Author Topic: Owning New vs Old  (Read 6030 times)

Shwaa

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Owning New vs Old
« on: October 29, 2015, 04:24:37 PM »
Hi,

Lets say someone drives a 2014 "car", paid 30K for it and owns it free and clear, and plans to drive it "into the ground".

Why would that person sell that car, purchases a 2004 "car", same model,  with 150k miles on it for 10k dollars (for example)

Yes, you theoretically gain 20k dollars, but.....

The older truck wont last as long, hence you will need to replace it sooner
The older truck will need more big maintenance items sooner
You lose the new "features"
Etc...

I can see if you owed 20k on your 30k dollar car it would make sense to sell it and get something older that you can afford...

But all else being equal with the scenario above...why would someone go from new to old unless they REALLY needed the money?

BarkyardBQ

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Re: Owning New vs Old
« Reply #1 on: October 29, 2015, 04:28:51 PM »
Opportunity Cost
http://www.investopedia.com/terms/o/opportunitycost.asp

The older truck wont last as long, hence you will need to replace it sooner
If you can buy a 5k car every 5 years, and keep investing the difference for a new car, you can still easily buy a 5k car whenever you have to, and your invested cash grows.

The older truck will need more big maintenance items sooner
If you invested 15k of that saved 20, and used 5k for maintenance, after 5, 10, 15 years of driving the vehicle, you could buy a new (to you/used) one with your return on investment.

You lose the new "features"
What are they really worth?
« Last Edit: October 29, 2015, 04:34:53 PM by BackyarBQ »

Retire-Canada

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Re: Owning New vs Old
« Reply #2 on: October 29, 2015, 04:39:27 PM »
Hi,

Lets say someone drives a 2014 "car", paid 30K for it and owns it free and clear, and plans to drive it "into the ground".

Why would that person sell that car, purchases a 2004 "car", same model,  with 150k miles on it for 10k dollars (for example)

Yes, you theoretically gain 20k dollars, but.....

The older truck wont last as long, hence you will need to replace it sooner
The older truck will need more big maintenance items sooner
You lose the new "features"
Etc...

If you paid $30K for a car new in 2014 it's worth say ~$22K now not $30K. So if you sold it and bought a $10K car you'd have ~$12K extra cash to invest. At 7% that's $840 extra you'll earn per year.

There are pros and cons as far as operating and maintenance costs. The new car will likely cost more to insure, but have lower maintenance costs and may be more fuel efficient. The older car will be cheaper to insure, but might consume more fuel and require more $/mile to maintain.
« Last Edit: October 29, 2015, 04:42:08 PM by Vikb »

BarkyardBQ

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Re: Owning New vs Old
« Reply #3 on: October 29, 2015, 04:42:07 PM »
Ahh yes, depreciation. It's painful when your dollars lose value the moment you sign and drive.

robartsd

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Re: Owning New vs Old
« Reply #4 on: October 29, 2015, 04:47:13 PM »
Yes, a big hit was taken when you bought the car; so the idea of selling a newer used car and purchacing an older used car is not nearly as valuable as purchasing the older new car in the first place.

nereo

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Re: Owning New vs Old
« Reply #5 on: October 29, 2015, 05:07:02 PM »
why are we putting "car" in quotation marks?  Are we really talking about something else?

Shwaa

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Re: Owning New vs Old
« Reply #6 on: October 29, 2015, 05:51:50 PM »
Sorry, no real reason for the quotes...I just meant car in the generic sense

Good info everyone and true, the car is not worth what you paid for it....

I guess the bottom line is if you are in a situation to buy a car, given the choice, go cheaper and more used...

But if already are in the position of owning a new car outright the benefits aren't as obvious...

use2betrix

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Re: Owning New vs Old
« Reply #7 on: October 29, 2015, 06:33:00 PM »
Ahh yes, depreciation. It's painful when your dollars lose value the moment you sign and drive.

The whole "drive off the lot" depreciation is grossly over stated. It exists, but some members here at like it's literally 20-30% the minute you drive off the lot which is FAR from always the case.

My truck is at about 60k miles and nearly 3 years old and I could probably sell it for 70% of what I paid new for it.

nereo

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Re: Owning New vs Old
« Reply #8 on: October 29, 2015, 07:35:45 PM »
Ahh yes, depreciation. It's painful when your dollars lose value the moment you sign and drive.

