Savings of Older car vs. New car

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creant
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Savings of Older car vs. New car

Post by creant »

I have an 8-year old car that I can sell for $15,000 now. In 2-years (at 10-years-old), I plan to sell it for $11,000. Thus, this car will cost $2000/year.

Let's say I buy a new car now for $45,000 and sell it after 10-years for $10,000. Thus, this car will cost $3500/year.

For the next 2 years, is it unreasonable to say the new car will only cost $3000 more than the older car? The reason I ask is, the older car will be needing maintenance (timing belt, tires, brakes, plus any unexpected repairs) that will approach $3000. It seems intuitive that keeping the older car should be significantly cheaper, but the savings seem to be negligible in this scenario.

Please poke holes in this logic or agree that the savings in keeping the older car is not as large as one might assume. There are obviously other variables such as insurance, maintenance/repairs, opportunity cost, safety features, etc., although these may somewhat offset. Also, any normalization of the car market will affect both used and new cars in the same direction.

I have no preference for older vs new car. Just want to understand the numbers before making a decision.
backpacker61
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Re: Savings of Older car vs. New car

Post by backpacker61 »

creant wrote: Tue Jan 11, 2022 1:33 pm Please poke holes in this logic or agree that the savings in keeping the older car is not as large as one might assume.
How much will the new car depreciate in the next two years?
Compare that to how much your current vehicle will depreciate over the same two years.

The depreciation for the new car will not be the same number of $$ over each of the next 10 years; it will depreciate the most over the first handful of years, then gradually flatten out.
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies
Hoosier CPA
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Re: Savings of Older car vs. New car

Post by Hoosier CPA »

You'll have sales tax on the new car too.

And who really knows how either will depreciate in the current market?
sphinx2020
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Re: Savings of Older car vs. New car

Post by sphinx2020 »

creant wrote: Tue Jan 11, 2022 1:33 pm I have an 8-year old car that I can sell for $15,000 now. In 2-years (at 10-years-old), I plan to sell it for $11,000. Thus, this car will cost $2000/year.

Let's say I buy a new car now for $45,000 and sell it after 10-years for $10,000. Thus, this car will cost $3500/year.

For the next 2 years, is it unreasonable to say the new car will only cost $3000 more than the older car? The reason I ask is, the older car will be needing maintenance (timing belt, tires, brakes, plus any unexpected repairs) that will approach $3000. It seems intuitive that keeping the older car should be significantly cheaper, but the savings seem to be negligible in this scenario.

Please poke holes in this logic or agree that the savings in keeping the older car is not as large as one might assume. There are obviously other variables such as insurance, maintenance/repairs, opportunity cost, safety features, etc., although these may somewhat offset. Also, any normalization of the car market will affect both used and new cars in the same direction.

I have no preference for older vs new car. Just want to understand the numbers before making a decision.
The new car will also need $3,000 in maintenance at year 8. For an equivalent comparison, the annual cost of the new car should be $3,800.
runningshoes
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Re: Savings of Older car vs. New car

Post by runningshoes »

If the car is valued at $15k in today's used market it could be much less than $11k in 2 years given the current spike in vehicle prices. New car prices will also go down in 2 years, not clear which category will drop faster, but likely new cars drop faster, but at a lower %. In any case, is the used car fully functional and safe and unlikely to strand you in the next 2 years? If the answer is yes, I would wait as choices of new vehicles are somewhat limited and delivery times are measured in months if you don't buy the few vehicles on the lots.
vasaver
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Re: Savings of Older car vs. New car

Post by vasaver »

Here is what I have found :

0-5 - Most expensive years to own a car
5-10 - Cheaper years to own a car
10-15 - Cheapest years to own a car
15+ - roll the dice

If you don't want to keep your current car 10 years...what makes you think you will be able to keep the next one 10 years?
Californiastate
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Re: Savings of Older car vs. New car

Post by Californiastate »

How would you be paying for this new $45k vehicle? Would you be paying cash or getting a loan? Money cost money.
Jags4186
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Re: Savings of Older car vs. New car

Post by Jags4186 »

Why are you considering the cost of the new car over 10 years? You’re only keeping the current one for 8 before convincing yourself it makes sense to upgrade. It’s likely you’ll only keep the next one for 8 years before you convince yourself to do the same.
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lthenderson
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Re: Savings of Older car vs. New car

Post by lthenderson »

creant wrote: Tue Jan 11, 2022 1:33 pm The reason I ask is, the older car will be needing maintenance (timing belt, tires, brakes, plus any unexpected repairs) that will approach $3000.
You are cherry picking probably the most expensive two years of ownership thus far when all those repairs need to be done to the used car. For an accurate comparison, you really need to average all the repairs over the entire life of the car, not just two.
urban
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Re: Savings of Older car vs. New car

Post by urban »

Do not forget much higher cost of insurance for a new car, and transaction cost associated with getting a new car (taxes, registration, "documentation fee", etc.).

