What car to buy? [solved]

[RWD]

Updated with 4.2% registration tax assumption removed:

#1: $1470/year
#2: $1470/year
#3: $1410/year
#4: $1430/year
#5: $1630/year
#6: $1870/year

What is it if you remove the financing assumption?

#1-4 are the same
#5: $1580/year
#6: $1760/year

[alsoknownasDean]

Thanks :)

So on a longer term numbers basis, 3 and 4 are roughly similar, good to know. Does that include opportunity cost?

So spending the extra $5000 between 3 and 4 would get me from roughly 2009-11 to 2013-15 (maybe 2016). That'll generally mean a whole generation of safety and economy improvements too. Probably worth it. It's also more likely to have Bluetooth built in so I probably won't need to pop in a new headunit (although Android Auto would be nice).

Here's an example of a few #4 options:

https://www.carsales.com.au/cars/details/2016-kia-cerato-s-auto-my16/OAG-AD-18938726/?Cr=6
https://www.carsales.com.au/cars/details/2014-hyundai-i30-se-auto-my14/OAG-AD-18923900/?Cr=3
https://www.carsales.com.au/cars/details/2014-hyundai-i30-trophy-auto-my14/SSE-AD-6697069/?Cr=2
https://www.carsales.com.au/cars/details/2014-mazda-3-neo-bm-series-auto/SSE-AD-6095451/?Cr=0

The Kia has all the hallmarks of ex-fleet or ex-rental, but the price is right, and it still has warranty left (7 year warranty on Kias).

But the newer more expensive vehicles have Android Auto built in and lower kms. $16-17K for a vehicle that's 2 years old that retails at about $25K new isn't such a bad deal either. Probably also ex-fleet or ex-rental though.

https://www.carsales.com.au/cars/details/2017-hyundai-i30-active-auto-my18/OAG-AD-18827230/?Cr=1
https://www.carsales.com.au/cars/details/2018-hyundai-i30-active-auto-my18/OAG-AD-18937645/?Cr=0

By the way, the reason why it's got 2017 and 2018 and both MY18 is that the dates of cars here generally go off the compliance plate and/or build plate rather than manufacturer-defined model years. A car built and sold in 2019 is hence a 2019 vehicle even if the manufacturer calls it a 2020 model (hence the MY specification on these).

Would it be so bad to put in $7k cash and finance the remainder over three years? I've had 'car loan bad' drilled into me so it'd be a bit of a leap. Although $10k over 3 years is maybe $300 a month. No big deal.

[RWD]

Thanks :)

So on a longer term numbers basis, 3 and 4 are roughly similar, good to know. Does that include opportunity cost?

No problem. Those numbers do not include opportunity cost. It would depend the rate of return assumption and how far forward looking you wanted.

Would it be so bad to put in $7k cash and finance the remainder over three years? I've had 'car loan bad' drilled into me so it'd be a bit of a leap. Although $10k over 3 years is maybe $300 a month. No big deal.

Don't look at the monthly payment, that's just a delayed transfer of wealth from cash to vehicle equity. Look at what it costs in interest. A $10k loan at 7% for 36 months will cost you $1,116 in interest over the life of the loan. Or $70/year over 16 years if you prefer looking at it that way. This is offset some by opportunity cost (taking a loan means you can have more money invested initially).

Assuming financing amounts over $7k at 7% for 36 months:
#1: $1470/year
#2: $1470/year
#3: $1410/year
#4: $1470/year
#5: $1650/year
#6: $1870/year

There are a ton of assumptions that go into opportunity cost. Keep in mind that it isn't a direct cost of ownership (you don't have to shell out this money). It's money you could have had by investing and you won't know the exact amount until after the period is over. Let's assume 9.1% returns (average return of 70/30 portfolio) over 10 years and re-buying a similar cost vehicle periodically to extrapolate where necessary.
#1: $5,080
#2: $7,900
#3: $11,190
#4: $16,850
#5: $23,410
#6: $33,870

Note that the length of compounding and assumed rate of return has a huge effect on these numbers. If, for example, you use a conservative 5.5% rate of return instead of 9.1% you can roughly halve all the numbers above.

[RWD]

I should mention that the opportunity costs calculated in the previous post are not directly comparable to the other expenses because they are compounded. Though with a little math trickery we can translate them into annual fixed costs.

