I have very few tangible assets that I can reach out and touch. My car makes up the majority of my “touchy-feely” net worth. If I were to add up the present value of everything I own excluding investments and business assets, the total comes to maybe $5,000 on a good day.
With the exception of my car, almost every tangible asset I own is a depreciating asset. True story – my car has gone up in value as I pushed its mileage over 115,000 from 2009 to today.
Even a high speed chase with
Rent-A-Cops campus security couldn’t devalue my car – you guys are just lucky that most 20-somethings actually do spend a lot of time caring for their cars to resell. Also, you’re lucky that you won’t have to risk buying a car that used to be mine – I park on a busy street, and people love to make offers on my cars by slamming into them.
You just can’t keep my used car from going up in value. It’s awesome! Every time I add a year and another 1,000 miles to it, it gains value.
But let’s really look at the true price of used cars vs. new cars because I think anyone who hasn’t shopped for a used car lately will have their mind blown. My experience isn’t just anecdotal.
Quantifying this Used Car Nonsense
We’ll begin with the Toyota Camry. A new 2012 Camry starts at $23,000, which is the model you’re most likely to find for sale as a used car. Program and lease cars are almost always on the lower-end of the spectrum for any given model.
So what’s a used Camry cost? Well, for starters, about $19,000 for a 2009 Camry with 50-52,000 miles. Most leases and program cars have a mileage cap, so when you see a 2-3 year old car with 50-52k miles know that it was likely a lease to one or many people, or it was a rental car. Basically, know that it was leased by someone who has no incentive to keep it in good shape for the next owner. That should give you peace of mind.
Anyway, the point is that you can buy a new Camry for $23,000. Or you can pay $19,000 for a 2 year old Camry with 50,000 miles. This essentially prices a mile at 8 cents of depreciation on a car. Not just any mile, though – the very first miles where you can expect ZERO maintenance.
How about another make and model? Let’s go with the lower-end Ford Focus. In my local area, we’re looking at a price of $16,000 for the same kind of off-lease car with 40,000 miles with the exception of age – it’s a 2011. Using the Ford site to build the exact same Focus brand freaking new, I come up with a total price of $19,100. So, for the option to let some other lunatic drive your car for 40,000 miles, you save a whopping $3,100.
Seriously, Don’t Buy Used
The truth is that if you cannot afford to buy a new car, you cannot afford to buy a used car. Plain and simple, really – since $3,100 in the case of the Focus or $4,000 in the case of the Camry isn’t going to suddenly make your budget work perfectly.
And, more importantly, you shouldn’t give up 40-50,000 miles of perfectly good driving (the best you’ll ever get out of a car) just to save $4,000. That’s crazy talk. You let someone else use your future ride for the period of time in which one would expect ZERO major repairs. Hell, they probably didn’t even put new tires on it.
Personal finance rules like those that say you should always buy cars 2-3 years used are from the old days – the days when we didn’t have shortages of cars. Those were the days when anyone could qualify for any type of financing they wanted in any amount because their home equity was going to make them rich.
Those were the days when we had nearly full employment. Those were the days when we could have never, ever anticipated something like Cash for Clunkers, a government boondoggle that took 690,114 inexpensive cars off American roads.
Where supply meets demand, we have equilibrium. Car supplies are ridiculously low, and demand is ridiculously high. Between car shortages that are both artificial (Cash for Clunkers) and real (Japanese earthquake and parts shortages), there just aren’t that many cars available for sale. And EVERYONE is looking for the inexpensive 2-4 year old car selling for +/- $10,000. That unicorn is dead; you can’t find it.
Do Your Homework
I used Yahoo Autos to find a used car and then found the manufacturers’ site to build a new car to the same specifications. I’d encourage you to do the same – pick any model you want and I will be absolutely flabbergasted if you manage to find a 2-3 year old car with ~50,000 miles that sells for a discount greater than 30% of the current new price for the exact same model. I really don’t think you’ll be able to do it, unless the model you pick is a POS whether you buy used or new.
Of course, all the numbers I used were pre-tax. But, even in a worst case scenario where you pay 10% state sales tax, the total difference between new and used is $4,400 for the Camry, and $3,410 for the Focus – pennies relative to the miles you save. But as Sandy from Yes I Am Cheap pointed out, the cost of debt service on a new car is considerably cheaper than a used car. Well-capitalized buyers can expect 0% interest for 5 years on a new car. Meanwhile, rates on a used car are 4.37% for 48 months, according to BankRate.com.
Anyway, the point is that buying a used car is a terrible mistake, one that could be avoided if you do some real comparison shopping. Used car to used car is not a good comparison; do a used car to new car analysis to really see what your ride is going to cost you.