The whole "drive off the lot" depreciation is grossly over stated. It exists, but some members here at like it's literally 20-30% the minute you drive off the lot which is FAR from always the case.

My truck is at about 60k miles and nearly 3 years old and I could probably sell it for 70% of what I paid new for it.

considering taxes and licensing in your state, it could certainly cost you this much if you bought a new vehicle and attempted to sell it even a few weeks later.

Shwaa

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Re: Owning New vs Old
« Reply #9 on: October 29, 2015, 09:01:05 PM »
Ahh yes, depreciation. It's painful when your dollars lose value the moment you sign and drive.

The whole "drive off the lot" depreciation is grossly over stated. It exists, but some members here at like it's literally 20-30% the minute you drive off the lot which is FAR from always the case.

My truck is at about 60k miles and nearly 3 years old and I could probably sell it for 70% of what I paid new for it.

Tacoma?


Full Beard

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Re: Owning New vs Old
« Reply #10 on: October 30, 2015, 01:53:49 AM »
Ahh yes, depreciation. It's painful when your dollars lose value the moment you sign and drive.

The whole "drive off the lot" depreciation is grossly over stated. It exists, but some members here at like it's literally 20-30% the minute you drive off the lot which is FAR from always the case.

My truck is at about 60k miles and nearly 3 years old and I could probably sell it for 70% of what I paid new for it.

Tacoma?

I would guess a Tacoma too.  I bought a 2011 Tacoma for 24K and paid it off right away.  Two years later I decided to trade it in for a more fuel efficient car.  I was able to get 18K for the Tacoma with about 65K miles.  With the trade of the Tacoma I was able to get a 2013 Toyota Corolla with navigation free and clear.  This was before I started reading MMM.  I know now that I could have sold the truck privately and got a little more and then bought a quality used car and invested the rest.  But, you live and you learn.


Fishindude

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Re: Owning New vs Old
« Reply #11 on: October 30, 2015, 05:15:33 AM »
Not a darned thing wrong with buying new cars if you can pay cash for them without putting yourself in financial jeopardy.
It's also nice not having to worry about repairs or breakdowns.

use2betrix

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Re: Owning New vs Old
« Reply #12 on: October 30, 2015, 07:53:24 AM »
Ahh yes, depreciation. It's painful when your dollars lose value the moment you sign and drive.

The whole "drive off the lot" depreciation is grossly over stated. It exists, but some members here at like it's literally 20-30% the minute you drive off the lot which is FAR from always the case.

My truck is at about 60k miles and nearly 3 years old and I could probably sell it for 70% of what I paid new for it.

considering taxes and licensing in your state, it could certainly cost you this much if you bought a new vehicle and attempted to sell it even a few weeks later.

Taxes and licensing are still proportionate of the cost. Whether you buy a new vehicle for 35k or it gently used for 28k, the difference is only the tax on that $7000 difference. It's not like you don't pay tax on used vehicles.

nereo

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Re: Owning New vs Old
« Reply #13 on: October 30, 2015, 08:20:59 AM »
Ahh yes, depreciation. It's painful when your dollars lose value the moment you sign and drive.

The whole "drive off the lot" depreciation is grossly over stated. It exists, but some members here at like it's literally 20-30% the minute you drive off the lot which is FAR from always the case.

My truck is at about 60k miles and nearly 3 years old and I could probably sell it for 70% of what I paid new for it.

considering taxes and licensing in your state, it could certainly cost you this much if you bought a new vehicle and attempted to sell it even a few weeks later.

Taxes and licensing are still proportionate of the cost. Whether you buy a new vehicle for 35k or it gently used for 28k, the difference is only the tax on that $7000 difference. It's not like you don't pay tax on used vehicles.

I think you misunderstood my point.  If you purchase a vehicle, any vehicle, you instantly loose all of that money you pay for tax, tags and licensing fees.  That's money you can't get back by selling it 2-3 years later.  The effect is that the 'value' of a new car - defined as the amount you could recoup from selling it - the instant you own it. 
It's pretty well established that the average depreciation cost for a vehicle is about 15% per year.  It's more for some, less for others, but that's very close to the median.  In your example above the difference between a 35k 'new' car and a gently used one for 28k would be about one year.  You are correct, the differences are going to be very slight, because we're talking about two almost-brand-new cars - but you'd still pay less in taxes on the barely-used one.  However, you might spend $38,150 to purchase that $35k vehicle, and only 'get back' $28k a year later with it's sale - a loss of about 26% (!)

