Short Answer: Depends ultimately on distance traveled per year. If you only drive a few thousand miles per year, any car will do.
https://docs.google.com/spreadsheet/ccc?key=0Ajeg4z5XrypmdE0yanpJSTlLTHFjbmV1eEU4cE9Ma0E&usp=drive_web#gid=0The previous spreadsheet is pretty good for deciding what vehicle will best suit your needs.
A few things to note or think about:
1:
In 10 years 20K invested @ 5% will be: 32K
In 10 Years 10K invested @ 5% will be: 16K
The cheaper your car is, the more money you make on compound interest. On the other hand you must replace the car more often.
2:
Newer cars generally get better MPG. The more you drive, the more it makes sense to buy a hybrid, or even an electric if you can recharge at work.
3:
Safety. Newer cars have more active and passive safety features. This might be a factor in your choice with kids etc.
4:
Maintenance:
Generally speaking an older car will require more frequent and more expensive maintenance.
the spreadsheet has some numbers in there that work out well. If you feel that this is not correct then remove this from your calculations and you will see that its not a huge factor, MPG is more important.
My conclusions:
I like to think of cars as a tool with a set expense per month. For the average person driving 12K per year, the number to shoot for is under $300.
In my opinion there is no point in driving a beater that costs $350 per month if you can purchase a 20K vehicle that costs $250
The future value of 1200$ invested per year is $15K in 10 years.
There is little difference in money saved with a new economy car or a used economy car that gets good gas millage.
There is a huge difference in money saved between luxury cars and economy cars.
TIPS:
Used economy cars are only worth it if you get a smoking deal. With time you will get one, so just be patient.
Salvage Cars might be an option. You can get an almost brand new car for 1/2 the price. This is risky though. This will give you the most bang for the buck if you intend to keep the car a long time. Example: - Ford Focus in NJ with 6K we went to see has asking price of 10.2K.
Use carfax. The 55$ account is awesome. You type in license pates and get the cars history. We avoided much travel time with this tool.
Dealers are not a bad place to go. Check prices online, strike when they are desperate to sell. I also found dealers sell their used other brand cars bellow KBB private value. Also, 4x4 truck land selling a hybrid might be a good place to look for inventory that has been sitting!
Cars you cannot go wrong with:
New Focus or Fiesta or Kia or anything similar in price/MPG
Used above
Used Low mileage Hybrid or PHEV
CAREFUL: All these cars are hot right now. It's difficult to get a good deal. One must use patience.