last month, I immediately decided to buy a used one. I've been looking for about three weeks now, and I'm really rethinking this used car idea.

First off, it's really hard to find a late-model used car that hasn't obviously been abused. I've looked at cars with water in the trunk, cars with black stuff coming out of the tailpipe, and cars with both. I've got one good prospect so far - a friend of mine's job pays to lease her a vehicle, and she'll be trading it in next month. It's a 2006 Infinity G35 with 35K miles on it. I know that she's a cautious driver, and I had my mechanic check it out, and he says it's in good shape. I can get it for $19,150 (not including taxes and fees).

I assume that I am going to drive my next car for 10 years and 150K miles. I deduct years and miles accordingly for a used car. So my friend's Infinity has about 7 2/3 years left on it. And a new car would have 10 years.

The new cars that most appeal to me are the 2010 Ford Fusion Hybrid and the Acura TSX. According to Consumer Reports, the pricing for the Ford in the trim I want is $30,094 (without taxes) and the pricing for the Acura is $33,463. Tax is 8.5%, so I'm guessing 9% including all fees. So the total cost for the Infinity will be $20,873.50; the Ford will be $32802.46; the Acura will be $36,474.67. So the Infinity is $2722.63/yr; the Ford is $3280.25/yr; the Acura is 3647.47/yr. In other words, the difference is $557.62/yr for the Ford and $924.84/yr for the Acura.

But the price difference alone does not capture the entire story, because the maintenance in the first three years of ownership can be expected to be negligible, with costs rising as the years of ownership increase. So the gap between the ownership costs is smaller than even these numbers.

Is the increases uncertainty of buying a used car really worth $46.47 a month or even $77.07 a month in savings versus a new car?

In my specific instance, there is another factor. According to my mechanic, Infinity parts are both expensive and difficult to obtain compared to other luxury car parts. So when I have to do maintenance, it will be more costly than either the Ford or the Acura.

So it looks to me like, while I'd save money up front buying used, over the life of the car my savings would be negligible to none, depending on how much maintenance the car requires over its lifespan.

There is one way that buying used saves money - if you buy a clunker that you expect to last a year or so. Then when the car breaks, you have less invested in it, and you just trade it in on a new one. If you could pay $2K (in today's dollars) per car over 10 years, and you did no maintenance on any of them, then you could save money. However, the cars that I've seen bought in this price range tend to be not only unpleasant but also unsafe. Not only are they 8-10 years behind on safety features, they usually have structural or engine problems that make them more difficult to drive safely. Now that I don't absolutely have to, I'm not willing to drive cars which compromise my safety to save money. (I don't understand drafting behind an 18-wheeler to save money either.)

I still haven't quite decided, but I'm seriously thinking of jumping off the used car bandwagon and getting a new car in the mane of long-term economy. What would you do?

2 comments:

  1. First of all, I LOVE to analogy you post on my comments!!!

    Second of all, it's hard to compare new vs used cars of different makes. If the price of a new car is comparable to that of a used than go for it. If you are financing it either way and the interest rate is the same, or if you are paying for it all up front, and have the cash to pay the extra.

    Just from personal experience, American cars (especially Fords) tend to have a lot of problems. So be prepared to have it in and out of the shop a lot, and carless. Foreign cars, tend to hold up a lot better, but like the Infiniti the parts tend to be more expensive. You just have to decide what you want.

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