Imagine you got a loan for the vehicle purchase price that was interest only. The opportunity cost then would be zero. So if we pretend you loan yourself the money from your investment account and make interest payments to prevent compounding the opportunity costs would look like this (9.1% assumed):
#1: $220/year
#2: $360/year
#3: $640/year
#4: $1090/year
#5: $1550/year
#6: $2280/year

Adding these to the expenses (without financing) from before and you get the following annual cost of ownership:
#1: $1690/year
#2: $1830/year
#3: $2050/year
#4: $2520/year
#5: $3130/year
#6: $4040/year

Again, depending on your assumed rate of return this can vary a lot, but at least it won't be amplified by compounding.

[alsoknownasDean]

I'm still under a COVID-lockdown until mid-September, so this purchase hasn't happened yet, but I've pretty much decided that it'll be option #3, or maybe a #4 vehicle if a smoking deal comes up.

Why not a #5 or #6? Simply because of my current financial circumstances. If I buy one of those with cash, that burns up all/almost all of my remaining savings (I depleted most of them earlier in the year for a downpayment), and I'd rather keep an e-fund and start to build some investments for now. I'd rather not bother with a loan.

Why not 2? I've got enough that I don't need to go too cheap, and if I want a stop-gap, I've got one sitting in the driveway now, all I need to do is top off the antifreeze every week or so.

In three years or so I'll probably want to change up, and then buy a 2-3 year old vehicle. If I buy something like a 2008 Civic now, it'll probably still have some value left in 3 years.

Still considering sorting out the waterpump and timing belt on my current car, even if it's $200 wasted. What better way to learn?

[alsoknownasDean]

And now the car is having intermittent issues changing into second. Possibly synchros are on the way out. That rules out doing the waterpump.

I've done a quick model of estimated purchase prices for a particular model car by age and percentage of what a new version costs. It's surprisingly accurate.

My modelling indicates a 15% per annum depreciation rate for the first three years, followed by linear depreciation from the 4th-15th year, when it reached a value of $2500 at age 15. It might be a little high for vehicles at age 9-10 (and 13-14), but it's surprisingly close.

Used cars are roughly 25% more expensive now than the beginning of the year.

https://www.smh.com.au/politics/federal/used-car-prices-surge-at-record-rates-as-public-transport-shunned-20200915-p55vu7.html#comments

https://datiuminsights.com.au/weekly-market-update-05th-october-2020/

The real issue for me is wondering when prices will start to fall. If there's a whole lot of new cars on the way from Japan/Korea/Thailand (those three countries supply about 70% of new cars sold here), perhaps there's a price drop in 2021?

So then it's a case of 'buy sooner and deal with the higher prices' or 'wait and see if prices come down'. It's complicated by car companies using it as an excuse to increase prices of their new models.

We've still got another two weeks or so of COVID lockdowns. I've yesterday filled up for the third time since the beginning of July, and each time I still had around a quarter of a tank or so left. After that's lifted, I'll resume looking around at caryards (they're closed).

I've found a couple of '$3000 minimum trade-in' offers on newer vehicles. Might be worth a look, although I'm sure there's a whole lot of strings attached.

Mostly looking at the first generation Hyundai i30, CJ Mitsubishi Lancer, 8th gen Civic or maybe a Mk5 Golf for 3, second generation Hyundai i30 or 2016 era Kia Cerato for 4 and the third gen Hyundai i30 for 5. Notable other options are the Skoda Octavia, 2014 onwards Mazda 2 (or 2014- Mazda3 but expensive), and I'll admit that I have considered a new or near new VW Polo, or newish Suzuki Swift.

It's more about getting the best value rather than just 'here's $x, pick the best car'. Honestly if I can find a 2018 Hyundai i30 Active with a leather steering wheel for $16K I'd probably just get it (closer to 18-19k now). The higher end versions have independent rear suspension, nicer seats and the 1.6T engine, but they are also thousands more expensive, while the Go and Active were the fleet specs so there's lots of 2-3 year old examples on the used market.

[alsoknownasDean]

I know that the smartest choice in the current market where older used cars are overpriced is probably to buy the tidy two or three year old ex-fleet car with 50,000km and a decent service history for about 65-70% of new RRP. At least then any amount overpaid can be amortized over a longer period of ownership, and I don't have to spend extra fitting a new stereo with Android Auto as it'd include it already.

The real issue all along really is that I'm reluctant to spend five figures on a car when I don't yet have six or seven figures in investments.

