Author Topic: Math says keep the '15 Tacoma vs buying 10 year old used Camry. Is this right?  (Read 3133 times)

SendingtheWolf

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Hello Mustachians! Iíve discovered MMM about a month ago, and am trying to correct my lifestyle and spending choices over the last decade.

I wrote a thread yesterday looking for advice http://forum.mrmoneymustache.com/ask-a-mustachian/advice-on-getting-started-paying-off-the-catheter-and-bedpan/ on where to start with paying off debts vs investing and many suggested that I sell my 2015 Tacoma. I was convinced this was a good idea, so I did the next logical thing: research and math.

I was surprised to find that the numbers show that I should keep the truck. Let me elaborate.

My assumptions:

1.My employer pays all my gas costs, including for personal use. So gas economy is not a financial factor (for the purposes of this exercise Iím not considering the environmental cost)

2.My truck is a 2015 Tacoma with 40k miles. Trade-in for KBB/NADA is about $24,000. I owe $29,000. My payment is $575 and interest rate is around 2%.

3.My target car is a 2007 to 2009 Camry, which I should be able to pick up for $6500-$7500 with 100-150k miles. Acquisition cost would be about $12,000: $7000 for the car and $5000 for payoff.

Option 1, Used Camry: If I get a loan at 2.5% at 48 months to pay for the Camry and pay off the difference for the Tacoma, my payment would be about $263/month. Liability insurance would be about $40/month (guessing. Haven't gotten a quote), and repairs would run about $145/mo (numbers based off of yourmechanic.com's average cost of repairs). The total cost of these items after 4 years would be $21,624 after which the car would be worth about $5000. So the total cost of car ownership over 4 years would be $16,624 if I sold the car at that time.

Option 2, Keep the Tacoma: The Tacoma's payment is $575. Repairs, based on the same site, would come to an average of $42/month during those 4 years. Insurance is about $80/mo. Following these numbers, the total cost after 4 years would be $33,520, after which the Tacoma would be worth $15,820 (based off of the current 7 year old model trade-in value at 80k miles). So the total cost of car ownership over 4 years would be $15,820 if I sold the truck at that time.

If these numbers are right, Iím looking at a higher cost of about $800 for the Camry over those 4 years. This is surprising, but, if correct, highlights that the biggest sunk costs are in the first year and a half of ownership of a new car, and that I've already realized those costs, and they can't be recovered.

At this point, Iím leaning towards keeping the Tacoma for a few more years, at which point I'd need to reassess, as the monthly costs will change in a big way. Am I missing anything?

Spreadsheet:
https://docs.google.com/spreadsheets/d/1gammxP5wb8nMbUXQGYDEycj8gmpWrHZbOcK1msOqlgw/edit?usp=sharing
Average maintenance cost article:
https://www.yourmechanic.com/article/the-most-and-least-expensive-cars-to-maintain-by-maddy-martin

Blatant

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"Sell your pickup (or whatever xyz)" is perhaps the most common trope here.

Some info missing. 40k miles on a 2015 truck? Either you use it for work or you drive WAY too much. When people here suggest downgrading vehicles they commonly mean buy a cheap car in cash. Sounds like you don't have the liquidity to do that. And I do think you're paying too much for a vehicle.

That said -- and particularly if you use it for your livelihood -- I'm a fan of the known vs unknown. The Tacoma is a good truck, typically reliable and has an incredible resale value. I wouldn't personally be inclined to sell, though I can see the point since you're pretty upside down on it.

Hargrove

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If you look for a car that needs less in repairs (142? WTH?), that will probably help. It's nice that you can ignore gas mileage (except for, you know,wasting all the fuel/air/etc), but a truck worth 24k is still depreciating money out a dollarhose when you drive it like that, and your other option isn't just a particular Camry.

The "sell your pickup," uh, trope, is based on the fact that a lot of people carelessly buy the big shiny thing they can barely afford. That's the financial advice equivalent of "did you try turning it off and then back on again? Is it plugged in?" That thing usually depreciates really hard, and the sunk-cost-fallacy keeps it all in place.