To use your $60k truck you keep mentioning as an example, if we went with the average depreciation it could be listed for $43,350 after two years.  However, given the taxes and fees you pay upon signing, you might pay $65,000 for the vehicle, meaning in two years your 'return' is -32%.  Let's assume you have sale-price depreciation of only 10% year-over-year.  That's $48,600, still a net loss of (25%) in two years.  Hence why people talk about a car loosing ~1/4 to 1/3 of its value in the first year or two of driving it.

The important part is that these are all percentages.  The lower the starting price (for example, with a 4 year old used car) the less you pay in absolute terms in taxes.  The depreciation curve also slows down.  If you really love to buy new trucks and be the only one who's ever owned it that's fine.  If that's what makes you happy, go for it.  But it costs more, plain and simple.

Cadman

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Re: Owning New vs Old
« Reply #14 on: October 30, 2015, 09:13:03 AM »
One thing that can also play into it is how mechanically inclined you are. I prefer to run a certain model range of a certain manufacturer from 1993-94 even though they're not real efficient. However, parts are cheap, readily available over the counter, repairs are fast and there are fewer systems to break compared to a modern car. I expect 250k+ and they ask very little of me.

Best of all, insurance is downright cheap, and registration is <$50/yr. Running full coverage on a newer vehicle just doesn't appeal to me anymore.

The_path_less_taken

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Re: Owning New vs Old
« Reply #15 on: October 30, 2015, 09:31:52 AM »
Ahh yes, depreciation. It's painful when your dollars lose value the moment you sign and drive.

The whole "drive off the lot" depreciation is grossly over stated. It exists, but some members here at like it's literally 20-30% the minute you drive off the lot which is FAR from always the case.

My truck is at about 60k miles and nearly 3 years old and I could probably sell it for 70% of what I paid new for it.

considering taxes and licensing in your state, it could certainly cost you this much if you bought a new vehicle and attempted to sell it even a few weeks later.

Taxes and licensing are still proportionate of the cost. Whether you buy a new vehicle for 35k or it gently used for 28k, the difference is only the tax on that $7000 difference. It's not like you don't pay tax on used vehicles.


Private party cars don't pay tax in my state. Although the DMV does perhaps ask how much you paid for it...

The advantage to me, as a non-mechanic, for a new car is that many of them come with full maintenance for two years, plus roadside assistance.

That said, I need a car and am cruising craigslist. Because new is expensive.

elaine amj

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Re: Owning New vs Old
« Reply #16 on: October 30, 2015, 09:45:12 AM »
The last time we were shopping for a minivan (about 5 years ago), I had my mind set on buying used. Unfortunately, the prices for used at the time were sky high compared to the promos for a new minivan. I ran numbers again and again and just couldn't justify buying used. We ended up with a new minivan for not very much more than a used one at a 3 year 0% interest financing. While we had the cash, it would have been foolish not to take advantage of the 0%. That said, we're not that handy and I didn't feel comfortable driving a clunker so we were looking for something only 2-3 yrs used - maybe the really old clunkers were good deals.

Guses

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Re: Owning New vs Old
« Reply #17 on: October 30, 2015, 10:39:47 AM »
Not a darned thing wrong with buying new cars if you can pay cash for them without putting yourself in financial jeopardy.
It's also nice not having to worry about repairs or breakdowns.

Haven't you ever heard of factory recalls or warranty repairs? I mean, it is nice you don't have to pay for it, but a new car is not a garantee that you won't be stranded or need to go have something fixed.... And then they tell you that it's not covered... 


Bruinguy

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Re: Owning New vs Old
« Reply #18 on: October 30, 2015, 10:49:10 AM »
I'm not sure if you are (1) asking whether you will actually save money by purchasing used or (2) if you are saying that the "benefits" of buying a new car are worth paying more for a new car instead of buying a used one.

If it is (1), then I believe it is fairly settled that your actual all-in costs of buying used will be less than buying new.  MMM did a post somewhat on point, where he compares the cost per mile of new versus old http://www.mrmoneymustache.com/2011/11/28/new-cars-and-auto-financing-stupid-or-sensible/.

