Case Study: Vehicle dilemma

[Alwaysasunnyday]

Topic Title: Reader Case Study - Vehicle Dilemma

Life Situation: Couple in 30's with 1 child on the way

Gross Salary/Wages: $180k


Specific Question(s):


Hey all, 

Ours is a variation of a situation I'm sure lots have asked about before, but I'd like to hear some opinions on our situation...

We recently took my pregnant wife's crappy 2010 Santa Fe  with 175k in to the shop only to be told that it needs $3k in repairs (ball joint, sway bushings, rear breaks) and that it's at the point where it is a safety issue.   There may also be other issues pending that would have to be looked at down the road. The vehicle is also very poor on gas mileage. 

We have a 2003 Toyota 4Runner (275k) as a second vehicle. I bike a fair bit when able, but use this vehicle occasionally  as biking is not always possible.  This vehicle has been a work horse over the years and very reliable up til now.  It's also at the point where depreciation is almost negligible. I suppose we could use this as our lone, primary vehicle moving forward, but as it's 16 years old with tons of miles, probably not ideal. 

I've recently priced out and test driven a new Honda Civic hatchback  (1% interest, $380 per month, 60 month term) which the wife loves.  The thought is that we'd trade in the Santa Fe for $5k which would eliminate any need to sell the vehicle privately "as is" and explain the mechanical issues .   I estimate we'd save about $100 per month on gas going from the Santa Fe to the Civic.  We would plan on keeping the Civic for a long time, and both of us do well financially.

So, given the fact that vehicles are a depreciating asset with the fact that I would like to dump the Santa Fe and provide a new, safe, fuel efficient vehicle for my wife and baby, what are your opinions?  Is this a reasonable purchase?

[AccidentialMustache]

What's the advantage over a quality used car? It'll have better mileage than a 5 year old fit (because its a sedan hatch not a wagon hatch) but the fit should be inexpensive compared to the new one.

There feels like a lot of risk in used car value with the possibility of mass electrification... so why start at >20k rather than 5-7k?

I don't know that you can reliably find a civic hatch in the 5 year old range, but the fit is good back to 10-12 years old. Ours will turn 10 in a month, though we got it new, because when we got it, "used fits" weren't really a thing.

[Tuskalusa]

I’d recommend looking at a variety of quality used cars that will easily fit a car seat and your family. Throwing a rear facing car seat into a Civic is not going to leave a lot of room for much else. Of course it’s doable, but it might not be particularly comfortable. 

A used Camry is a great option for a family with a baby. Plenty of room for a car seat,  good trunk space for a stroller. I would personally prefer a used Camry to a new Civic. Another option is consider would be a Rav4. Lots of room for car seats, and it has the added benefit of being a little higher up.

There’s a lot of convenience in just trading in a car and getting a new one. But a little more research and selling may yield a better result, long-term.

[six-car-habit]

 The new civic hatch 4 doors are Much bigger than any older civic.  Friend of family just bought one, and it's pretty large inside. I don't think backward facing car seat will be any sort of issue.

 Wouldn't worry about mass electrification - you should be buying this with the intention of driving it into the ground - not re-sale value. Only about 5 % or less of the USA sold cars are full electric - There will be gas stations, and liquid fuel new cars sold 20 years from now.

 I do think your $5000 estimate of a 10 year old Hyundai Santa-Fe trade in value is rather optimistic, the ball joint and sway bar bushings not so obvious , but if the rear brakes are metal-on-metal this will be obvious on a short test drive.  MAybe if you pay full MSRP + 2nd sticker + "protection package" + extended warranty + higher rate financing +whatever else the dealer can soak you for [?] - they might offer close to $5K.

 Research the car on Edmunds-dot-com for actual invoice pricing. Offer a few hundred more than invoice with no add-ons [ as mentioned above]
 A normal length manufacturer warranty, gas milage, and probably better crash ratings than the other alternatives listed so far - could well be worth the payment for 'peace of mind' for wife and newborn.  You seem to make decent $ to afford this.  Of course you can tell by my username i am jaded in favor of automobiles.

[kristof]

So, given the fact that vehicles are a depreciating asset with the fact that I would like to dump the Santa Fe and provide a new, safe, fuel efficient vehicle for my wife and baby, what are your opinions?  Is this a reasonable purchase?

Unless you live in a very remote area, you can likely buy one of the cars in MMM's 'Recommended' or 'Above Average' list for under $5k:

https://www.mrmoneymustache.com/2012/03/19/top-10-cars-for-smart-people/

The post makes a pretty good argument that they are all safe and fuel efficient. So then the question boils down to, is having the car also be 'new' worth an extra $17k, or do you and your wife feel you can spend that money more efficiently?

[Bernard]

First,
and I don't try to be mean, but you seem to be a sucker for mechanics.

I live in the Ojai Valley and my dentist is in Long Beach. Going there and back takes half a day of freeway driving, which I hate. I introduced him to friends and friends of friends, and they all now go to him. Why? Because he's fantastic, honest, and charges 35% of what any other dentist charges. I've with him since 1991 and I've saved tens of thousands of dollars because of it.

