Optimum car buying strategy to minimize total ownership costs

For what you’re talking about, I remember reading buying a 2-year-old car and selling it at 5-years old is the “sweet spot,” but I can’t seem to find the article where I read it.

Clark Howard always says that if you buy a new car and keep it 7 years or more it’s just as cheap as buying used. If you sell a new car quickly that is a bad idea.

I bought my 2002 Toyota Echo for $14,000 new.

For the past five years I have received offers from Toyota dealers to purchase my car for anywhere from $12,000 to $20,000.

Of course, anecdote is not data, but you asked for an example. Also, my car isn’t a year old, it’s 10 years old. It may also be an exception to the rule.

Anyhow - regardless of whether you purchase new or used regular oil changes is one of the cheapest and most effective maintenance things you can do. So I would say keeping up with the oil changes is an effective strategy to minimize ownership costs no matter how new or old the vehicle is.

FWIW Consumers Reports take on the issue (from 2008 with used car values of the time):

I bought a 9 year old car for about 8-10% of the cost of a new one.

The reason a 1 year old car loses so much value is the market assumes there is no reason to sell a 1 year old car unless it is a total lemon. Which is why Hondas and Toyotas do not depreciate nearly as fast (because people know they are reliable vehicles). The market for 1 year old cars is pretty scarce for a reason. Very few people make the commitment to buy a brand new car then get rid of it in a year unless the car has something wrong with it.

Browsing autotrader I found a few 2011 Lincolns that lost 30% of their value. However a 2011 could be 1 year old, 2 years old, 3 years old, etc.

Fleet vehicles, luxury autos, subcompact economy models, Lincolns and Jaguars all tend to depreciate faster.

Some people sell a car at 1 year old because they realize they need a different type of car. Or they can’t afford the car. It’s not just lemons that are sold quickly.

Yeah, I bought a used Mazda 3 with 11K miles on it that was just over a year old for $12K. (Blue Book at the time was around $15K.) Damn thing runs like a dream and is about to hit 100K miles with absolutely no problems or major repairs (just normal stuff like brakes and spark plugs.) There were plenty of one or two year old cars on the lot. People sell them for a variety of reasons–the thought that a one year old car must be a lemon, frankly, never occurred to me.

Are you using the actual selling price of the Lincolns? A quick look over at edmunds shows that there are rebates for many Lincolns and they are going for around $2000 under MSRP new.

I probably should of been more specific in my request. I meant comparing retail price to retail price and ‘average’ selling price of a model, not a great deal someone found.

I hear the cars lose XX% of their value as soon as you drive them off the lot and XX% in the first 5 years and it never makes comes close with any model I look at when I browse cars for sale. Perhaps I happen to only like cars that don’t depreciate.

The crowd that makes these claims often uses the MSRP as the new price even when a model is selling far below that. The also like to use the retail price for new and trade in price for used. The gap between retail and trade in is definitely an expense but it is not depreciation and not a factor when you are comparing buying new to used (unless you can get your used car at below retail price of course).

Thanks for the link, it was informative. The numbers quoted there are incredible.

Here’s the deal. Yes, once your car drive off the lot, the price *you can sell it to a dealer *goes down quite a bit.

But that doesn’t mean that the price the dealer will sell that car to you goes down that much.

Right now, a new car is likely the best deal. And, drive it until it’s no longer safe.

Depreciation losses? Why would you give a fuck about that, if you’re going to keep the car for years after it’s fully depreciated? Besides, those are paper losses only.

True, if you can get a decent jalopy for $1000 that’s not bad, but is it safe? Cars have really increased in safety and relaibility in the last decade.

3 year old off lease cars are like hens teeth. Damn hard to find. Three years ago NOBODY was leasing cars. The new car market had imploded.

With used car prices escalating the difference between new and used is not what it used to be. A very good friend of mine came to look at cars a couple of weeks ago. A one year old Santa Fe with 30K miles was $2,500 less than the comparable new unit. That was about 12% of the cost of the new car.

You are joking, right?
Do you have any idea of the shit that was turned in under CfC?
I was a service manager during that time, and I got to blow up the engines before sending them to the scrap yard. There was not a single car that we took in that you would say was perfectly good even using the most elastic definition of the word I know of. Those cars were shitboxes.

It used to be feasible to buy a high mileage car, and drop a rebuilt engine into it. This would give you reliable transportation at a low cost. I don’t know if you can do that now-engines are so complex.
I think the beast way is to buy a brand that isn’t popular (Toyotas, Hondas, Nissans-have inflated used car valuations)-and drive it into the ground. Of course, when such a car experiences a major problem (engine, transmission) dump it.

It’s not just lemons that are sold quickly. However, the reason that the price drops so quickly for cars that are still fairly new is the general perception that most people do not sell new cars unless there is something wrong with them. Of course there are exceptions but the idea is to explain the pricing.

Everyone is overlooking the two largest sources of 1 year old used cars, rentals and fleets. Hertz, Avis et al turn their at 12-18 months. Some large corporate fleets do the same.

In 2001 I bought a 97’ Corolla with 27K miles on it for $10K.
Drove it for 9 years with minimal maintenance (tires, brakes, wear&tear items) and then sold it for $3500 with 127K miles on it.
Minus the wear and tear maintenance that worked out to $722/year or $60/month.

