When is the optimum age to buy and sell a car to minimize total ownership costs? This isn’t a question asking which car has the lowest costs–I can find many lists on the web for that. But this is more about a general strategy for buying and selling a car so that the total cost of ownership is minimized.
For example, these might be some strategies I could follow:
Buy the car new and sell after 3 years
Buy the car new and keep it for 20 years
Buy a 5-year-old car and sell after 4 years
Buy a 15-year-old car and sell after 1 year
Each scenario would have different outcomes based on expected depreciation and repair costs. In addition, rapid buying and selling would lead to higher costs from sales tax.
I’m posting this in GQ because I’m looking for more factual answers than anecdotal.
It seems sites like Edmunds, KBB, Consumer Reports, etc have the historical data for how the price for a car tends to decay over time as well as the reported maintenance costs over that same period. Given that set of data, it seems someone could come up with the optimum strategy for minimizing the total cost of vehicle ownership for a given car. So whether you want a Mercedes or a Corolla, there should be a strategy to minimize your costs.
Tell us where you live, local fuelprices, local tax regime, what your budget is, what level of banger you are comfortable with, what your transportation needa are, what kind of milage you intend to put on the car, what kind of car you like, do you care about the enviroment?
With that information we could start devising a stategy.
In general: buy a young secondhand 2-3 years old, maintain it well and drive it 'till the wheels fall of.
With used cars at record high prices, at least in the United States, the optimum strategy now seems to be:
Three year lease on a Honda, Toyota, Subaru, or Ford. You’re buying the depreciation, which today is very low, especially with these brands. If depreciation rates pick up again, your lease cost will be below depreciation costs.
Buy, hold for three years, sell. Used car prices are beginning to fall, but they’re expected to remain much higher than before the recession. Ignore the “don’t buy a car in its first model year” rule if your intent is to sell after three years. For a new model, the design will probably still be the same when you sell, and depreciation won’t be as bad as with a car that belongs to the previous model cycle.
A five year old car now doesn’t cost as little as an equivalent used car before the recession. The warranty will likely be expired. Modern cars are very reliable, but you might still expect repairs and scheduled maintenance at the 60K/70K mile range that could make the cost of ownership similar to that of a new car.
15 year old car: depending on the state, you might have to spend a lot to bring it up to a point where it will pass inspection. A lot can go wrong at 150K; timing belt, head gaskets, suspension. I’d only recommend it if it’s a car with some cult appeal, like a Japanese hatchback that is popular among the ricer/tuning crowd, or an old Volvo - something you can flip if you find the right deal.
The othr question is - what level of disruption can you tolerate. If you come out on a really cold day and can’t start your car, is that serious or ho-hum?
I would suggest buy a car that is just off a 3-year lease, then drive it until repairs or nuisance failures start to get bad enough that you would rather pay for a replacement vehicle. The not-quite-joke is that a car loses 30 of its value when you drive it off the lot. Actually, it lose close to half its value in the first 3 years (or used to). SO let someone else absorb that cost.
Whether that’s different in today’s market, I don’t know.
Buying an 8-9 year old car @ ~90-110k miles and keeping it for 4-5 years is going to be the one of the most economical avenues, provided you buy a common, mass-produced car with average equipment.
^Educated guess based on previous discussion.
Buying new is a terrible idea because of the rapid depreciation. Some cars like Honda and Toyota do not depreciate as fast (because people assume if you sell a slightly used one it is still in good condition). But others lose 80% of their value in the first 5 years.
I don’t have any math to back this up, but I would assume something 3-4 years old, then sell it after 3 years or so. If you get a good deal, you may be able to sell the car for about what you paid for it. Your best bet is finding something that is low maintenance/high reliability but that depreciates rapidly.
A Mercedes and a Corolla are going to be different. The Mercedes costs more and depreciates more.
Of course it depends on the specific model car, the depreciation rate of that vehicle, the reliability and repair costs of that vehicle, the current market for used cars, etc.
filmore, why don’t you pick a model or two and run the numbers via the data available at those sites and report back? I’ve heard lots of strongly held WAGs but the exercise would be interesting.
Here’s a start - Edmunds true cost to own a new Honda Civic 1.8 4 cyl 5 speed automatic is estimated at $32086, the true cost to own a 2007 of the same is estimated at $28,859.
I am of the firm belief that if minimizing transportation cost is your only goal, buying cars in the sub-$1000 range and only performing the most basic maintenance (basically oil changes and any safety issues) and junking instead of performing major repairs is going to be by far the cheapest way to go. Most people don’t use this strategy because it’s horribly inconvenient and you end up driving horrible old jalopeys, so they pay more for a better car driving/owning experience.