Your approach is fine, and from strictly financial angles, you're a lot closer to a wash than almost anyone with a giant truck, and it's harder to economize with a high mileage vehicle (relatively safely) if you drive for work.
« Last Edit: February 25, 2017, 08:59:36 AM by Hargrove »

SendingtheWolf

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Some more details: I drive a lot for work. The company I work for has locations in about a 150 mile radius, and I drive all over that area. It comes to roughly 15k miles each year in business miles. I don't do a lot of other in-town driving but my wife and I have family in four different cities, each 2-3 hours away, and we visit them often (but that's going to change

Thanks for the feedback. I agree, I'm paying way too much for my vehicle. The purchase decision was one I made before I opened my eyes to the possibility of financial independence, much less retiring early, and I'm planning on treating it as a costly mistake that I'm paying for until I'm in a more liquid situation where it's less costly to make it right. Lesson learned.

Some more details: I drive a lot for work. The company I work for has locations in about a 150 mile radius, and I drive all over that area. It comes to roughly 15k miles each year in business miles. I don't do a lot of other in-town driving but my wife and I have family in four different cities, each 2-3 hours away, and we visit them often (but that's going to change).

Just Joe

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You ought to play with the math and see if them paying for your fuel is equal or better than paying for your mileage.

I'd rather be putting 40K miles a year on a $5K vehicle than a $25K vehicle. Those $25K vehicle costs more per mile (depreciation plus fuel plus 4wd tires) etc.

In the end do whatever you want to do. I like your truck. Its high on my "next vehicle list".

SendingtheWolf

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@Tasty Pinescones: Good point on the tires. I haven't had to replace mine yet so I haven't even thought of it. In 40,000 miles, though, Toyota has taken care of my maintenance service fees except for one for about $100, so at least there's that.

Older Tacomas with mileage similar to my trajectory are holding their value pretty well.

My employer would pay me $.54ish per mile for mileage, but I just claim it on taxes for the same amount. It comes about a little better that way, since I get non-business gas paid for, too. It's not much, since I have to subtract the reimbursements, but hey, every little bit counts, right?

I've been very happy with the Tacoma. But it has been very bad for my finances. Looking back, a pre-depreciated model would have done just fine, but with the miles I put in for work, a truck doesn't even make sense. Hooray for hindsight.

Just Joe

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I just looked at the Tacomas online in my area. Their resale value makes me dizzy. ;)

Driving old cars like DW and I do makes everything seem expensive. In fact we are in agreement about selling one of our old cars and buying something newer for outof town peace of mind but accepting the expense (and we can afford it) is hard to do after so long i.e. look at this pile of cash we saved up. I can't bear to spend it that way... ;)

LadyBeard

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In 8 years you will still owe more money then you need to with regards to that Tacoma. $29,000 for a car worth $25,000 which will one day be worth $12,000, the loan will still be $29,000 though. I would sell it and get something more economic and take the loss. Perhaps a used Prius or something would be a worthwhile replacement. You can buy one for $5,000, you may think that $4,000 on the Tacoma is a great loss but why pay $24,000 (loss) more for something maybe just a tad bit better. That $24,000 is the real loss.

It's only wise in my mind to own a car if you plan on selling it before it HAS to be donated. I have a $40,000 Tahoe, 2001 that is now worth $3,000 how was that a good investment?

Just by 5 cents.

lightning hippo

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Your unique situation where the gas is paid for by your employer makes this comparison not so cut & dry.
Even then, I think Camry is cheaper if you compare the monthly cash flow of each option.

Camry:  $263+$40+$145 = $448/month
Tacoma:  $575+$80+$42 = $697/month

You instantly free up $249/month if you sell the truck and buy a Camry.  If you invest that difference every month, you end up with $14k in the bank after 4 years @ 7% ROI.
I also think $145/month repair estimate for Camry is way excessive and defeats the whole purpose of buying a reliable used car.  Lower repair cost would further tip the scale in favor of Camry.