I know it’s a dead thread but it was the first thing that came up in a google search and it’s a subject that’s been on my mind.

I think this question has to be asked with explicit assumptions. For example, an average single professional is likely to have the following assumptions:

  1. reliability is required (career progression is far more important than saving a few hundred or a few thousand)
  2. daily driven - only vehicle (implies all-weather, minimal down time for maintenance/repairs)
  3. parts and labor for maintenance/repair will be paid for at a reputable shop when necessary (not performed by the owner)
  4. owner is not mechanically inclined (not a fixer-upper, not a vehicle that the owner has to pay meticulous attention to)

Maybe they would have another assumption or two, but I think this tends to skew the optimum selection toward something newer, perhaps in the 3-5 year old range that may still be under warranty or just out of warranty in order to ensure that the car is mechanically sound and to increase reliability and reduce downtime or need for frequent repair or inspection.

On the other hand, if you’ve got a guy like me with tools, and a lift in my garage.

  1. not dependant on for transportation (multiple vehicles owned). car can undergo long periods of down-time
  2. no taxes paid on purchase (military living in Germany)
  3. mechanically inclined (can do basic repair/maintenance fix-up cars at minimal cost)

This completely changes the dynamic, and I could buy and sell cars at a profit if I were inclined to spend my time doing so. This would lead me toward older higher mileage cars with minor annoyances and easily repairable problems that the owner doesn’t want. My strategy could be to look for significantly discounted vehicles in the 10-15 year old range that are common cars I can find in any junkyard to source parts for next to nothing. Here in Germany, an example 93-02ish BMW 3-series with 120-150k miles (200-280k km), because these cars are ubiquitous.

In the states, I’d be looking for '02 and earlier corollas, '04 and earlier Focuses, accords/civics, etc…

I don’t actively try to make money, but recently sold an '02 Accord I bought just a year ago for $500 more than purchase price. I put 500-700 into it in that time, but that still means I drove a car for a year for nothing more than the cost of gas and insurance)

My current car is a '97 BMW 318i I paid $1,750 for and have dropped in another $300-400 in maintenance on. I expect to sell this car next summer for $2k-$2,500.

Here are some basic and somewhat common sense tenets for anyone:

  • don’t buy new. depreciation doesn’t stop until somewhere after a car is 10 years old on most vehicles. Usually it’s closer to 15. Pick the age that’s the best compromise for you.
  • Get the car everyone isn’t praising or talking about. The popular ones are usually over-hyped and over-valued (lots of imports are examples). These cars retain resale value, and are great purchases for those who are willing to waste money on new cars, but the awesome resale value only makes them more expensive to the bargain hunter. Ironically, imports’ parts usually cost the most to replace.
  • stick to common cars that you can find in junkyards. If the car is too old, too new, too rare, or has a big cult-like following (mustangs, vettes, etc…), you’re not likely to find cheap parts for it in the boneyards. Conversely, the corolla was the best selling car in America for many years. You will find 5-10 in every junkyard you visit. This is really key, because you can save hundreds of dollars on a single part. For example, my best friend once pulled perfectly good 5.0L Ford engine short block out of a junkyard and had a mustang with a blown engine running again for 3 more years for $50 before he sold it! Little body parts, mirrors, interior trim, etc can be had for pocket change instead of paying hundreds for the same thing from a dealership.
  • Always look for your next car. If you’re financially savvy enough to keep a little money on the side, you can pounce on that deal that you’ll only come across once or twice a year. You get a car for a couple thousand less than it’s worth, and can move on from the last one, flip the new purchase, or wait until a better market to sell it.

You don’t have to lose money on cars if you choose not to. There’s a reason there are so many dealerships and used car lots in the world. You probably shouldn’t try flipping cars if you depend on others for mechanical advice, though. That would be a recipe to get burned on some bad deals.

Get the cheapest possible insurance and always be saving money (in a fund) for car repairs. Chances are you won’t get into an accident and then at the end you can just pocket the money. Look up your state’s lowest legal minimum requirements and get that and nothing more.

also, if u want cheap insurance, i just heard on the radio that 4autoinsurancequote.com is running a promotion for first month insurance free. might wanna check them out

In the state I live in the minimum insurance covers $30,000 personal injury per person up to $60,000 per accident, with property damage coverage capped at $25,000. I’d be too nervous to drive with coverage so meager. When was the last time you heard of someone getting sued for $30,000? Hell, you could run into a parked Range Rover and do $50,000 in property damage without breaking a sweat.

Realtors often do that, because they need a new or near-new car for their clients.

I’ve always purchased a car at the end of the model year and paid cash for it. You can save a LOT of money that way.

The Tappet Brothers addressed this issue, it’s all about trade-offs.

I just bought a new pick-up, and I’m going to pay 20 Pizza-Pies worth of money per month. At the other extreme, I could have used the 20 Pizza-Pies worth of money and bought a junker, and drive it into the ground in 3 months. In the first case, I’m eating Top Raman every day, in the second case I’m eating Pizza every day. The down side of the second case is I’ll have to walk home once every three months.