These days, cars last a REALLY long time-- it’s generally to the point that the drivetrains last essentially forever and people only get rid of cars because they devolve into “clunkerdom” where the owners are just sick of looking at them, and they start letting the body fall into disrepair, but they still work mechanically. Buying cars that have passed into clunkerdom is extremely cheap, and though you might get a lemon or two, you’re just as likely to get a car that will keep running long after you’re sick of driving the stupid thing around. Even if you have to buy two lemons before you get a good runner, you’re still ahead of buying even a modestly-priced used car. You can also get away with carrying only liability insurance, which is a huge savings depending on what your rates are like. (I just financed a $10k used truck for work and the difference in insurance from paying liability-only on my old rig is almost as much as the payment!)
But, this strategy assumes you don’t care about occasional breakdowns and don’t mind driving around in a terrible dilapidated car. So the question then becomes how much more are you willing pay for a non-terrible car and a less inconvenient ownership experience? You can move up the ladder from buying a $4-5k used car all the way up to the most expensive (but also most convenient) way of driving a car: leasing.
Not any more. Check out someof thearticles that have been appearing recently in The Truth About Cars. For the past few years, used cars have been appreciating in value. It’s mainly because, with the shitty economy, there’s increased demand for used cars, but a much smaller supply because people are holding on to their cars longer. High demand, low supply.
It looks like the market has peaked, but it’ll take years before the US gets back to the pre-recession “cars lose half their value in three years” pricing, and we’ll never have UK-style “here comes Jeremy in a five-year old BMW 6-series he bought for 900 quid, and here’s James in a four-year old Mercedes C-Class he picked up for 850 nicker” prices.
Does anyone have any examples of used cars less than a year old that sell for 70% of the new price? Or examples of 5 year old cars that sell for 20% of their new price?
Are we talking about cars in good condition here or cars that have incredibly high mileage, have been in major accidents or in a lake?
You’d need to add about ten years to your age estimates to get those prices in the UK. You’d get over £10,000 for a five-year old 6-series (lowest spec), even as a trade-in.
Adding to GreasyJack’s post, when you’re finally ready to junk your $1000 jalopy, you’ll get a few hundred dollars in scrap value, to help buy your “new” $1000 jalopy.
I bought an off-lease 2008 BMW 330xi for $32,800last year while the going price for the equivalent new (in Canada, land of the retail gouge) is about $50,000.
Meanwhile, my $45,000 (new) BMW 323i was worth about $7,000 or so after 11 years. So they drop a lot more in the first few years.
The problem is, every car is different. SOme run great forever, some are lemons from day one. Number one strategy is to cut your losses and dump a lemon…?
Along with actual clunkers the “Cash for Clunkers” program destroyed a lot of perfectly good used vehicles, artificially inflating the price. I’d expect the answer to this question would change in a few years when the effect wears off
Except that the cars that are “missing” from the used car market are the 1-3 year old ones that should have been bought with the Cash for Clunkers program, not the mostly 10-20 year old trucks and SUV’s that got traded in. Rest assured you can still get a 96 Explorer for next to nothing.
A little over 3 grand doesn’t seem like a big difference when you consider full warranty, the possiblity of promotions such as rebates and low interest financing, newest technology/safety, and 100% knowledge of maintenance on the new car.
Thanks for the link about Edmonds True Value. That’s kinda what I was looking for, although I wish they had analyzed all their data to come up with a good overall strategy.
I’m not talking about getting the cheapest car over time. I’m talking about trying to find that sweet spot between minimizing depreciation losses against rising repair costs regardless of the car you choose. For example, here’s the True Value data for a new Cadillac CTS:
Year 1 Year 2 Year 3 Year 4 Year 5 5 Yr Total
Depreciation $9,695 $3,475 $3,059 $2,711 $2,434 $21,374
Maintenance $46 $260 $143 $1,137 $2,008 $3,594
Repairs $0 $0 $0 $740 $1,139 $1,879
Here you can see a huge cost depreciation cost in the early years, but it gets less and less over time. However, that is offset by the rising maintenance and repairs costs that go up over time. By year five, the M&R costs are about $3000, which is comparable to the year 2/3 depreciation where there is almost no M&R costs. So a good strategy here might be to buy a 1-year-old car and sell it when it’s about 4 -years-old, although there’s the sales tax issue which would will add costs each time you buy a new car.
I’ll have to play around with True Value and see what I can come up with.
One point regarding two of the possible strategies. One being buy new and keep it till you can’t stand it anymore. The obvious variation on that being buy mildly used and keep it till you can’t stand it anymore.
The large majority of the time the second one is going to be much more cost effective. The problem is when someone else has owned the car there is a slight chance they did something really stupid to or with the car that means very bad things are going to happen somewhere down the road.
You’d also have to factor in model year. Model styles are typically changed on a 3-5 year basis and I would guess each ‘style’ has its own depreciation and reliability characteristics.
I would also imagine there would be considerable regional differences - i.e. hot vs. cold climates.
