New cars...dumb decision?

[BlinkingDuck]

Provoked by this reply from Gjanima in a different thread:

You’re a dumbass for buying a new car. Do you also use dollar bills to light your cigars?

I’ve head his outlook before. I want to believe it. However, the last 3 times I went out to look at a newer car I didn’t see what was so smart about it.

All 3 times were typical…I will concentrate on when I was out looking for a car for my (adult) son. He was paying for it…I was helping at his request.

• The main issue is price. In this case, I went out an could get the car he wanted - (this was a few years ago) for about $12K-$13K. This is new price. I negotiated it at a local dealer like I was buying it myself.

With this info in hand, I hit the market. Looked up used cars in the Minnepolis area.

Immediately I was hit with how expensive they were. Some were even MORE than what I could buy new! The typical listing was Car X…40,000 miles…3 years old…$10,500.

? Great deal! I’ll take the first three years of the new car for $1500-$2500 Alex!

Seriously…the first 3 years of the cars life are the best of it. I think we can all agree. New car smell…great paint job. Clean inside etc. Buying a car 3 years old…dirtier…more scratched…and taking more of a risk of something being wrong with it. All that should knock off much more of the price than that. 50%…ok maybe 40%. Certainly not as little as 30%. MOST certainy not the about 20% the market was showing.

I didn’t just go off my gut feeling. I researched on the web and while the used car prices I came up with were still a touch high IMO…they were within considering.

So, I figured that 90% of the cars on the market were overpriced and would not sell. I then concentrated on the cars that looked reasonably priced based on my research.

I quickly gave up. The reasonably priced cars were terrible. I’m not kidding…one looked like it had been knocked in half and welded together. Another had a strong musty odor covered with a strong masking fruit odor. The other was messed up pretty bad as well.

So, I gave up on the ‘private’ market. I turned to dealers.

Same problem. WAYYYYYY overpriced. I started getting serious with these folks and they were surprisingly hard to negotiate with - they wouldn’t negotiate! I had to walk out, come back…maybe get a phone call…keep negotiating etc.

My son had already gotten his ‘new’ car and I was still negotiating with one dealer just out of perverse interest. The car was 10 old…had 109,000 miles…internet said it was worth about $1900 DEALER! They wanted…$5400. After 6 weeks of constant back and forth I got them down to $2900 before I lost interest.

I’ve had 2 more experiences since then and actually gave the used cars a shot both times. Both times I ended up buying new.

Why do people insist that it is stupid like Gjanima does?

{I am serious here…how do people who insist on buying used find their car for a reasonable price? Or - are people willing to give up the first 3 years of a new car plus assume the risk for any problems with it for a whopping 20% discount?}

[Cheesesteak]

@BlinkingDuck

Why do people insist that it is stupid like Gjanima does?

Because, mile for mile, a new car is more expensive than a used car. Folks with this opinion think that it’s stupid to pay a penny more than necessary to get the utility of driving from place to place. They do not accept that one may assign some utility to being the only owner of a brand new product. At least not for a car, I assume they assign new product utility for things like underwear and shoes, and aren’t pushing for everyone to go used there as well.

[BlinkingDuck]

@Cheesesteak

Because, mile for mile, a new car is more expensive than a used car. Folks with this opinion think that it’s stupid to pay a penny more than necessary to get the utility of driving from place to place. They do not accept that one may assign some utility to being the only owner of a brand new product. At least not for a car, I assume they assign new product utility for things like underwear and shoes, and aren’t pushing for everyone to go used there as well.

But how is it? A 3 year old car will last 3 years less long…so how is it less expensive? I’m actually saying that a used car could very well be MORE expensive without even considering the higher risk of something wrong/repairs!

[BlinkingDuck]

Link to thread that sparked this.

Mother FUCKER, Not my car again!

[Darryl_Lict]

I’m a huge believer in buying used cars. However, I’m seriously looking at a Honda Fit. The Hondas and Toyotas have an amazing ability to hold onto their resale value and I am seriously considering buying a new car for the first time in my life because the used car price is not all that much cheaper than the new one. The Fit is an unusual case because the car has not been on the market for very long, and you rarely see them for sale used. This will change in a couple of years, and maybe I will wait for that long.

[BlinkingDuck]

@Darryl Lict

I’m a huge believer in buying used cars.

How did you deal with the issues I had in the OP?

[Darryl_Lict]

@BlinkingDuck

How did you deal with the issues I had in the OP?

