Ditching my albatross - what should I do about an expensive car lease?

[red_pill]

Hi everyone,

When I found the MMM site, I was quasi-looking for a new truck to replace our older SUV - which would be in addition to a lease on a luxury sedan we already have. Try not to hurt your knuckles on my face, okay.   But, disaster averted and new truck not purchased.  Expensive lease remains, and overall our vehicle costs (at $18,000 / year) are one of the biggest drains on our finances. 

I'm hoping some people can give me some good ideas on what I should do on the vehicle front.  What am I not seeing?  We have good cash flow, so this isn't an emergency by any means - but it is an inefficiency that I want to address as I continue to chip away at my consumeristic lifestyle.

Here's the details on our driving:

Vehicle 1:
2011 Hyundai Santa Fe.  103,000 km (64,000 miles).     Est. value = $9,000
Fuel economy:  12.5 L/100 km  (19 mpg)
Average use: 16,000 km / year  (10,000 miles / year) <-should be able to reduce this with a bit of effort.
On extended warranty until March, 2019  (I know, I know - but I can get the $2,000 refunded since we haven't used it yet, if I ask for it at the end of the term.  Most people must forget)

Highest mileage vehicle we've ever own (I know!) and we are trying really hard to resist the "maybe we need something more reliable" thought process, but it's starting to creep into our brains since it started making funny noises this weekend.  Because spending $35,000 or more to avoid a $500 repair bill seems totally logical.  But I am digging the fact that I don't really care if it gets dinged up a little in a parking lot. I keep it super clean which makes it feel new to me. We like having the SUV for longer road trips or school trips, etc. 

Vehicle 2:
2017 Audi A3, 18,000 km (11,000 miles)
On a lease with 34 months remaining.
Fuel economy: 10 L/ 100 km  (23.5 mpg)
Average use: 16,000 km / year  (10,000 miles / year)
This is our daily commuter (20 miles per day roundtrip), but besides being fun as hell to drive, this thing is useless.  Backseat is tiny. Fuel economy sucks.  Very little trunk space.  My wife is cool with getting rid of it. It was my dumb idea in the first place.

Buyout on it would be $36,000 plus $4,000 tax. 
Trade-in at a dealership would be $30,000 plus a tax credit on whatever I bought next for $3,600.  Or I could sell it privately for maybe $36,000.  Either way, I lose about $6,000.   This negative equity will reduce over the next several months, and should be zero by May, 2019.


Other pertinent info:
-My wife and I commute to work together most of the time, but our schedules are a little offset.  One day a week my wife has off and I work.  Once every second week I have a day off that my wife works.  But three days a week we work the same schedule at the same place.  This could change if either of us gets transferred, and wil certainly change in 3 years when she can take her pension.
-Wife will not ride a bike.  I've been toying around with it, but it's a touch far and the roads not the safest. Still, not off the table.
-Transit sucks here.  Really sucks. I'd have to bike-bus-bike.  Not impossible, but not efficient.
-My wife loves the idea of an electric car.  There is currently a $5,000 govt grant to buy a new electric car.  Not sure how long that will be around for.

-We have an au pair who drives the Santa Fe (she pays per km if it's her personal driving, obviously nothing if she's taking little pill somewhere for an activity).  After August, 2019, we won't need child care, and the Santa Fe will sit in the driveway most of the week.


Can anyone think of some good options here?  The ideas I have swirling around are:

- Do nothing.  Enjoy another 3 years of Audi driving with cost certainty, but not be sad when we turn it in, and replace it with a 2018ish electric car at that time.  Plan on replacing the Santa Fe around the same time at 150,000 km (unless our comfort with having a higher mileage vehicle improves and we continue keeping it).  Start saving for both of these acquisitions.

- Bite the bullet, ditch the Audi for an electric car now. Keep the Santa Fe.

- Keep both until next year when we have no child care and then see if we can get down to one vehicle (SUV).  Reassess at that time.

What am I missing? There are holes in my logic and I know I'm not seeing all the possible scenarios. 

Thanks!

[boarder42]

yeah ditch the car now and buy and affordable older used car.  There is nothing wrong with high milege cars my Ford Escape has 250k miles on it and i bought it at 150k

[merula]

I'm seeing a lot of sunk-cost fallacy here. Totally understandable, we're all prone to it at some level, but try to step outside of the past and look at this from the present.

If both cars disappeared tomorrow (stolen, blown up, abducted by aliens), would you replace either of them with the same/similar car? If the answer is no to both, then your answer is to get rid of both. It doesn't matter that you'd "lose" money; the money was lost when you signed the lease, you're only paying it now.

What's missing from your post is what these cars are actually costing you, today. What is your lease payment? Insurance costs?

