Buying a Car? Don’t Buy a New Car

Posted on April 15, 2010
Filed Under Automobiles | Leave a Comment

I remember when my wife and I bought our first new car. We were so excited. Previously our vehicles had been basically junk – a rusted out Chevy pickup, a worn out Plymouth Valiant, and a mid 80′s station wagon that ran poorly and ate starter motors for breakfast. My wife is Chinese and she doesn’t like the idea of paying interest, so we saved up until we had enough money to pay cash for our new car. We made a token effort at looking over newer used cars, but ultimately decided on a brand new 2002 Subaru Outback station wagon. Out the door price was around $26K, or $28K with taxes and licensing. We’ve had it for 9 years, and according to Kelly’s Blue Book the most I could sell it for today is around $8,000. In other words just owning this car has cost us over $2,200 per year, and that doesn’t include higher registration fees, full coverage insurance (about $800 per year), and 2 expensive repairs we’ve had to make. When all the costs are figured in, just owning the car has cost us almost $3,700 per year for 9 years.

By contrast, a year after getting the Subaru we bought a used Toyota Corolla for my wife to drive. We paid $2,500 for the car and had to get a valve job and timing belt for $1,500. Because the car was 10 years old, registration fees for the Corolla were much less than the Subaru. Also it’s a beater so we only carry liability insurance. We’ve had the car for 8 years at an average cost of less than $700 per year. In other words, our Subaru cost us around $3,000 more per year than the Corolla.

New cars simply aren’t a good deal. They depreciate quickly – 20 to 40% just the first year. After that the depreciation slows down somewhat but buying a new car is still a losing proposition. The 2 things a new car has going for it are reliability and the factory warranty. This is not as big a factor as it has been in the past though. Most new cars come with a 5 to 6 year/50K to 100K mile warranty. Since the warranty applies to the car, not the owner, your best bet is to find a low mileage used car that has 2 or 3 years left on the factory warranty. A good chunk of the depreciation on the car will already have occured, and if you maintain it well, chances are you’ll be able to drive it for many trouble-free years.

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