Also with your old car there are less worries about some scratches and dings - priceless!
phxjcc
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Re: Savings of Older car vs. New car

Post by phxjcc »

vasaver wrote: Tue Jan 11, 2022 4:58 pm Here is what I have found :

0-5 - Most expensive years to own a car
5-10 - Cheaper years to own a car
10-15 - Cheapest years to own a car
15+ - roll the dice

If you don't want to keep your current car 10 years...what makes you think you will be able to keep the next one 10 years?
This.

Unless it is a truck, then add 5 years.
Kagord
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Re: Savings of Older car vs. New car

Post by Kagord »

creant wrote: Tue Jan 11, 2022 1:33 pm
Let's say I buy a new car now for $45,000 and sell it after 10-years for $10,000. Thus, this car will cost $3500/year.
Let's say you don't buy a new car for $45,000, invest it, and in 10 years it becomes $90,000. So that new car really costs $80,000, taking into account the $10,000 you make when you sell it. Thus, this car will cost $8000/year + the expense to operate it.

But really, you have to take that $45K to your deathbed, let's say that's 50 years, so that new car is really costing you almost 1.5 million dollars, assuming your money doubles every 10 years. So that new car is really costing $150K/year.

I know, by this point, you're all thinking I should write a book, and turn this concept into 300 pages of anecdotal crap.
CletusCaddy
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Re: Savings of Older car vs. New car

Post by CletusCaddy »

Kagord wrote: Tue Jan 11, 2022 8:58 pm
creant wrote: Tue Jan 11, 2022 1:33 pm
Let's say I buy a new car now for $45,000 and sell it after 10-years for $10,000. Thus, this car will cost $3500/year.
Let's say you don't buy a new car for $45,000, invest it, and in 10 years it becomes $90,000. So that new car really costs $80,000, taking into account the $10,000 you make when you sell it. Thus, this car will cost $8000/year + the expense to operate it.

But really, you have to take that $45K to your deathbed, let's say that's 50 years, so that new car is really costing you almost 1.5 million dollars, assuming your money doubles every 10 years. So that new car is really costing $150K/year. I didn't really plan to get all Jack Handey on you when I started typing this response, but here we are.

I know, by this point, you're all thinking I should write a book, and turn this concept into 300 pages of anecdotal crap.
Not if you take out a 2% loan to buy the car, and keep the proceeds in the market. Then your cost is only the interest of $900/yr.

Sorry I burst your book dream.
Topic Author
creant
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Re: Savings of Older car vs. New car

Post by creant »

lthenderson wrote: Tue Jan 11, 2022 5:33 pm You are cherry picking probably the most expensive two years of ownership thus far when all those repairs need to be done to the used car. For an accurate comparison, you really need to average all the repairs over the entire life of the car, not just two.
I think a few insights are:

- The true cost of ownership is not smoothly curvilinear but rather has somewhat predictable spikes, creating an opportunity for arbitrage and partially mitigating the new car penalty.

- The original example has a logical fallacy of comparing a 12-year time period to a 10-year time period, the latter essentially deferring "the last 2 years" problem and not creating any true savings.
mrsmitt
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Re: Savings of Older car vs. New car

Post by mrsmitt »

This is why most of people should not use cash to purchase cars. Take a low or no interest loan or lease it smart.


Kagord wrote: Tue Jan 11, 2022 8:58 pm
creant wrote: Tue Jan 11, 2022 1:33 pm
Let's say I buy a new car now for $45,000 and sell it after 10-years for $10,000. Thus, this car will cost $3500/year.
Let's say you don't buy a new car for $45,000, invest it, and in 10 years it becomes $90,000. So that new car really costs $80,000, taking into account the $10,000 you make when you sell it. Thus, this car will cost $8000/year + the expense to operate it.

But really, you have to take that $45K to your deathbed, let's say that's 50 years, so that new car is really costing you almost 1.5 million dollars, assuming your money doubles every 10 years. So that new car is really costing $150K/year.

I know, by this point, you're all thinking I should write a book, and turn this concept into 300 pages of anecdotal crap.
mrsmitt
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Re: Savings of Older car vs. New car

Post by mrsmitt »

Everyone’s needs and priorities are different. One can be happy driving an older car and spend it save money somewhere else.