If it is (2), most of us here are trying to optimize our spending so that we generate wealth with our money instead of spending it on things we don't need.   So, spending more than you need to on anything deserves a hard look.  New features are neat, but they are not needed.  My car doesn't have a Bluetooth connection to play music.  Would it be neat if it did?  Sure.  Is it worth thousands of dollars?  No.  Every dollar that you spend on your car, new or used, is a dollar you can't use to pay off debt or invest.


Kroaler

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Re: Owning New vs Old
« Reply #19 on: October 30, 2015, 11:20:59 AM »
Not a darned thing wrong with buying new cars if you can pay cash for them without putting yourself in financial jeopardy.
It's also nice not having to worry about repairs or breakdowns.

Haven't you ever heard of factory recalls or warranty repairs? I mean, it is nice you don't have to pay for it, but a new car is not a garantee that you won't be stranded or need to go have something fixed.... And then they tell you that it's not covered...

Just for fun :
http://livingstingy.blogspot.com/2010/08/bathtub-or-weibull-curve.html

The bathtub curve clearly shows that new cars have a higher rate of failure when brand new requiring warranty repairs.
Im not voting for or against new cars, and not telling anyone their decision is "wrong" or "right".   Each person can do what they want and that is the right choice for them,   however the primary goals of this forum are increasing net worth and satisfaction of life. So most answers lean towards increasing net worth. In general, a used car almost always beats a new car in net worth gains.

use2betrix

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Re: Owning New vs Old
« Reply #20 on: October 30, 2015, 11:44:45 AM »
I purchased an unmustachian truck before ever knowing what I know now and joining this forum. I have a 2013 F-250. I do live full time in a 5th wheel and it's about the minimum truck I can use to tow my trailer (15,000 lbs)

Yes, I understand I could have saved some going used, but I also think this forum, in some cases, does over exaggerate the differences.

My 2nd car that I purchased for my fiancÚ is a 1999 Toyota Camry with a V6. Go to Edmunds.com and you will find virtually the best user reviews of about any car in existence. I purchased it in January 2014 for around $5000 with a very, very low 88,000 miles.

I work a ton, don't have a concrete driveway or garage, so I do minimal maintenance myself. The opportunity cost is simply not worse the cost to me.

Her car now has about 105,000 miles. So we've put about 17,000 on it. In that time it needed a 90k mile service (new belts and other things) $900
Emissions thing went out, have had it looked at by several places (though not fixed as it doesn't effect performance or reliability) $800
Now, it's been making a loud "clunk" over bumps, and needs new struts control arms and a bunch of other wear items simply due to it's age, $2200

So we're looking at just regular wear and tear and a few larger items, and that's at about $3700 over the course of 17,000 miles

My truck, on the other hand, I bought brand new, with a bumper to bumper 100,000 miles warranty ($1800)
It currently has 60,000 miles. In that time it's needed a new radiator ($1800) and two exhaust sensors ($250 each time) so I'm looking at about $2300 "total" in repairs to my truck.

Again, I'm not saying this is standard, or in all cases, but just my personal example. I know my truck was not the best financial investment, but I'm dealing with it, weighing options, and still saving very well.


In situations like mine, there are times when I would suggest an extended warranty if available, through the factory. Knowing I need a vehicle to tow as much as I do, means I need a diesel, which are insanely expensive to repair. If you have fuel system issues, you're looking at $10,000. Engine is $12,000-$15,000, etc. etc.

Going back now, I should have bought a 2-3 year old truck that was certified where I could purchase an extended warranty, I would have saved around $15,000 off my new purchase price, and could still have all major repairs covered. I use my truck a ton for work, and new work construction and can only have one vehicle, so having a specific tow vehicle and 2nd car just for me doesn't work. We do take the camry on longer trips.

nereo

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Re: Owning New vs Old
« Reply #21 on: October 30, 2015, 12:00:08 PM »
@ Trixr606 - I'm not trying to start any fights here, and I think you are doing a great thing living in your 5th wheel and traveling around.  You probably spend much less on housing + auto than most here.  I'm also all for letting people do what they want and what makes them happy - clearly you can afford your truck (mustachian or not) without going into debt. 
my posts were just designed to illustrate exactly why a new car can depreciate 20% within a few months of driving it (largely because of taxes you will never recoup) and 30%+ in two years.  Again, it if makes you happy and you like the comfort of the factory warranty and knowing you are the only owner, that's great.  I'm just explaining how the math breaks down.  Not trying to make any enemies here.
cheers!

neo von retorch

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Re: Owning New vs Old
« Reply #22 on: October 30, 2015, 02:07:27 PM »
A cautionary tale...

