When you can afford it, is it still Mustachian to buy a Brand New Car?

[researcher1]

Are you including tax, license and the higher insurance premiums? Asking for a friend.

Sales Tax
As I just pointed out, had I bought this vehicle now as a used model, it would have cost MORE than what I paid new last year.
That means I actually spent LESS on sales tax by purchasing new.

Secondly, you can't make a direct comparison of the sales tax paid between new and used.
You'll end up buying fewer new vehicles than used vehicles, so you must compare the total sales tax paid over a given time period, not per car.

License
I believe you incorrectly understand how most states in the US treat license/registration.
In my state (and the majority of states), the license costs for a brand new vehicle are the EXACT SAME as a used vehicle.

Insurance Premiums
You are also misinformed on this topic.  Newer vehicles, with their advanced safety & security features, don't necessarily come with "higher insurance premiums."
In fact, my insurance premiums DECREASED when I replaced my two 10+ year old vehicles with brand new vehicles.
My insurance premium on the vehicle discussed above is $240 PER YEAR for full coverage.

[Dicey]

Are you including tax, license and the higher insurance premiums? Asking for a friend.

Sales Tax
As I just pointed out, had I bought this vehicle now as a used model, it would have cost MORE than what I paid new last year.
That means I actually spent LESS on sales tax by purchasing new.

Secondly, you can't make a direct comparison of the sales tax paid between new and used.
You'll end up buying fewer new vehicles than used vehicles, so you must compare the total sales tax paid over a given time period, not per car.

License
I believe you incorrectly understand how most states in the US treat license/registration.
In my state (and the majority of states), the license costs for a brand new vehicle are the EXACT SAME as a used vehicle.

Insurance Premiums
You are also misinformed on this topic.  Newer vehicles, with their advanced safety & security features, don't necessarily come with "higher insurance premiums."
In fact, my insurance premiums DECREASED when I replaced my two 10+ year old vehicles with brand new vehicles.
My insurance premium on the vehicle discussed above is $240 PER YEAR for full coverage.

I asked a reasonable question. Thanks for pointing out my obvious stupidity.

[windytrail]

Absolutely not.
That we are debating this topic shows how strong the brainwashing car culture is in this country.
According to Car Fax, the average new car loses 20% of its value after 1 year and 40% after five years. (https://www.carfax.com/blog/car-depreciation).

This depreciation argument has been thoroughly debunked.
You are the one being brainwashed by blindly accepting these fake depreciation articles as fact.

The losses/depreciation quoted in this article and others is based off the new car MSRP...
and NO rational consumer pays MSRP for a mainstream vehicle.

To accurately calculate depreciation, you must use the ACTUAL sales price, not MSRP.
Savvy shoppers pay significantly less than MSRP for new vehicles, meaning the "new cars lose 20% value after 1 year" claim is completely bogus.

A simple google search reveals countless sources with the same depreciation info. For example, the article here uses "average transaction price," not MSRP: https://www.trustedchoice.com/insurance-articles/wheels-wings-motors/car-depreciation/

On the other hand, I couldn't find any sources referencing your argument. Where is all this debunking you mentioned? Or did you pull it from thin air?

The answer is clear...sell your clown car. Further reading: https://www.mrmoneymustache.com/2013/04/22/curing-your-clown-like-car-habit/

[researcher1]

A simple google search reveals countless sources with the same depreciation info. For example, the article here uses "average transaction price," not MSRP: https://www.trustedchoice.com/insurance-articles/wheels-wings-motors/car-depreciation/

On the other hand, I couldn't find any sources referencing your argument. Where is all this debunking you mentioned? Or did you pull it from thin air?

You apparently didn't read the Carfax article that YOU posted a link to!
 
This is what you said...
According to Car Fax, the average new car loses 20% of its value after 1 year and 40% after five years. (https://www.carfax.com/blog/car-depreciation).

And this is the very first sentence from the article you quoted...
If you’re looking to put a brand new $40,000 car in your driveway, we’ve got some expert advice: Buy a vehicle with a sticker price closer to $45,000.

They are explicitly calculating depreciation based on the STICKER PRICE (MSRP) of the vehicle.
They are NOT calculating it based on the actual sales price of that vehicle, which would be significantly less.

Your own article, that you posted, is what proves my point that MSRP gets used to calculate depreciation.

[researcher1]

Absolutely not.
That we are debating this topic shows how strong the brainwashing car culture is in this country.
According to Car Fax, the average new car loses 20% of its value after 1 year and 40% after five years. (https://www.carfax.com/blog/car-depreciation).

Following up on this.