The best way to get a best fit for yourself is to model various scenarios. As long as you do not pay cash and account for money value in the models you should be good.
vasaver
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Re: Savings of Older car vs. New car

Post by vasaver »

mrsmitt wrote: Wed Jan 12, 2022 9:31 am This is why most of people should not use cash to purchase cars. Take a low or no interest loan or lease it smart.
I still prefer to write a check vs finance. Somehow writing a 20k check is easier than a 50k check. With loan/lease it is easy to just have a higher monthly payment and not think about the big picture.
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warner25
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Re: Savings of Older car vs. New car

Post by warner25 »

vasaver wrote: Tue Jan 11, 2022 4:58 pm 10-15 - Cheapest years to own a car
Amen. I've owned three cars (all by Toyota) in that range, and they've all been wonderful. The first was a ten year-old Corolla that I purchased through Craigslist for $3,000. I sold it almost four years later for the same $3,000 when I didn't need it anymore. My current car is a 2008 Prius that I've had since it was brand new, and I'm still in love, and it doesn't appear to depreciate anymore.
vasaver wrote: Tue Jan 11, 2022 4:58 pm If you don't want to keep your current car 10 years...what makes you think you will be able to keep the next one 10 years?
Also true. I think about this when people talk about buying things that are high quality so that they will last "forever," maybe to justify the expense. Tastes usually change before things wear out.
creant wrote: Tue Jan 11, 2022 1:33 pm Please poke holes in this logic...
In some of the places where I've registered cars, there can be a difference of several hundred dollars per year between a new car and an older one. Others have already mentioned the same with insurance. Edited to add: $3,000 of maintenance and repairs to keep the old car on the road for another 5-10 years really is much cheaper than $30-45k (depending on whether you want to subtract the sale price of the old car) for a new car. You shouldn't sell the old car in two years, either.
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LilyFleur
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Re: Savings of Older car vs. New car

Post by LilyFleur »

vasaver wrote: Thu Jan 13, 2022 12:54 am
mrsmitt wrote: Wed Jan 12, 2022 9:31 am This is why most of people should not use cash to purchase cars. Take a low or no interest loan or lease it smart.
I still prefer to write a check vs finance. Somehow writing a 20k check is easier than a 50k check. With loan/lease it is easy to just have a higher monthly payment and not think about the big picture.
Last time I bought a car they let me put the downpayment on my credit card (it's a cash back card). I walked in already pre-approved for a loan, then paid it off after I'd had the car about a month or so, I think.
Valuethinker
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Re: Savings of Older car vs. New car

Post by Valuethinker »

creant wrote: Tue Jan 11, 2022 1:33 pm I have an 8-year old car that I can sell for $15,000 now. In 2-years (at 10-years-old), I plan to sell it for $11,000. Thus, this car will cost $2000/year.

Let's say I buy a new car now for $45,000 and sell it after 10-years for $10,000. Thus, this car will cost $3500/year.

For the next 2 years, is it unreasonable to say the new car will only cost $3000 more than the older car? The reason I ask is, the older car will be needing maintenance (timing belt, tires, brakes, plus any unexpected repairs) that will approach $3000. It seems intuitive that keeping the older car should be significantly cheaper, but the savings seem to be negligible in this scenario.

Please poke holes in this logic or agree that the savings in keeping the older car is not as large as one might assume. There are obviously other variables such as insurance, maintenance/repairs, opportunity cost, safety features, etc., although these may somewhat offset. Also, any normalization of the car market will affect both used and new cars in the same direction.

I have no preference for older vs new car. Just want to understand the numbers before making a decision.
Cost is depreciation + maintenance + other additional costs (which might be a negative number eg cheaper insurance v new car)

This is absolutely not the year to buy a new car. World car production is at least 8m units below what is desired. US car inventories are something like the lowest on record (it has been a key way of predicting GDP so it's a very closely monitored number w pretty high quality data). So in the last 40+ years, dealers have never had fewer cars on their lots.

Chip shortages are being rectified so by beg of 2023 hopefully we will be through this period. In the meantime, hang tight on the car you have.

(used car prices have soared as a result of car shortages. However getting say $3k more for a car than you otherwise would have, when a new car costs $50k, is not really a bargain).

BTW we are reaching one of those inflexion points on car obsolescence. Sometime in the next 10-15 years the car market will "tip" decisively away from ICE vehicles. This is already happening in Europe (EVs & PHEVs were something like 20% of UK cars sold in recent months (and post 2030 will be the only legal new cars sold). The Tesla w the 2nd best selling model in the whole country last year (so by value the largest selling)). At that point there will be a lot fewer gas stations around & some jurisdictions (perhaps not in USA) will go so far as to ban ICE cars. The US will no doubt be late to this party, but the invitations are already being sent.
sureshoe
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Re: Savings of Older car vs. New car

Post by sureshoe »

creant wrote: Tue Jan 11, 2022 1:33 pm I have an 8-year old car that I can sell for $15,000 now. In 2-years (at 10-years-old), I plan to sell it for $11,000. Thus, this car will cost $2000/year.

Let's say I buy a new car now for $45,000 and sell it after 10-years for $10,000. Thus, this car will cost $3500/year.

For the next 2 years, is it unreasonable to say the new car will only cost $3000 more than the older car? The reason I ask is, the older car will be needing maintenance (timing belt, tires, brakes, plus any unexpected repairs) that will approach $3000. It seems intuitive that keeping the older car should be significantly cheaper, but the savings seem to be negligible in this scenario.