Your points are largely irrelevant to me as a car buyer. The newest car I have ever bought is a 1984 Toyota 4Runner That I bought in 1996. I’ve put about 74.000 miles on it in 12 years and it still runs like a top. Hell, a 3 year old Toyota would seem like a brand new car to me. My logic and lifestyle are atypical and I can’t really defend my position other than it suits me. In my limited experience, a Toyota will go 15 years and 200,000 miles without major problems. The 3 year old Toyota purchased from a private party seems like a good risk to me (after paying my trusty mechanic to check it out).

[Stranger_On_A_Train]

@Cheesesteak

Because, mile for mile, a new car is more expensive than a used car.

That is a somewhat questionable assertion. It is true that you’ll lose value–between roughly 20%-40% of its value–driving it right off the lot,depending on the make and popularity. If your intention is to buy the car and just drive it for one or two years, then buying new is definitely a losing proposition, especially if you plan to put a lot of mileage on it. Buying new with a loan also means carrying comprehensive insurance, which can add up.

On the other hand, you get a number of benefits from buying new. The first 30k-60k miles are covered by warranty, which means any major defects are going to be fixed for free. You will be in control of how the car is driven and maintained, which will dictate how well it holds up when the mileage gets higher; if you intend to keep the car for the long haul (>150k miles), this may be a real benefit. A well-maintained car with a good reliability rating may end up costing you far less new than a string of individually inexpensive used cars of unknown provenance, requiring a lot more of your time in maintenance, repair, and the hassle of buying and selling cars on a regular basis. (You’ll find that cars with good reliability ratings tend to hold their value unreasonably well, and thus are, as the o.p. notes, not really a great deal on a per mileage basis.)

The people I know who are really militant advocates for buying used also seem to get some inexplicable joy in the whole process of buying, selling, and registering vehicles; they don’t expect to keep them very long–a year or two at most–and perform only minimal upkeep on them. That’s fine if you enjoy that sort of thing, but my experience with buying a used car in a private sales is that it is a lot of bother for a vehicle that is likely to develop one or more significant mechanical problems. On the other hand, I’ve had very good experience buying new brand and models of vehicle with a reputation for high reliability and longevity, and driving them for ~200k miles with regular basis maintenance and very little repair work, and getting more or less exactly what I want in the vehicle to begin with.

In any case, people spend money “frivolously” on what they prefer all the time; why someone should not, if they can afford it, purchase a new vehicle instead of one that has had all of its shiny and its best years already spent, is beyond me. Unless the poster quoted by the o.p. is living some kind of holistically minimalist monastic lifestyle, he’s either a hypocrite or an insecure jerk, especially in the context in which the statement was made, especially insofar as he offered no substantial argument for his claim other than insult and ridicule.

Stranger

[Kent_Clark]

[QUOTE=Cheesesteak]
Because, mile for mile, a new car is more expensive than a used car.

[QUOTE]

That’s not even necessarily true, unless you figure you’ll drive a car only for X number of miles or years. I buy new cars and drive them until they pretty much have to be hauled away. I also buy at the end of the model year and am not particularly fussy about color or options. As a result I tend to wind up with “orphans” that the dealer is willing to discount deeply. I also get a full warranty and often a promotional financing deal that’s better than what my own credit union would give me.

[Voyager]

@BlinkingDuck

How did you deal with the issues I had in the OP?

Were the used cars you were looking at the same make and model as the new one?

I’ve done both, and it depends on the car and the circumstances. I bought a new Saturn in '92 because it was much improved over the first model year, '91, so there were no used ones I wanted. We bought a new truck because the resale value holds up so well that we would not have gotten a great deal on a used one. We bought another car, former rental, used, and it has gone 7 years so far with no issues.

If the current model is about the same as an older one, I’d say used might be better. If there have been reliability improvements, new would be better. So, I don’t know why there would be one answer for all cars and situations.

[Throatwarbler_Mangrove]

Your experience that a 3 year old car only loses 20% of its’ value seems atypical to me, but I have not been shopping for new cars recently. I suspect that it varies between models, with some depreciating more than others. Certainly I would not pay 80% of new price for a 3 year old car.

OTOH, purchasing a new car outright seems a silly proposition to me, compared to leasing.

[Frank]

@Throatwarbler Mangrove

OTOH, purchasing a new car outright seems a silly proposition to me, compared to leasing.

Maybe if you’re gonna trade it in every two or three years, otherwise you might as well burn up your money in a fireplace as lease.

I bought my current car new in 2001; it’s gonna last me at least three more years, when I’ll buy another new one that I’ll keep for at least ten years.