I'm someone that has owned a lot of different cars. I'm also really bad at not losing money on transactions. I traded a 2013 Mazda CX-5 for a 2008 Honda Fit. Somehow, that Fit is now worth barely $5500 private party (optimistically) 16 months after paying $9400 for it. I'm bad at this, and I would rather still have the CX-5. Hindsight...

If you're going to do it, be good at it. Be good at knowing the future and at negotiating. (You should almost certainly deal with selling your car private party rather than trading it, and you should buy private party rather than from a dealer.)

I also bought a car for $8500 and sold it for $3000. That was after maybe 2.5 years, tops. So, so bad at this.

JZinCO

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Re: Owning New vs Old
« Reply #23 on: October 30, 2015, 02:17:38 PM »
Ahh yes, depreciation. It's painful when your dollars lose value the moment you sign and drive.

The whole "drive off the lot" depreciation is grossly over stated. It exists, but some members here at like it's literally 20-30% the minute you drive off the lot which is FAR from always the case.

My truck is at about 60k miles and nearly 3 years old and I could probably sell it for 70% of what I paid new for it.

considering taxes and licensing in your state, it could certainly cost you this much if you bought a new vehicle and attempted to sell it even a few weeks later.

Taxes and licensing are still proportionate of the cost. Whether you buy a new vehicle for 35k or it gently used for 28k, the difference is only the tax on that $7000 difference. It's not like you don't pay tax on used vehicles.


Private party cars don't pay tax in my state. Although the DMV does perhaps ask how much you paid for it...
$1 or a case of beer. Yes, I've said each to the DMV and showed them the signed sales agreement. It made the sales tax cheap :) Yes, that is cheap, but I don't drive much and the vehicles were worth $2500 and $4500

MrsPete

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Re: Owning New vs Old
« Reply #24 on: October 30, 2015, 02:23:41 PM »
We're in the buy-it-new-and-drive-it-into-the-ground camp.  A couple points that should be factored into the equation: 

-  When you buy a new car, you know exactly how the car's been treated its entire "life", and you know how it's been maintained.  You know for certain it's never been wrecked. 

-  If you trade cars every couple years, that's time and effort spent in locating and evaluating those new-to-you vehicles (some people enjoy this search; I don't).  And the more often you trade cars, the more often you're paying the DMV to transfer titles and tags.  These "up front" taxes on a new-to-you vehicle are higher than the keep-maintaining-your-old-car's-tag costs. 

-  You can buy a new car for less than 30K.


Astatine

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Re: Owning New vs Old
« Reply #25 on: October 30, 2015, 09:53:48 PM »
We're in the buy-it-new-and-drive-it-into-the-ground camp.  A couple points that should be factored into the equation: 

-  When you buy a new car, you know exactly how the car's been treated its entire "life", and you know how it's been maintained.  You know for certain it's never been wrecked. 

-  If you trade cars every couple years, that's time and effort spent in locating and evaluating those new-to-you vehicles (some people enjoy this search; I don't).  And the more often you trade cars, the more often you're paying the DMV to transfer titles and tags.  These "up front" taxes on a new-to-you vehicle are higher than the keep-maintaining-your-old-car's-tag costs. 

-  You can buy a new car for less than 30K.

I'm in a different country so costs are a bit different, YMMV. I too like to buy cars very rarely (I'm in my early 40s, still only on my second car). But, for me, the optimal way of doing it is buying a 2-3 year old car and then drive it into the ground. I haven't looked at the exact figures for a while but last time I did, the difference between buying a brand new Toyota Corolla (my car of choice) and one that was three years old was around $8k. If you buy privately, the service book has been completed on time and by the dealer, and if you do a title check on the car and pay for a mechanical inspection, the risk is super low of something going wrong. And you save $8k (or however much it is), plus reduced stamp duty on the car purchase, reduced insurance and so on.

Buying new makes no sense to me when you get all of the benefits from buying a 2-3 year old car. If you drive a car into the ground, you don't need to do the research and buying very often. I bought my 2001 Corolla in 2004 and it's probably got another few years in it yet before repair costs make it more sensible to buy a newer used replacement.