Second, what are your actual transportation needs? It sounds like (1) commuting, (2) au pair transportation short-term and (3) occasional trips. Is that right?

I would suggest solving (1) with a 2013ish Leaf or similar, (2) by talking to the au pair and seeing if she would buy a car if you would reimburse her for mileage; barring that a similar car to a 2012 Leaf or Honda Fit or something, and (3) by renting a car when needed.

I would bet that if you gamed out the next 3-5 years of costs, all in, including buying/selling costs you come out WAY ahead by biting the bullet and changing out your cars now.

[red_pill]

Sunk cost fallacy indeed.  My reaction to selling the Audi now is “yeah but that will cost me $6,000 and I don’t get anything for it. If I keep it for another year I still pay that $6,000 ($500 a month) but get to drive the car for another year.”  Does that make sense?     

The car is $500/ month lease payment and $180 insurance.
The SUV is paid off but I estimate it depreciates at around $250 a month. Maybe less.  Insurance is also $180 a month (since we have a new driver as an occasional driver).

I like the thought experiment you propose.  I would not buy the Audi again.  I would consider the Santa Fe - it’s depreciation curve is very palatable, it does lots of stuff, and has all the options I need.  I’ve had very few maintenance issues so I know it’s not a lemon but for sure some repairs are coming in the future.

So your proposal is to sell both and replace them both with used electric cars?  And then just renting an suv for the longer trips. Hmmm. I hadn’t thought of that.  I’ll have to price it out. Like you said - the $ difference could be substantial.

[Ecky]

100k miles is what I consider a low mile car. My Honda Insight just rolled past 250k and I feel like it's just getting broken in. It just had a 78mpg tank and it has only ever needed a $90 brake master cylinder and a wheel bearing which was around $40 + $150 in labor to put it in. My girlfriend's Fit delivers 45mpg all day long and you can stuff a full size dresser in the back. It's just north of 200k miles and has never had any maintenance (that I can remember) other than oil changes, tires, a 12v battery and windshield wipers.

The Insight is arguably not the most thrilling vehicle, but the Fit is fun to drive.

I'm not suggesting these two cars specifically, only you know what your exact needs are, but there are a lot of options out there, especially if you can overcome your hedonic adaptation.

[Blackeagle]

Definitely ditch the Audi.  Get something more economical as your main commuter car (either electric or something efficient and gas powered).

As for the Santa Fe, I think that really hinges on what happens after August 2019.  If you could cut back to being a single car household at that point, it would probably make more sense to hang on to the Santa Fe until then than to get another car that you'll only keep a year (no matter how much more efficient it is).  If you'll still need a second vehicle for the foreseeable future, then it might be worth replacing the Santa Fe, but even then if you cut back on number of miles that you put on the second car, it may make sense to stick with the Santa Fe.

[red_pill]

Okay - I think the path forward is pretty clear. 

If I keep the Audi then over the next 35 months I’ll be paying $17,500 in lease payments and driving about 46,000 km burning 10L/100 km which is about $3,500.  Total cost = $21,000.  And I have no car at the end of the 35 months - just an empty driveway.

If I sell the Audi and get a 2015Nissan Leaf, it is also $17,500 plus (about $2,000).  The fuel would be about 1/5 of the gas car, so that will be about $700 for 46,000 km  of driving.  Total cost will be $20,200. But at the end of 3 years I stilll have a car. Plus I should be able to transfer some of the current Santa Fe driving to the electric car, saving additional fuel and maintenance costs.  Should I account for the  $6,000 hit on the sale of the Audi here as well in comparing options? Or just treat it as an already expanded stupid tax?

Is my math right?   

Because if it is then the Audi is good as gone. My wife is all in.  Full disclosure- she wanted an electric last year when we bought this one but I said no, thinking the technology wasn’t mature enough.  Gah!!! I’m an idiot.

So, now researching electric vehicles.  Our normal tendency would be to buy new - get the $5,000 government rebate and whatever battery warranty they are throwing around. But I know that this is probably dumb and will research the used market first. 

Any advice on this?

[boarder42]

buy used.

[red_pill]

Wife is preferring the new option and reminding me (gently) that she wanted an electric car one years ago.

 I asked her if we had bought a 2015 whatever a few years ago would she be wanting to go out and buy a 2018 today because the 2015 would be no longer good enough. She said of course not.   Then why would we not want to go get a 2015 today?  Boom! She conceded my point. Used it is.

I’m concerned about battery life reduction but I’m sure once I research it enough I’ll figure out that it’s not as big of a deal as I’m imagining right now.

[merula]

I wouldn't think of it as "equal cost but you have a car". You're talking about the cost of ownership over a fixed time period, so you should subtract the residual cost of the Leaf at the end of that time. What would that be, $13,000?