I went back to the site you linked above that discusses depreciation.
When I first checked the value of my vehicle using your site, I didn't realize I needed to select the vehicle condition.
After selecting the correct condition, it shows the Private-Party Value is $2,000 MORE than I paid for it new last November.

This is a perfect example of why you can't just drink the Kool-Aid offered up by whatever website you stumble across.
You need to look critically/independently at the data for your particular vehicle and situation.

[ender]

Absolutely not.
That we are debating this topic shows how strong the brainwashing car culture is in this country.
According to Car Fax, the average new car loses 20% of its value after 1 year and 40% after five years. (https://www.carfax.com/blog/car-depreciation).

Following up on this.

I went back to the site you linked above that discusses depreciation.
When I first checked the value of my vehicle using your site, I didn't realize I needed to select the vehicle condition.
After selecting the correct condition, it shows the Private-Party Value is $2,000 MORE than I paid for it new last November.

This is a perfect example of why you can't just drink the Kool-Aid offered up by whatever website you stumble across.
You need to look critically/independently at the data for your particular vehicle and situation.

+1

Our brand new car we bought in 2016 has depreciated about 1k/year over the first nearly 4 years we've owned it compared to what we paid. It's worth approximately 25% less now than our out of pocket cost if I use KBB tradein numbers. If I use their private party number, it's only gone down about 16% in that timeframe.

[Bloop Bloop Reloaded]

Cars depreciate most in their first 3 years and I find they depreciate significantly at the end of that period when they run out of manufacturer warranty.

Here in Australia the best time to buy a car is right after the warranty expires. People get 'scared' of buying a lemon. What they don't realise is that in most states you get a 12 month statutory warranty from the dealer you buy it off. You also have rights under the Australian Consumer Law to ask the manufacturer or seller to repair any defect if it would not have been expected for that defect to arise given the price of the good and the marketing of the good. In other words we have strong statutory protection which most people - due to ignorance and an inability to understand the nuances of our small claims legal system - never end up using.

So, here in Australia:
- Buy at the perceived 'most dangerous' (not actually dangerous) period - right when the warranty expires.
- Get a mechanical inspection ($200).
- Ask the dealer by email whether there's any known fault with the car. It will be useful as part of an ACL claim later on.
- Buy from a dealer, so you get the 12 month statutory warranty.
- Profit. You have a 12 month statutory warranty and an extended de jure warranty under the ACL.

Other people's insecurities (about coming out of warranty, etc) are your gain.

[GuitarStv]

I feel like I'm missing something in this thread.

Why does depreciation matter at all?  A car that I buy brand new and drive for four years may well depreciate 25%.  But that number means nothing unless you plan to sell at that point.  If you're planning to keep driving the car for another 16 years, the number is meaningless.

"Ah, but the 4 year old car will be cheaper!" everyone starts to scream.  Buying a 4 year old car is very different than continuing to own a 4 year old car that you bought new.  With the former you don't know how it has been driven/maintained with the latter you know that it has been babied and is unlikely to have any abuse related hidden problems.  If you buy a car 4 years old and manage to drive it for 16 years, you're still shopping for a new car sooner . . . something that takes time and effort out of your life and adds in stress.

[Taran Wanderer]

It can matter if you get in a wreck and your car gets totaled with low miles. But even then, assuming you’re physically okay, I guess you just end up getting a low mileage used car as a replacement.

[StashingAway]

Why does depreciation matter at all?  A car that I buy brand new and drive for four years may well depreciate 25%.  But that number means nothing unless you plan to sell at that point.  If you're planning to keep driving the car for another 16 years, the number is meaningless.

This is a good point, but there is more nuance. Depreciation is somewhat indicative of quality/utility so often we substitute it for quality (but with vehicles this gets messy). So if something costs $50K one year and $25k the next, it is assumed that it has lost $25k of it's utility. But utility for the market isn't necessarily utility for a mustachian.

It would be easier if the value of a car didn't have so many things tied to it (luxury, reliablity, mpg, image, etc.). If it were pure reliability/function, then depreciation would really matter in analysis because the price of the car would correlate pretty evenly with the remaining cost of ownership. But vehicle depreciation also incorporates the "newness" factor in it, which varies greatly depending on brand and person buying a car.

Another way to look at it is: would you get more utility from a $10K 2010 Honda Civic or a $10k 2010 Mini cooper? The Civic is objectively more reliable (all things being equal). If we are only looking at price, both options are the same. But if we look at depreciation, the Mini cooper has depreciated almost twice as much as the Honda since new. (maybe just 1.5 times if we go off of purchase price and not MSRP). A good portion of that depreciation is due to the fact that the Mini has used up quite a bit more of it's average lifespan as the Civic. But not all of it. An argument can certainly be made that good maintenance will more than make up for average reliability, but that takes us out of the realm of general data and back into anecdotes.