Please poke holes in this logic or agree that the savings in keeping the older car is not as large as one might assume. There are obviously other variables such as insurance, maintenance/repairs, opportunity cost, safety features, etc., although these may somewhat offset. Also, any normalization of the car market will affect both used and new cars in the same direction.

I have no preference for older vs new car. Just want to understand the numbers before making a decision.
I think you're overthinking this. Of course, this forum is sorta dedicated to overthinking financial matters, see above comments :)

Total Cost of Ownership on a car can be complicated. If you're replacing a 10 year old Camry with a new Viper, the calculations get off. In your case, let's just assume you're replacing the old car with at least a reasonably comparable car to own.

A way to spitball this is to assign a 10% penalty for buying a new car, then take 15% each year. That's your TCO (very rough). Also assign the 10% to your current car. You can look it up specific numbers, but I think it's more specific than you need.

Your current car is worth $15000. You're realistically only spending $2250/year to own.
Your new car is going to take a $4500 hit upon purchase and 15% the next 2 years. (45000*.85*.85) = So that new car costs you roughly $15,738 for the first two years.

I would say the new car costs you roughly $10k more over 2 years to own, so it just becomes a matter of do you want to burn an extra $416ish dollars a month for a better ride.
mrsmitt
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Re: Savings of Older car vs. New car

Post by mrsmitt »

Not sure I am following. Why there are two checks for a different amount?

I never look at just monthly payment to evaluate a deal. Most people who pay cash do not actually look at the bigger picture as they do not account for the capital cost.
vasaver wrote: Thu Jan 13, 2022 12:54 am
mrsmitt wrote: Wed Jan 12, 2022 9:31 am This is why most of people should not use cash to purchase cars. Take a low or no interest loan or lease it smart.
I still prefer to write a check vs finance. Somehow writing a 20k check is easier than a 50k check. With loan/lease it is easy to just have a higher monthly payment and not think about the big picture.
mrsmitt
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Re: Savings of Older car vs. New car

Post by mrsmitt »

There is a major misconception about the first year depression as people refer to depreciation in reference to MSRP. Most people do not pay MSRP in a normal market. This is how people get inflated first year depreciation numbers.

Where did you get a 15% flat depreciation from? It is not that simple. Additionally, you are ignoring capital costs in you calculations.

At the end of the day riding a new car will be more expensive than the old one but not much as you expect, especially if you lease in a smart way and account for all costs. I also find it funny how people compare apples to oranges. New vs old and budget vs luxury are very different options.
sureshoe wrote: Thu Jan 13, 2022 9:01 am
creant wrote: Tue Jan 11, 2022 1:33 pm I have an 8-year old car that I can sell for $15,000 now. In 2-years (at 10-years-old), I plan to sell it for $11,000. Thus, this car will cost $2000/year.

Let's say I buy a new car now for $45,000 and sell it after 10-years for $10,000. Thus, this car will cost $3500/year.

For the next 2 years, is it unreasonable to say the new car will only cost $3000 more than the older car? The reason I ask is, the older car will be needing maintenance (timing belt, tires, brakes, plus any unexpected repairs) that will approach $3000. It seems intuitive that keeping the older car should be significantly cheaper, but the savings seem to be negligible in this scenario.

Please poke holes in this logic or agree that the savings in keeping the older car is not as large as one might assume. There are obviously other variables such as insurance, maintenance/repairs, opportunity cost, safety features, etc., although these may somewhat offset. Also, any normalization of the car market will affect both used and new cars in the same direction.

I have no preference for older vs new car. Just want to understand the numbers before making a decision.
I think you're overthinking this. Of course, this forum is sorta dedicated to overthinking financial matters, see above comments :)

Total Cost of Ownership on a car can be complicated. If you're replacing a 10 year old Camry with a new Viper, the calculations get off. In your case, let's just assume you're replacing the old car with at least a reasonably comparable car to own.

A way to spitball this is to assign a 10% penalty for buying a new car, then take 15% each year. That's your TCO (very rough). Also assign the 10% to your current car. You can look it up specific numbers, but I think it's more specific than you need.

Your current car is worth $15000. You're realistically only spending $2250/year to own.
Your new car is going to take a $4500 hit upon purchase and 15% the next 2 years. (45000*.85*.85) = So that new car costs you roughly $15,738 for the first two years.

I would say the new car costs you roughly $10k more over 2 years to own, so it just becomes a matter of do you want to burn an extra $416ish dollars a month for a better ride.
Onlineid3089
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Re: Savings of Older car vs. New car

Post by Onlineid3089 »

At least in my state, vehicle registration fees are substantially more for vehicles 1-7 years old (1% of purchase list price + a formula based on vehicle weight). It steps down for years 8-9 (.75% of list price + weight cost) and again at 10-11 (.5% of list price + weight cost). At year 12 the base becomes $50/year + weight cost from then on.
Hoosier CPA
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Re: Savings of Older car vs. New car

Post by Hoosier CPA »

mrsmitt wrote: Thu Jan 13, 2022 9:26 am There is a major misconception about the first year depression as people refer to depreciation in reference to MSRP. Most people do not pay MSRP in a normal market. This is how people get inflated first year depreciation numbers.