[deborah]

The budget will be out before you come out of lockdown, and perhaps it will give an indication of which way you should go.

[norajean]

Here are some more to consider -

https://www.carsales.com.au/cars/details/2006-subaru-outback-r-3gen-auto-awd-my06/SSE-AD-6843849/?Cr=8
https://www.carsales.com.au/cars/details/2009-subaru-outback-3gen-auto-awd-my09/OAG-AD-19037450/?Cr=2
https://www.carsales.com.au/cars/details/2006-subaru-liberty-premium-pack-4gen-auto-awd-my07/SSE-AD-6827943/?Cr=29

As you can see, I am partial to Subarus.  I had one in Australia and it was perfect for hauling, trips, fuel economy, etc.  Extremely durable and reliable.  The last one looks particularly good to me.

[alsoknownasDean]

Here are some more to consider -

https://www.carsales.com.au/cars/details/2006-subaru-outback-r-3gen-auto-awd-my06/SSE-AD-6843849/?Cr=8
https://www.carsales.com.au/cars/details/2009-subaru-outback-3gen-auto-awd-my09/OAG-AD-19037450/?Cr=2
https://www.carsales.com.au/cars/details/2006-subaru-liberty-premium-pack-4gen-auto-awd-my07/SSE-AD-6827943/?Cr=29

As you can see, I am partial to Subarus.  I had one in Australia and it was perfect for hauling, trips, fuel economy, etc.  Extremely durable and reliable.  The last one looks particularly good to me.

Yeah they're a little bigger than I'm after, but I am open to an Impreza at the right price. My dad has a Forester and it's been reliable. But I don't need all wheel drive, and don't really like SUVs.

[Syonyk]

And now the car is having intermittent issues changing into second. Possibly synchros are on the way out.

Double clutching is a thing! :)

If you've got an outlet, look into a Volt.  Operating costs on them are quite a bit lower than the vehicles you've listed, and having gone from a Mazda 3 to a 1st gen Volt, they're similar sized.

[alsoknownasDean]

And now the car is having intermittent issues changing into second. Possibly synchros are on the way out.

Double clutching is a thing! :)

If you've got an outlet, look into a Volt.  Operating costs on them are quite a bit lower than the vehicles you've listed, and having gone from a Mazda 3 to a 1st gen Volt, they're similar sized.

Yeah sometimes it still wouldn't go into gear unless I let off the clutch a bit and let it grind a bit while pushing it into gear. Although when I drove yesterday it seemed to be just fine.

Volts are very rare here, and with GM exiting the market, parts/support is a question mark. EVs are still not all that common, no $7500 tax credit available here so adoption has been slow.

I'm open to hybrids but they're generally expensive. A 2010 Prius is currently over $10,000 unless it's an ex-taxi with half a million kilometres.

This is interesting but it's a) a bit expensive for a six year old car and b) a grey import.

https://www.carsales.com.au/cars/details/2014-toyota-corolla-fielder-auto/SSE-AD-6621795/?Cr=1

[Syonyk]

Two things: Check your transmission fluid level (a synchro getting weird is often a sign of low levels), and consider a high mileage transmission fluid.  IIRC Redline has some stuff that's intended to be "grippier" for synchros and helps with ones that are starting to get a bit weak like yours.

[alsoknownasDean]

Two things: Check your transmission fluid level (a synchro getting weird is often a sign of low levels), and consider a high mileage transmission fluid.  IIRC Redline has some stuff that's intended to be "grippier" for synchros and helps with ones that are starting to get a bit weak like yours.

I'll have to look and see how to check the fluid. I don't think the manual transmission has a dipstick. The auto parts stores are closed for another couple of weeks so if I do need to top up I'll have to order online and wait for delivery.

The other issue with all the car stuff is going too far down the 'a few grand extra gets this' rabbit hole.

[alsoknownasDean]

Little update on this one.

A few weeks ago the dealers reopened after the COVID lockdown, so I went to have a look around. I quite liked the Suzuki Swift and Kia Rio, and a 2019 Swift was about $16-17K. I sat in an i30 and felt like my head was too close to the roof.

However, I've recently been offered my grandfather's car. It's in excellent condition, has about 120,000km, and dealer serviced since new. It's slightly newer than my car (it's a 2004 Ford Falcon), but it's larger and heavier on fuel than I really need. Then again, it's in far better condition than my current car, has the auto transmission and cruise control that I was after, and another $15 per week on fuel is quite a bit less than a car payment.