[XT]

It depends on the car. When I was looking at Mini-Coopers for instance I found that they depreciated very little…so a 2004 costs nearly as much as a 2007 (that’s when I was looking). In that case I’d go with the new car (if for nothing else because the Navy Federal Credit union gives me a better rate on a new car as opposed to a used one).

However, I’ve seen cars that seriously depreciated after only a few years (some as low as 50% lower than their new car equivalent). When we bought my son a Ford Focus the new car price was something like $16k (for the sporty tricked out model)…and we bought him a 2004 Focus (same model and same features…even had better rims, though myself I could have cared less) for $10k. The car had 25k miles on it. So in this case…yeah, it was definitely worth it.

-XT

[Stranger_On_A_Train]

@Throatwarbler Mangrove

OTOH, purchasing a new car outright seems a silly proposition to me, compared to leasing.

Leasing is a good deal only if you drive limited mileage and don’t intend to otherwise keep a car. If you drive a lot of mileage per year, or intend to keep a car for 7-10 years rather than rotating it over every 3 or 4 years, leasing doesn’t make a lot of sense.

Stranger

[Throatwarbler_Mangrove]

I posted some thoughts about this in a past thread, I still think they are relevant.

@Throatwarbler Mangrove

1. Stuff like “not having a car payment is nice”, “at the end of the lease, you don’t own anything” and the such are financially meaningless drivel used to hoodwink the uneducated into silly decisions. Car salesmen in particular seem to throw it at me all the time.

2. The basics are thus: A car, just like any other capital asset, has a certain depreciation curve - this will be a little different for each car, but they are generally shaped such that there is a steep drop off in the value of the asset in the first few years, followed by a shallower curve that works its way to zero.

3. The further forward on this curve you go, the more difficult it is to figure out where you actually are on the curve - things like maintainence and the general condition of the car, together with changing external conditions (e.g. gas prices, sequels in the The Fast and the Furious franchise that feature certain models, etc. ) start having unpredictable effects. In fact, when dealing with new cars, I would say the ability of yourself or even the dealer selling the car to predict what the future depreciation curve will look like even for the first few years is somewhat limited. What if the first-year-model car you buy turns out to be the next Ford Pinto - a model from a reputable make that was generally well regarded until the problems started to surface?

4. Whether you buy or lease a car, you are essentially taking ownership of an asset and paying for a portion of the depreciation curve. If you buy a car and drive it until the value has depreciated to zero, then you would have “paid” the full price of the car. When you lease the car, you are essentially agreeing to pay for the portion of a pre-determined depreciation curve covered by the terms of the lease.

5. There is another corresponding curve - the amount of benefit you receive from ownership of the asset. Obviously the car is not going to generate any cash, so you have to reckon this as a measure of how much you enjoy having the car.

6. I’ve always assumed that this curve is inverse (Wrong. I meant directly related) to the first curve - that is, your greatest level of enjoyment is when you drive the car off the showroom floor, this gradually drops off as the car is used up. Two years down the road, the car will still be adequate, but the girls won’t be as impressed by your 2 year old car as they would be by a brand new one. This seems reasonable to me, and would be supported by my observation that 5 year old cars are generally cheaper than 3 year old cars. Of course this applies to the common cars that most people buy, not to your 1965 Chevelle SS.

I draw a number of conclusions from the above. First, if your goal is to maximize the area under the “enjoyment” curve while minimizing the area under the “depreciation” curve, (OK, they are not really geometric values, but you get my drift) there is no straightforward answer to whether you should finance or lease - you need to gather all the relevant information from the offer to lease and the offer to sell, and see where they fit on your personal “chart”. With this in mind, one can obviously see that comparing leasing for 2 years to the cost of owning a car for 10 years is silly - the appropriate comparison would be to compare leasing for 2 years versus buy a car, and then selling it 2 years down the road and buying a new one.

Second, the idea of “buying a new car and driving it until it dies” makes no economic sense if you have an “enjoyment curve” similar to a normal persons - that is, a normal person generally moves up in life as he gets older, and wants to have nicer things. The aforementioned “drive it until it dies” person is apparently willing to pay the largest portion of the depreciation curve up front, in exchange for the largest portion of the “enjoyment curve”, but afterwards, loses all interest and at year ten, is willing to settle for a 10 year old beater as long as he doesn’t lose any more to depreciation. If this describes your preferences, then all the more power to you, but it’s a rather odd outlook on life.

A more reasonable course of action would be to start out with older used cars when young and poor, paying the minimum amount of depreciation, and when you are older and richer, leasing more expensive cars - you’ll pay for the higher depreciation, but compared to buying a new car and selling it every two years, leasing is generally more attractive. Again, get all the facts and figures first.