[/quote]
[/quote]

I always wondered about that. The Japanese companies are always mentioned with not losing as much in year 1, while the Detroit 3 are, but before covid at least, Hondas/Toyotas, etc. sold for fairly close to MSRP while the Detroit models always had big rebates.

If you buy a $25K MSRP CRV for $23K or a $28K MSRP Equinox for $23K, and they are both worth $19K in 12 months, you lost a lot more on the Chevy if the denominator is MSRP instead of actual sales price.
sureshoe
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Re: Savings of Older car vs. New car

Post by sureshoe »

mrsmitt wrote: Thu Jan 13, 2022 9:26 am There is a major misconception about the first year depression as people refer to depreciation in reference to MSRP. Most people do not pay MSRP in a normal market. This is how people get inflated first year depreciation numbers.

Where did you get a 15% flat depreciation from? It is not that simple. Additionally, you are ignoring capital costs in you calculations.

At the end of the day riding a new car will be more expensive than the old one but not much as you expect, especially if you lease in a smart way and account for all costs. I also find it funny how people compare apples to oranges. New vs old and budget vs luxury are very different options.
sureshoe wrote: Thu Jan 13, 2022 9:01 am Total Cost of Ownership on a car can be complicated. If you're replacing a 10 year old Camry with a new Viper, the calculations get off. In your case, let's just assume you're replacing the old car with at least a reasonably comparable car to own.

A way to spitball this is to assign a 10% penalty for buying a new car, then take 15% each year. That's your TCO (very rough). Also assign the 10% to your current car. You can look it up specific numbers, but I think it's more specific than you need.

Your current car is worth $15000. You're realistically only spending $2250/year to own.
Your new car is going to take a $4500 hit upon purchase and 15% the next 2 years. (45000*.85*.85) = So that new car costs you roughly $15,738 for the first two years.

I would say the new car costs you roughly $10k more over 2 years to own, so it just becomes a matter of do you want to burn an extra $416ish dollars a month for a better ride.
See my quote - "total cost of ownership can be complicated". I gave a general heuristic, which reflects realty in most situations. (and may be overly forgiving)

Pick a Camry, people smarter than me (and I presume you), say it costs about $35,000 to buy and has a TCO around $9k first year, $5k second year, etc. That's in the ballpark of 25% the first year, 15% thereafter. A Ford Fusion or F150 does worse.

Again, this is a heuristic - and I specifically wrote, you can't compare buying an old Camry to a new Viper. But if you're trading in an old Highlander for a new Highlander, these numbers get you in the ballpark.

If someone wants to buy a new car, have at it. It's a luxury, and it's fine. But, let's not kid ourselves that somehow l33t leasing skills eliminates the cost of ownership of going from a 2014 to a 2022 model. The entire auto finance and leasing industry is built around making people think they beat the system.

If you have specific numbers you want to share/run, feel free.
sureshoe
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Re: Savings of Older car vs. New car

Post by sureshoe »

Hoosier CPA wrote: Thu Jan 13, 2022 9:37 am
mrsmitt wrote: Thu Jan 13, 2022 9:26 am There is a major misconception about the first year depression as people refer to depreciation in reference to MSRP. Most people do not pay MSRP in a normal market. This is how people get inflated first year depreciation numbers.

I always wondered about that. The Japanese companies are always mentioned with not losing as much in year 1, while the Detroit 3 are, but before covid at least, Hondas/Toyotas, etc. sold for fairly close to MSRP while the Detroit models always had big rebates.

If you buy a $25K MSRP CRV for $23K or a $28K MSRP Equinox for $23K, and they are both worth $19K in 12 months, you lost a lot more on the Chevy if the denominator is MSRP instead of actual sales price.
MSRP doesn't really matter. All cars depreciate relative to their CASH value. Sites that calculate TCO are going to use the cash price - what does it cost to get it out the door before taxes. That's the denomiator.

Effectively, TCO is about cashflow, not suggested retail.
Nowizard
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Re: Savings of Older car vs. New car

Post by Nowizard »

The calculation is confused in the present where used car costs have risen by up to 37% in the past year. There are anecdotal reports of being able to trade used cars for amounts making purchase of a new one essentially a wash when related costs such as sales taxes are discounted.

Tim
sureshoe
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Re: Savings of Older car vs. New car

Post by sureshoe »

Nowizard wrote: Thu Jan 13, 2022 10:04 am The calculation is confused in the present where used car costs have risen by up to 37% in the past year. There are anecdotal reports of being able to trade used cars for amounts making purchase of a new one essentially a wash when related costs such as sales taxes are discounted.
I almost explicitly said "take 2021 out of it". People want to look at the past as persisting in the present, but that's not going to be the case.