In general, depreciation is an indicator of loss of utility. Cars that loose 10% as soon as they drive off the lot are perhaps depreciating more because they don't have that "single owner" auroa to them. Some vehicles are worth more then next year when they are reliable and in demand (happens to Toyota pickups all the time).

I'm rambling here with no real point other than that we can't use depreciation as an end-all, but we can't dismiss it either in my opinion. Even if we're not going to sell the vehicle, it's current value vs original value is at least somewhat tied to it's remaining utility (unless we get into the realm of exotic cars an the like).

[ChpBstrd]

I feel like I'm missing something in this thread.

Why does depreciation matter at all?  A car that I buy brand new and drive for four years may well depreciate 25%.  But that number means nothing unless you plan to sell at that point.  If you're planning to keep driving the car for another 16 years, the number is meaningless.

"Ah, but the 4 year old car will be cheaper!" everyone starts to scream.  Buying a 4 year old car is very different than continuing to own a 4 year old car that you bought new.  With the former you don't know how it has been driven/maintained with the latter you know that it has been babied and is unlikely to have any abuse related hidden problems.  If you buy a car 4 years old and manage to drive it for 16 years, you're still shopping for a new car sooner . . . something that takes time and effort out of your life and adds in stress.

Depreciation is a symbolic representation of what will be realized as a cash expenditure in the future. E.g. if I buy my car for $15k today and sell it ten years later for $3k I will realize a $12k capital loss. The importance is for capital planning. We should all have a fund for car replacement that we pay into as our vehicle depreciates, so that we can pay cash when it is time for car replacement.

I see far too many people on this board who have paid-off cars with several years of use remaining, and they are calculating their FIRE number or retirement budget based on the last couple years of cash outlays. Their budget will be trash in a few years when they swap their current vehicle(s) for newer more expensive models. “Oh, that was an unexpected $20,000 expense” they’ll say! And just like that their 4% WR becomes more like 4.5% because they pretended their car doesn’t depreciate.

Then the roof needs replacement. Then the bathroom needs remodeling. HVAC quits. Etc. It’s easy to keep cash outlays small during the accumulation phase if you can go a couple of years without replacing a big mechanical system.

Your point about having to trade cars more frequently is valid. In theory, one experiences losses due to time, the bid-ask spread, and in some places sales taxes every time you trade (and if a dealer or financing is involved, there are additional fees / losses). Yet I don’t think the optimal strategy is to buy new and sell for scrap. Depreciation is so much bigger during a car’s first few years that it far overwhelms the transaction costs involved with, for example, buying ten used cars in one’s lifetime instead of six new ones.

As for the abuse issue, I think it is also possible to get a lemon new from the car dealer. E.g. 2012 Ford Focuses have a very high rate of transmission failure, but who knew that in 2012?  Used car buyers can avoid the lemons based on info from sites like carcomplaints.com.

[Bloop Bloop Reloaded]

I feel like I'm missing something in this thread.

Why does depreciation matter at all?  A car that I buy brand new and drive for four years may well depreciate 25%.  But that number means nothing unless you plan to sell at that point.  If you're planning to keep driving the car for another 16 years, the number is meaningless.

"Ah, but the 4 year old car will be cheaper!" everyone starts to scream.  Buying a 4 year old car is very different than continuing to own a 4 year old car that you bought new.  With the former you don't know how it has been driven/maintained with the latter you know that it has been babied and is unlikely to have any abuse related hidden problems.  If you buy a car 4 years old and manage to drive it for 16 years, you're still shopping for a new car sooner . . . something that takes time and effort out of your life and adds in stress.

Your 4-year-old car will depreciate a lot more than 25%. Fifty percent would be standard for most mass-produced consumer cars.

As for buying a 4-year-old car being different from continuing to own a 4-year-old car that you bought new, if you assume the lifetime of a car is - say - 12 years - then you can either spend $50k on a new car (yearly price over 12 years is about $4k per year) or you can spend $25k on a 4-year-old car which you keep for 8 years (yearly price over 8 years is about $3k per year). You still save.

I can't speak for Americans, but again, here in Australia, if you buy a car whose warranty has just expired, you get the perceived "loss of utility" of having an out-of-warranty car - so the price often nosedives - but you get the hidden utility of having a statutory warranty from the dealer plus a de jure ACL warranty which, if you're clever, you can easily exploit in small claims court for only a few hundred bucks. Or even if you can't do that, the value dive for a car that's out of warranty far exceeds the actual depreciated life of the car.

A 4-year-old car is nowhere near 50% done with its operating life - but its value has dropped by 50%.