So, the second option,"$20,200 plus a car", is really "$20,200 plus a car worth approx $13,000, so $7,200 total cost over 3 years".

What about insurance? If that's part of your lease, then you'll need to add it on to the Leaf cost, but I would think that generally you'll save money because insuring a less expensive car is less expensive.

[red_pill]

I wouldn't think of it as "equal cost but you have a car". You're talking about the cost of ownership over a fixed time period, so you should subtract the residual cost of the Leaf at the end of that time. What would that be, $13,000?

So, the second option,"$20,200 plus a car", is really "$20,200 plus a car worth approx $13,000, so $7,200 total cost over 3 years".

What about insurance? If that's part of your lease, then you'll need to add it on to the Leaf cost, but I would think that generally you'll save money because insuring a less expensive car is less expensive.

Good point.  I got a quote on insurance and was surprised there isn’t much difference. Only $200 less a year. Still, better than nothing, and it was just over the phone so maybe not exact if they had a lower deductible. But for sure cheaper insurance.

[Ecky]

Nissan Leafs (leaves?) don't have active thermal management in the batteries. The 2013+ (I think) had a revised battery chemistry which did not degrade as quickly in heat, but the earlier ones suffered pretty badly from battery degradation.

Most other EVs fare a bit better. I understand there are some Chevy Volt owners with more than 250,000-300,000 miles, with 2010 models, who have seen zero battery degradation. These packs have liquid cooling which is connected to the A/C and heating systems, to keep the batteries in their happy zone. The MiEV is a pretty homely little car, but their batteries are also known to hold up. I expect the Bolt will hold up very well also. Would you consider a plug-in hybrid which can do 99% of your driving on battery, or do you want a full EV?

EDIT: Since you live in Canada, I would expect a lack of thermal management to be less of a problem. It's mostly for cars in very hot climates.

[red_pill]

We were thinking EV over plug in hybrid since 95% of ouur trips would be within range and we have the SUV for anything outside range. The idea was that with a plug in hybrid we would still have the maintenance of a combustion engine which I would love to avoid.  On the other hand, a plug in hybrid would be better if we think that going down to a single vehicle was a possibility. I’ll have to do some research on it.

[boarder42]

We were thinking EV over plug in hybrid since 95% of ouur trips would be within range and we have the SUV for anything outside range. The idea was that with a plug in hybrid we would still have the maintenance of a combustion engine which I would love to avoid.  On the other hand, a plug in hybrid would be better if we think that going down to a single vehicle was a possibility. I’ll have to do some research on it.

PHEVs take considerably less maintenance than ICEs but considerably more than EVs.  my hybrid which doesnt plug in has less brake and tire wear.  as well as longer times between oil changes.  i'd still go EV in your situation ... and i'd go cheap b/c in 10 years we wont be driving and uber and lyft will be picking us up autonomously.

[red_pill]

Agreed.  The “clean disruption” (Tony Seba) is coming. Personal ownership of vehicles - gone.  Car dealerships - gone. Gas stations - gone.  Parking lots - gone. Driveways - gone.  Traffic jams - gone (mostly).  It’s going to be really amazing to see happen.

We are looking at a 2015ish vehicle.  That seems to be the year that ranges were extended a bit, and there’s stil a chunk of battery warranty left.  They all have less range than a 2018, and I wouldn’t qualify for the $5,000 govt incentive, but they are still $15,000 or so less than a new one.  That’s some pretty crazy depreciation for three years.

But I’m still Doing lots of reading on it and learning about EVs so not sure what I’ll come up with at the end. Maybe there’s a better seeet spot that I haven’t considered yet.

Regardless, the selling of the Audi is happening. So that’s a good step.

[boarder42]

Agreed.  The “clean disruption” (Tony Seba) is coming. Personal ownership of vehicles - gone.  Car dealerships - gone. Gas stations - gone.  Parking lots - gone. Driveways - gone.  Traffic jams - gone (mostly).  It’s going to be really amazing to see happen.

We are looking at a 2015ish vehicle.  That seems to be the year that ranges were extended a bit, and there’s stil a chunk of battery warranty left.  They all have less range than a 2018, and I wouldn’t qualify for the $5,000 govt incentive, but they are still $15,000 or so less than a new one.  That’s some pretty crazy depreciation for three years.

But I’m still Doing lots of reading on it and learning about EVs so not sure what I’ll come up with at the end. Maybe there’s a better seeet spot that I haven’t considered yet.

Regardless, the selling of the Audi is happening. So that’s a good step.

cant wait for the badass man cave garages that come out of this.  think of all that extra suburban square footage that can be had with those massive 3 car garages.