The car (like stocks) is worth what it is worth today and will depreciate accordingly. I would also expect (but no crystal ball) that used car prices are going to see a much sharper decline as the new car market catches up. Or, new cars across the board will go up. Nobody is logically going to pay $32k for a used Camry when they can get a new one for $30k. People have only done this last year because that $30k Camry did not exist.
Nowizard
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Re: Savings of Older car vs. New car

Post by Nowizard »

True about there being an unusual market for automobiles currently, but the comment does affect anyone buying now, and there is a definite market for used cars or this circumstance would not exist. It does say that the savings for used vehicle purchase are not typical which is different from whether they do or not exist. The issue is rhetorical for some, pragmatic for those in the market for a purchase.

Tim
mrsmitt
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Re: Savings of Older car vs. New car

Post by mrsmitt »

If you want to talk about specific deals, here is one.

I can lease new Jeep Wrangler 4xe at 60k MSRP. It goes for 9% off MSRP and 7.5k incentive passed to me. I drive the car for a couple of months and sell it to dealer for close to MSRP and pocket the difference (4-9k profit). I hope this is a good enough example:)

90%+ of people do not understand leasing and I most of sales people have no idea how this product works. The same as in 99% of cases it doesn’t make sense to trade in your current car.

Will every car lease well - hard no. You have to compromise on what you get, depending on the market. Prior this crazy market you could get very good deals on BMW loners for example.
sureshoe wrote: Thu Jan 13, 2022 9:49 am
mrsmitt wrote: Thu Jan 13, 2022 9:26 am There is a major misconception about the first year depression as people refer to depreciation in reference to MSRP. Most people do not pay MSRP in a normal market. This is how people get inflated first year depreciation numbers.

Where did you get a 15% flat depreciation from? It is not that simple. Additionally, you are ignoring capital costs in you calculations.

At the end of the day riding a new car will be more expensive than the old one but not much as you expect, especially if you lease in a smart way and account for all costs. I also find it funny how people compare apples to oranges. New vs old and budget vs luxury are very different options.
sureshoe wrote: Thu Jan 13, 2022 9:01 am Total Cost of Ownership on a car can be complicated. If you're replacing a 10 year old Camry with a new Viper, the calculations get off. In your case, let's just assume you're replacing the old car with at least a reasonably comparable car to own.

A way to spitball this is to assign a 10% penalty for buying a new car, then take 15% each year. That's your TCO (very rough). Also assign the 10% to your current car. You can look it up specific numbers, but I think it's more specific than you need.

Your current car is worth $15000. You're realistically only spending $2250/year to own.
Your new car is going to take a $4500 hit upon purchase and 15% the next 2 years. (45000*.85*.85) = So that new car costs you roughly $15,738 for the first two years.

I would say the new car costs you roughly $10k more over 2 years to own, so it just becomes a matter of do you want to burn an extra $416ish dollars a month for a better ride.
See my quote - "total cost of ownership can be complicated". I gave a general heuristic, which reflects realty in most situations. (and may be overly forgiving)

Pick a Camry, people smarter than me (and I presume you), say it costs about $35,000 to buy and has a TCO around $9k first year, $5k second year, etc. That's in the ballpark of 25% the first year, 15% thereafter. A Ford Fusion or F150 does worse.

Again, this is a heuristic - and I specifically wrote, you can't compare buying an old Camry to a new Viper. But if you're trading in an old Highlander for a new Highlander, these numbers get you in the ballpark.

If someone wants to buy a new car, have at it. It's a luxury, and it's fine. But, let's not kid ourselves that somehow l33t leasing skills eliminates the cost of ownership of going from a 2014 to a 2022 model. The entire auto finance and leasing industry is built around making people think they beat the system.

If you have specific numbers you want to share/run, feel free.
smalliebigs
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Re: Savings of Older car vs. New car

Post by smalliebigs »

We have a similar issue. Early 2021 we sold our 2nd vehicle, an SUV, seeing that the prices were high. Recently, it's become an issue where we realize we need a 2nd car again. We have the funds available to buy used, but the prices just aren't very attractive, so in the end we just decided to buy new. It's a bit of a wait, and it was quite a few calls to dealerships around our area to tag a vehicle. But in the end, I think it's a better deal to get new vs. used.