I’ve read up a bit on this depreciation thing and it is quite complex, often leading to unexpected results. For example, for the last few years, the lease terms on a BMW 3 series have always been quite favourable - to the point that it would be cheaper to lease a 3 series than, say, a Toyota Camry of similar value, since BMW gives you a marginally higher buy-out cost at the end (or, if you prefer, a flatter depreciation curve). I think the reason for this is that a 2 year old BMW 3 series is a very sought after car by young men anxious to piss their money away, and that the folks at BMW figure that they can unload these things pretty easily at the end of the lease, even compared to other BMW models like the bigger 5 and 7 series, which are not particularly popular used cars.

A large portion of the depreciation curve seemingly has little to do with the merits of the actual car, and everything to do with inventory management on the part of the manufacturer. Most small Volkswagens for example, seem to retain their value quite well, while most small American cars are worthless the minute they leave the lot. Strange, considering that VWs of the past few years are generally regarded as being dreadfully unreliable cars. Most of this seems to be related to the fact that VW simply has more flexible inventory management than GM/Chrysler/Ford. VW imports as many cars as they need, and no more. Everyone who wants a new VW gets a new VW, and everyone who wants a used one will have to wait until the new owners get bored. Compare this to the unfortunate situation at the Detroit 3 - bound by inflexible union labour contracts and manufacturing facilities, they are forced to churn out endless numbers of cars that flood dealers lots, and eventually rental company lots and fleets, to the point that 1 or 2 year old model values are seriously depressed by the flood of NEW models (and 1 or 2 year old off-lease fleet units) being pushed on to the market. All this despite the original car being an otherwise pretty good piece of machinery.

To this, I would add that leasing can be thought of as having a “put” option on the car that expires at the end of the lease - if something unforseen happens and the mark-to-market value of the car is lower than the residual value of the lease, one is protected from that downside, while if the car holds it’s value particularly well, one can always sell it on the open market and buy out the lease.

[Simplicio]

For what its worth, according to the AA, cars on average loose 40% of their value the first year, and 60% of the original value by year 3. So on average, I’d say the conventional wisdom is correct, buying a car new is burning money, and not really worth it, though of course as others have noted, YMMV (literally), and if your looking for a particular type of car, it may depreciate considerably slower.

And of course, if that “new car smell” is worth a few grand to you and you have the money to burn, go for it. After all, someone has to, or the rest of us won’t have any cars to buy.

[Simplicio]

And just to make explicit why the conventional wisdom is correct, if your looking for an “average car” as defined by the AA, even though buying one three years old may give it a higher risk for problems (though again, using the AA’s numbers, that’s only 30,000 miles, so it shouldn’t have any major problems yet), at the depreciated cost, you can go ahead and buy two three-year-old cars, drive the first one till it develops the aforementioned problems, roll it off into a ditch and abandon it, and then start driving your second one and still not have spent as much money as if you’d bought the one car new.

(obviously I’m not suggesting this as an actual course of action, just an illustration as to why buying a used car is usually much more cost-efficent then buying a new one)

[Mr_Shine]

I always buy cars that are 7-10 years old, having just passed an MOT. I’ve never had a problem and they are always about 10% new car cost. YMMV of course.

[BlinkingDuck]

@Voyager

Were the used cars you were looking at the same make and model as the new one?

I’ve done both, and it depends on the car and the circumstances. I bought a new Saturn in '92 because it was much improved over the first model year, '91, so there were no used ones I wanted. We bought a new truck because the resale value holds up so well that we would not have gotten a great deal on a used one. We bought another car, former rental, used, and it has gone 7 years so far with no issues.

If the current model is about the same as an older one, I’d say used might be better. If there have been reliability improvements, new would be better. So, I don’t know why there would be one answer for all cars and situations.

I tried…but also went for near misses. I live in a metro area where there are many used cars for sale so this wasn’t an issue.

[BlinkingDuck]

@Throatwarbler Mangrove

Your experience that a 3 year old car only loses 20% of its’ value seems atypical to me, but I have not been shopping for new cars recently. I suspect that it varies between models, with some depreciating more than others. Certainly I would not pay 80% of new price for a 3 year old car.

OTOH, purchasing a new car outright seems a silly proposition to me, compared to leasing.

The important thing to remember is I negotiated for my new car. If you go off MSRP then that 20% is probably more like 30%. However, the price of a car is not MSRP but what I have to pay for it.

Now, like I mentioned in the OP…these are cars that are for sale…not necessarily sold so they could be asking too much. However, there were NO cars for sale (barring the near wrecks) with anything approaching what I considered reasonable or what the Internet told me was reasonable.