I'm in the automotive business, and my own mechanic is in Canoga Park. Going there and back takes about 2-1/2 hours. I introduced him to friends and friends of friends, and they all go to him now. Why? Because he's super knowledgeable, helpful, honest, and he charges only 30% of what other mechanics would charge me. I'm with him since 1999 and saved many thousands of dollars because of it.

So there's your solution # 1: find a better mechanic. The repairs needed to your vehicle should cost not more than $1K. There are also many mechanics who moonlight on the weekends. Doing ball joints and brakes are not rocket science. It's a few hours of simple mechanical work, followed by a $75 visit to the alignment place.

Solution # 2 is to sell the clunker as is to the next sucker, and shop for a reliable car in the $3,5K to $5K. There are more of these cars out there than you can possibly imagine. No need to spend silly money at the dealer's.

[blingwrx]

Bernard is correct your getting ripped off if they want 3k for some ball joints, rear brake pads and sway bar bushings, you must be going directly to the dealer. Find a trust worthy 3rd party mechanic, ask around friends or family may have recommendations. My mechanic would do this for $250, It's probably a 5 hr job tops and he charges around $50 an hr. The parts itself are won't be more than $1-200. You can also save a bunch on the parts if you buy some aftermarket parts online for a lot cheaper and then bring it to the shop and they'll install it. Brake pads i'd go with original parts as those sometimes squeak if you buy low quality ones. Find a new mechanic for sure.

As long as you plan to keep it for 10+ years I'm not against getting a new car like most Mustachian's are. It definitely loses a lot of value once its driven off the lot, so you may also consider getting a slightly used one 2-3 yrs old and save up to 7-10k.

Also to consider is your growing family, are you done at 1 or there could be 2 or 3 more kids in your future at that point you would need another new car in less than 10 yrs. So definitely plan ahead and get the car you need now. A civic might be very cramped with 2 car seats and 3 is definitely not doable.

The old cars i'd definitely get rid of them and get something more reliable and safer. New Cars these days all come standard with computer safety features and multiple side impact airbags. Cars 10-20 years ago only come with front air bags and can definately be a money pit and bad on gas. You should want to get a safe and reliable car for your baby.

[JoSo]

Agree with Bernard about finding a good, honest mechanic.  However, considering your income, family situation, and history of running cars until they die, the civic is a very reasonable purchase.  That said, I bought a slightly used Prius V 2 years ago for about half of retail, and I highly recommend it for a family car with good gas mileage.  I drove my last Prius for 9+ years and 250k miles when I unfortunately totaled it.  Best wishes to you on your decision and with your growing family.

[Ben Kurtz]

Is this a reasonable purchase?

No.

You've mentioned your income but not your family's net worth.  Unless you are worth a cool $1 million, don't buy a new car; it's never worth it -- building up your savings and investments is a far more worthwhile use of your earnings when you still have a nest egg to build.  My general rule of thumb is that the value of your automotive fleet (that is, the actual value of all the cars you own, without regard to any financing, which in general you shouldn't have, even if the terms appear attractive) should not be more than 10% of your net worth or $10,000, whichever is less.  I practice what I preach, and then some: I'm worth well north the previously mentioned threshold, and I still don't buy new cars. 

There are a number of classic posts on the main blog about how you shouldn't let fear-based marketing (i.e. talking up the latest safety doodads) sucker you into a purchase that will do serious harm to your finances. Read them.  An eight year old Camry will still have seatbelts, ABS, front airbags, side airbags (which first hit the market over twenty years ago, by the way), and a grab-bag of other safety goodies.  More than enough.   

Also, others have said this and I agree completely: Get a second opinion on what your Santa Fe needs and how much it costs.  Mechanics can have shockingly divergent views on these sorts of questions.  Anecdote:  My state requires that used cars be inspected by a licensed inspector (many mechanics carry this license) when they change hands, even in a private sale.  I was about to buy my latest car privately from somebody I knew, so I brought it to a local shop to have it inspected.  They came up with a dozen alleged points of failure and a several thousand dollar estimate to repair everything.  Some of their points of failure were, shall we say, a touch "aggressive" to my moderately experienced shade-tree-DIY eye.  Accordingly, a few days later I brought the car to a second well-reviewed shop to have it inspected; lo-and-behold, it emerged with two points of failure which cost something like $50 or $100, total, to fix.  It's given me thousand of miles of safe and reliable service since.  So let me repeat myself: get a second opinion and possibly a third opinion on the Santa Fe (if three mechanics all agree on something, I wouldn't push the point further).  I wouldn't be surprised if your repair bill falls by 60% or more and you suddenly don't see the need to replace that car just yet.

TL;DR:  Don't buy the new Civic.  Get a second (and maybe third) opinion on fixing your current Santa Fe.  When the time finally comes to replace a car in your fleet, buy a used, 7-8 year old full sized sedan. 

[Hirondelle]

I know little about cars but I agree with the other posters that buying a new car in your situation makes little sense.

There is one point I don't see discussed though. You mention you could go down to one car. That means you're  not driving much. Which leaves the question, what are your driving needs? What would the car be used for? How often would the baby be in the car, if at all, and would that be with both of you or just with your wife? Where does your wife even need to go with the baby that requires a car (yes, you can transport babies on bicycles, or just walk!!)

I don't know your situation and location so I'm not trying to tell you "You don't even need a car", just questioning your assumption as to how much you will be driving the car with the baby in it.