Sell new car and buy old one?

[Cmdm]

I might have posted this in the wrong place (case studies) so hopefully this is the correct spot--

In October of 2018 I made the stupid decision of purchasing a new VW Tiguan at a little over $27k out the door.  I owe $11,500 and my payment is $266 for the next 44 months.  When I purchased it my wife was commuting and doing drop off/pick up so we wanted her to have a solid car for the Pacific NW winters, but her job recently changed and she is now working from home.  We have considered going to one car, but ultimately do want two vehicles in case her situation changes again or she needs to get places while I am at work. I have found a 2009 Honda Pilot EX-L (we want a 3 row SUV if we are going to have a second vehicle) that has a solid carfax and appears to be in very good condition for $9,500 (127k miles).  It looks like I can get $21,000 for the Tiguan.  The math works out well and I would have no payment and what appears to be a good solid vehicle.  However, I am losing a good $6k from what I bought the VW at.  I have only recently gotten into the FIRE community and am scared of making yet another poor choice.  Is giving up a perfect VW and taking the loss worth is for a much older car?  At the same time why should we be paying $266 a month for a car we hardly need?  Any advice will be greatly appreciated.

[chemistk]

If you're even remotely comfortable selling the VW.....sell the VW! Do not think of it as a loss. It's hard not to, since humans are predisposed to be loss-averse, but thinking that you should just keep the VW is buying right into the Sunk Cost Fallacy.

As I'm sure you're aware, you took a bath on its value the second you drove it off the lot. You're still on the bad end of the depreciation curve, and it's only going to get worse as you put more time and miles into the vehicle. I'll assume you are still well under the initial full-coverage warranty period - that's the best time to sell, since used cars with a healthy amount of warranty fetch far more than those without. All these reasons (and more) suggest you really should sell it now because your return is never going to be higher than today.

The Pilot is a fine price, and a good vehicle. You'll want to take it to a shop that specializes in Hondas before you buy it and verify that the Timing Belt replacement was performed at ~100k miles. The Honda V6 used in the Pilot (and a load of other models) needs to have the belt and related components replaced at 100k miles; if the replacement isn't done, the engine is at serious risk of permanent damage. The belt replacement costs in the neighborhood of $1500 to $2000 depending on the shop performing the work. Definitely something to keep in mind if you were to buy it.

But even before you buy it, since you're here asking on these forums, do you really NEED to have a 3-row SUV?

[RWD]

Don't think about how much you've already lost. All you can control is your current situation. Are your current vehicle and financial needs best met with the VW or with a replacement? Run actual cost analysis and think about what you're giving up/gaining by switching and whether it's worth it.

The cost of a vehicle is not so straightforward as the $9.5k vehicle is cheaper than the $21k vehicle. Or that no payment is better than having a payment. It looks like you have a ~0.9% interest loan which is an excellent deal, so the debt is not inherently a problem with your current vehicle (unless you are struggling with cash flow).

What to consider with a cost analysis comparison:
Opportunity cost: make a spreadsheet modeling the initial equity tied up in the vehicles and how it will grow over time with the payments as a contribution on the VW side
Interest cost: minimal in your case
Sales tax: consider that an older replacement vehicle may need to be replaced again sooner and you could pay sales tax twice over a given time frame
Registration: cheaper vehicles cost less for registration, usually
Insurance cost: you can probably get a personalized estimate if you log in online to your insurance website or give your agent a call
Fuel cost: The 2018 Tiguan is about 3 cents per mile cheaper than a 2009 Pilot
Maintenance/repair cost: older vehicles typically cost more to keep running
Depreciation cost: good estimate is 1% of the value per month

I agree with @chemistk , you should definitely consider whether you need a 3-row SUV. If you want to save money something smaller and more efficient would be much better.

[neo von retorch]

In case you missed my reply before...

The $6k loss already exists whether or not you "realize" it.

Here's how I picture your situation.
10/2018
Debt: $27,000
Asset: Car = $27,000

11/2018
Debt: $27,000
Asset: Car = $24,000 (probably)

1/2020
Debt: $11,500
Asset: Car = $21,500
Net worth: $10,000

(If you buy Honda)
2/2020
Debt: $0
Asset: Car = $9500
Cash: $500
Net worth: $10,000

Overall the $266 payment is largely irrelevant unless you're living paycheck to paycheck (does not sound like, great!)

So the bigger question is how much of that payment is interest, how much more the Tiguan will depreciate between now and when you finally sell it, if it costs more to insure, fuel or maintain. Overall a lot of variables there. Compared to the Pilot, you'll certainly realize more depreciation with the Tiguan. For now, probably less maintenance, though in my experience VW end up being much more expensive to maintain later in life. You'll also lose a bit in transaction costs making the switch.

I don't think there's a 100% guaranteed right answer here, but just given what I know of Honda and VW, you'll probably easily get 100k with minimal maintenance out of the Honda, with options to greatly reduce your insurance once the value of the Honda falls within your comfort zone for self-insuring. If you hang onto the VW, you might start having problems once it hits high mileage, and the depreciation realized at that point will be pretty high.

[Cmdm]

Thank you so much for the advice. I ended up biting the bullet. I got the Honda for a great deal at $8400. The pre-purchase inspection indicates just under $1900 in repairs/replacements BUT the vehicle came with a transferable warranty with 23k miles or 18months left, whatever comes first. Most of the repairs needed are covered for a $100 deductible. Even with the repairs the mechanic thought it was a solid vehicle. Aesthetically looked great too.  Unfortunately I’m only going to get only $19,500 on the Tiguan but I feel like I took a brave step towards FIRE. I’ve always only gotten new cars based purely on fear the car will come with two many problems. The sky’s the limit!

[chemistk]

Thank you so much for the advice. I ended up biting the bullet. I got the Honda for a great deal at $8400. The pre-purchase inspection indicates just under $1900 in repairs/replacements BUT the vehicle came with a transferable warranty with 23k miles or 18months left, whatever comes first. Most of the repairs needed are covered for a $100 deductible. Even with the repairs the mechanic thought it was a solid vehicle. Aesthetically looked great too.  Unfortunately I’m only going to get only $19,500 on the Tiguan but I feel like I took a brave step towards FIRE. I’ve always only gotten new cars based purely on fear the car will come with two many problems. The sky’s the limit!

Excellent, this is a great update! So your net deviation from your original projection (not factoring in taxes, registration, insurance difference, etc.) was just about $500 which is really great.

And if the warranty will truly cover the maintenance, that's even better!

Generally, there's usually not many situations where a new car is a better choice over a used car - it's difficult for a lot of people to get over that mental roadblock of a used car + repairs, but you'll find that it's not really anything to worry about and that you've got a much wider array of vehicle choices in the future.