Coloradostache

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You should get more for a 2015 then 24K if its a 4x4.  At least you would in Colorado.  If you sell it that low, let me know!

BigRed

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I can't access your spreadsheet from work, but something is off with your 4 year ownership cost for the truck.  At $575/mo, after 48 months, you will not have paid off the loan.

I get $5900 for the insurance + repairs, using your numbers.
A $29000 loan, paid off in 4 years would cost $30,200, and the payment would be $629.  So, either your truck wouldn't be paid off, in which case you need to account for the amount you'd still owe, and you would have paid more interest than shown above, or your payment info is wrong.  Anyway, check your math.

Anyway, that gives you a TCO = $36200 -  $15,820 = $20,380, not $15,820

Also, if the truck has 40k miles now, it won't have 80k in 4 years, it will have 120k and not be worth $15,820


SendingtheWolf

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Those are good points. When I did the math it was on the weekend (and my lender's customer service was closed) so I tried to go with my best recollection of my payoff and remaining loan term. I need to double check the numbers. Regarding the mileage... yep, bad math. I'm on track to 120k. Comparable Tacomas show one of that age and mileage is worth around $14k trade-in. I'll have to update the spreadsheet.

My thoughts are that if you factor in hours for searching, acquisition and sale, financing, driving to get the car (if it's not local), etc., then it brings the costs more back to even. Plus I put a value on enjoyment of the vehicle... but a great point above--TVM means the the actual costs of the monthly payment now are worth more in relation to the realized future value of the Tacoma when it sells

Guesl982374

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... and repairs would run about $145/mo (numbers based off of yourmechanic.com's average cost of repairs).

Seems high. I would expect $50-75/mo on average for  Camry that age.

gorion83

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My thoughts are that if you factor in hours for searching, acquisition and sale, financing, driving to get the car (if it's not local), etc., then it brings the costs more back to even. Plus I put a value on enjoyment of the vehicle... but a great point above--TVM means the the actual costs of the monthly payment now are worth more in relation to the realized future value of the Tacoma when it sells

Don't take me wrong, but it looks to me that you really want to keep your Tacoma and your are trying to make the math fit your wishes.

I have the same problem from time to time.
You really should focus on what's more important to you... being financially independent earlier or having a fancier car. Nothing wrong with your priority set, but be honest with the math.

SendingtheWolf

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"You really should focus on what's more important to you... being financially independent earlier or having a fancier car. Nothing wrong with your priority set, but be honest with the math."

I totally agree. Okay, here's the updated math. I figured out where I went wrong (with the help of a few of the above replies).

After 48 months, I'll still owe 8 payments of $575 rather than the truck being paid off, as I had wrongly assumed. Subtract that from the residual value of about $14,000 (at 120k miles rather than 80k) and you end up with a cost-residual value of $24,120 over 4 years.

I also reduced the repair cost for the Camry hybrid, since 'Yotas tend to have pretty good track records for maintenance, down to $100/month. That gives us a cost-residual value of $14,424, a savings of $9696 when compared to keeping the Tacoma.

Even if I were to say that the fun and looks factor, and the utility factor of my truck were worth a bit, and the cost of acquisition and disposal to change out cars were factored in, it's hard to justify almost $10k in savings, (not to mention the FV of monthly savings that would be invested).

I'm going to go another route, though, before I make a decision on the truck. I'm in a position at my job which requires me to put heavy miles on my vehicle, and because of my unique position, I started out as an independent contractor, but took a little bit of a paycut to become an employee for the company for more stability. Not included in my employment package was a car allowance. Gas is paid for, but not the car. I am going to attempt to get an allowance from my employer. Wish me luck.

Edit: Thanks, all, for the feedback and thoughts, and keeping me honest with the numbers.
« Last Edit: March 02, 2017, 06:57:24 AM by SendingtheWolf »