Our current vehicle I leased in Nov 2019 just before things went bad. Lease is due Feb this year. If I were to sell it, I would be ahead of the residual by about $4k, but I'd be facing the same issue again. I just don't think used vehicles are worth it. Given usual circumstances, I would actually just lease another vehicle, but I think in this case, I'll just buy out my lease, instead.
mrsmitt
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Re: Savings of Older car vs. New car

Post by mrsmitt »

Most of the places use MSRP what doesn’t make much a lot of sense. The reason for that I guess is that the cash price is different for everyone + incentives that might change monthly.

sureshoe wrote: Thu Jan 13, 2022 9:53 am
Hoosier CPA wrote: Thu Jan 13, 2022 9:37 am
mrsmitt wrote: Thu Jan 13, 2022 9:26 am There is a major misconception about the first year depression as people refer to depreciation in reference to MSRP. Most people do not pay MSRP in a normal market. This is how people get inflated first year depreciation numbers.

I always wondered about that. The Japanese companies are always mentioned with not losing as much in year 1, while the Detroit 3 are, but before covid at least, Hondas/Toyotas, etc. sold for fairly close to MSRP while the Detroit models always had big rebates.

If you buy a $25K MSRP CRV for $23K or a $28K MSRP Equinox for $23K, and they are both worth $19K in 12 months, you lost a lot more on the Chevy if the denominator is MSRP instead of actual sales price.
MSRP doesn't really matter. All cars depreciate relative to their CASH value. Sites that calculate TCO are going to use the cash price - what does it cost to get it out the door before taxes. That's the denomiator.

Effectively, TCO is about cashflow, not suggested retail.
mrsmitt
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Re: Savings of Older car vs. New car

Post by mrsmitt »

There is a flaw in your logic. There are factory orders that might sell at MSRP or even below MSRP in rare cases and there are cars in dealer lots that are extremely limited = price on used and new available inventory is going up.

People who need car now will pay premium, while people with existing orders will most likely end up with equity. This all goes not without risk as nobody knows what will happen tomorrow.
sureshoe wrote: Thu Jan 13, 2022 11:12 am
Nowizard wrote: Thu Jan 13, 2022 10:04 am The calculation is confused in the present where used car costs have risen by up to 37% in the past year. There are anecdotal reports of being able to trade used cars for amounts making purchase of a new one essentially a wash when related costs such as sales taxes are discounted.
I almost explicitly said "take 2021 out of it". People want to look at the past as persisting in the present, but that's not going to be the case.

The car (like stocks) is worth what it is worth today and will depreciate accordingly. I would also expect (but no crystal ball) that used car prices are going to see a much sharper decline as the new car market catches up. Or, new cars across the board will go up. Nobody is logically going to pay $32k for a used Camry when they can get a new one for $30k. People have only done this last year because that $30k Camry did not exist.
Last edited by mrsmitt on Sat Jan 15, 2022 9:10 pm, edited 1 time in total.
mrsmitt
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Re: Savings of Older car vs. New car

Post by mrsmitt »

Exactly, most of people have no idea about that.

This idea is the key to find a perfect lease deals too.
Lease cost is based on residual that is X% off MSRP, not the sale price. The key is to to find leases with higher Residual and very highly dealer discounts + factory incentives and stack as many offered possible. At the end of the day you just need to pay for the difference between the sales price after all discounts and residual + capital use cost and fees.

Hoosier CPA wrote: Thu Jan 13, 2022 9:37 am
mrsmitt wrote: Thu Jan 13, 2022 9:26 am There is a major misconception about the first year depression as people refer to depreciation in reference to MSRP. Most people do not pay MSRP in a normal market. This is how people get inflated first year depreciation numbers.

[/quote]

I always wondered about that. The Japanese companies are always mentioned with not losing as much in year 1, while the Detroit 3 are, but before covid at least, Hondas/Toyotas, etc. sold for fairly close to MSRP while the Detroit models always had big rebates.

If you buy a $25K MSRP CRV for $23K or a $28K MSRP Equinox for $23K, and they are both worth $19K in 12 months, you lost a lot more on the Chevy if the denominator is MSRP instead of actual sales price.
[/quote]
System1
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Re: Savings of Older car vs. New car

Post by System1 »

I use a "value remaining" calculation to determine cost per month of a given car. Note, I live in the north where they use a lot of salt in the winter, so most cars are quite rusty after 12 years. This starts to affect functionality not just looks.
For my calculation, I assume the car is worth zero at 12 years old and 200,000 miles. I also disregard repairs as I assume they are similar for most cars. Then I determine an average miles per month driven based on my personal experience=1389 (it happens to also get to 200k after 12 years, which is a coincidence. Also, this amount varies drastically for different people and as you will see significantly affects the value calc). I then take 3 pieces of data from a prospective car, price, year and mileage and enter them into these two formulas:
[Miles based monthly cost] = [price]/((200,000-[mileage])/1389)
[Age based monthly cost] = [price]/([year]-2010/12)

Then I typically average these two values as I don't know which will play more over the life of the car.

Besides the obvious of luxury cars costing more than economy cars, I have learned two interesting things from doing this analysis over the years. One is that a car's depreciation is very stable based on these metrics. Outliers tend to have salvage titles or other "black marks." The other is a realization that pricing for cars (before 2021 at least) was very stable because everybody set prices on the KBB, which then reinforced the accuracy of KBB, which uses a similar formula to the one I generated. Also, I have generally observed that most cars on the market have a higher than average amount of miles per month driven. I would assume this is because, if you don't drive many miles per month, you are likely to keep your car longer and it therefore won't be in the market as often over it's lifetime.

In summary, if you drive a lot of miles, you'll find the best value in getting an older car with low miles, because you'll bring those two values back into line over time. If you drive fewer miles, your best bet is a newer car with above average miles. The further away from the average moles per month you are the more you can leverage the discrepancy.

Also, I have noticed that the private party sales have mostly gone away due to convenience. People don't want to buy private party without a substantial discount, so there are less on the market. This has really affected the low end of the scale because dealers always mark up a car a fixedish amount, not a margin percentage. For example they might try to make $3k on a $4k vehicle and $4k on a $20k vehicle. This is where the above formula can show the bad value of the cheap cars.

The main thing that has kept me away from buying new is the high monthly payment. I can get a 5 year low interest loan on a 5 year old car, but I can't get a 10 year loan on a new car. So the new car payment affects cash flow, specifically savings for the first 5 years. You don't fully make that up in the 2nd 5 years due to the interest delta (unless the market crashes during this time).
Also, my formula doesn't take into account the other costs of owning a more expensive vehicle that others have mentioned, taxes, insurance, etc.
JDave
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Re: Savings of Older car vs. New car

Post by JDave »

When people pose questions regarding buying a new car, it's usually because they want to justify the expense of buying a new car.
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Re: Savings of Older car vs. New car

Post by Jack FFR1846 »

I did some pretty good calculations when I was in a job with a car allowance, but also strict car requirements. The biggest being that the car had to be from the last 5 model years. The biggest 3 expenses in near equal amounts were depreciation, gas and insurance. Calculating in maintenance made near zero effect. As the car gets older, depreciation goes down, insurance goes down and maintenance starts coming up, but it takes quite a while and quite a few miles for the maintenance to become significant and when it does, insurance and depreciation have dropped out. If you go to liability insurance only, it's cheaper than oil changes for the year (for me).

Also important is how maintenance is done. If you pay for every single thing done to the car then sure, you're going to pay way more. Personally, I'm a DIY guy so a ton of cost is cut in half because I'm only paying for parts.

When my older son was getting his permit, I wanted to be sure that he was able to drive a proper manual transmission, so I bought a 20 year old Honda CRX. We have a long driveway with a hill, so he was able to drive up and down and learn to shift, learn to start on a hill. Great car that we should have kept but he wanted a more "cool" car so it got sold after a year for exactly what I paid for it. I wish I kept it. I'd be driving it still myself. Perhaps with a Lego swap of a JDM B16 VTEC using some Hasport mounts.

When you get right down to it, a car CAN go forever. It simply matters what you're willing to do or pay for to keep it going and in good condition. Think of the 60's Corvettes and Mustangs that are being restored from barn condition junks. It can be done. It's just time and money.
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Re: Savings of Older car vs. New car

Post by sureshoe »

mrsmitt wrote: Fri Jan 14, 2022 8:57 pm I can lease new Jeep Wrangler 4xe at 60k MSRP. It goes for 9% off MSRP and 7.5k incentive passed to me. I drive the car for a couple of months and sell it to dealer for close to MSRP and pocket the difference (4-9k profit). I hope this is a good enough example:)

90%+ of people do not understand leasing and I most of sales people have no idea how this product works. The same as in 99% of cases it doesn’t make sense to trade in your current car.

Will every car lease well - hard no. You have to compromise on what you get, depending on the market. Prior this crazy market you could get very good deals on BMW loners for example.
The example isn't complete, you need to show the residual, the downpayment, the regular payments, etc. Then, you need to compare that directly to buying a Jeep directly. And, it needs to all be accurate as of January 2022. There should be links to this profitable Jeep lease alongside retail. One definite fact : every time a car changes hands, money is lost in the mix - whether that's the government or the dealership. A consumer thinking those things are happening in their favor sounds a lot like a gambler saying, "Most people don't understand winning at roulette."

Think about your logic. Why would a dealership lease a car when they could just sell it for $4-$9k more? Sure, there are cases where you can do better leasing than buying, but those are few and far between with websites dedicated to sniffing those out. The idea that somehow you're going to flip a 10% profit off a depreciating asset simply doesn't make sense (or those leasing sites would be going gonzo for them).

The market is weird right now, and there are certainly some people reselling cars for a profit that they bought 1-2 years ago, but that's an anomaly.
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Re: Savings of Older car vs. New car

Post by Sandtrap »

If you buy a new Toyota Camry and drive it for 300,000 miles ………..

VS

If you buy a new Chrysler something and keep it running for 300,000 miles………

So it also depends on the car.
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