[GuitarStv]

I feel like I'm missing something in this thread.

Why does depreciation matter at all?  A car that I buy brand new and drive for four years may well depreciate 25%.  But that number means nothing unless you plan to sell at that point.  If you're planning to keep driving the car for another 16 years, the number is meaningless.

"Ah, but the 4 year old car will be cheaper!" everyone starts to scream.  Buying a 4 year old car is very different than continuing to own a 4 year old car that you bought new.  With the former you don't know how it has been driven/maintained with the latter you know that it has been babied and is unlikely to have any abuse related hidden problems.  If you buy a car 4 years old and manage to drive it for 16 years, you're still shopping for a new car sooner . . . something that takes time and effort out of your life and adds in stress.

Your 4-year-old car will depreciate a lot more than 25%. Fifty percent would be standard for most mass-produced consumer cars.

As for buying a 4-year-old car being different from continuing to own a 4-year-old car that you bought new, if you assume the lifetime of a car is - say - 12 years - then you can either spend $50k on a new car (yearly price over 12 years is about $4k per year) or you can spend $25k on a 4-year-old car which you keep for 8 years (yearly price over 8 years is about $3k per year). You still save.

I can't speak for Americans, but again, here in Australia, if you buy a car whose warranty has just expired, you get the perceived "loss of utility" of having an out-of-warranty car - so the price often nosedives - but you get the hidden utility of having a statutory warranty from the dealer plus a de jure ACL warranty which, if you're clever, you can easily exploit in small claims court for only a few hundred bucks. Or even if you can't do that, the value dive for a car that's out of warranty far exceeds the actual depreciated life of the car.

A 4-year-old car is nowhere near 50% done with its operating life - but its value has dropped by 50%.

If you're seeing that a 4 year old car sells for 50% less than the new vehicle . . . then sure.  I would totally agree with you.

That's not the case at all for my observations though.  Our Corolla was about 10% more to buy (actual post- negotiating price - not inflated sticker price) new than a 3-4 year old one.  At that price differential it doesn't seem quite so clear cut to me.

[Bloop Bloop Reloaded]

Maybe it's Australian economics or maybe Corollas have immense resale value but I have never seen a car here - other than limited edition / enthusiast models - only lose 10%, or even 20%, after 4 years.

[GuitarStv]

Maybe it's Australian economics or maybe Corollas have immense resale value but I have never seen a car here - other than limited edition / enthusiast models - only lose 10%, or even 20%, after 4 years.

Are you comparing to sticker price, or the actual sale price of a new vehicle?  They're quite different in my experience.

[Taran Wanderer]

Maybe we should re-title the thread:  When you can afford it, is it still Mustachian to pay MSRP for a Brand New Car instead of negotiating the lowest possible price?

The answer is no.  Now negotiate yourself into a good deal on a new car if you want one.

[Bloop Bloop Reloaded]

Maybe it's Australian economics or maybe Corollas have immense resale value but I have never seen a car here - other than limited edition / enthusiast models - only lose 10%, or even 20%, after 4 years.

Are you comparing to sticker price, or the actual sale price of a new vehicle?  They're quite different in my experience.

Actual sale price new versus actual sale price second hand. Both prices are discounted from the headline price.

You have to remember also that the cost of options (when new) is never recouped on the second hand market. And most cars have some options.

[Taran Wanderer]

This is one of those endless debates that will never die. But since it reminds me of an endless debate from a totally different forum, I think the real question is - gas vs. diesel?

[Bloop Bloop Reloaded]

This is one of those endless debates that will never die. But since it reminds me of an endless debate from a totally different forum, I think the real question is - gas vs. diesel?

I'm not a fan of diesel engines. They rev way too low. Give me a naturally aspirated petrol engine that goes in to the high 7s, 8s or 9s any day. The 20L/100km fuel consumption is worth the thrill.

[ender]

This is one of those endless debates that will never die. But since it reminds me of an endless debate from a totally different forum, I think the real question is - gas vs. diesel?

It's an endless debate because many people refuse to do math ;-)

Basically you need to calculate the average yearly cost of a car over the time you have it.  For some cars, new is about the same as used. For others, it's not.

[StashingAway]

The answer is no.  Now negotiate yourself into a good deal on a new car if you want one.

Follow up question: Is it Mustachian to pay a premium to not negotiate the price of a car? I don't negotiate beyond the basic craigslist offer (will you take $40 for that $50 bookcase?). I effing hate hate hate sales people. With a passion. I forgot how much I loathe the experience when I let a door-to-door window salesman in my house. Once the pricing started, I asked them to leave. "You must sign here to day, NOW to get this offer". Well, that means I'm not buying from you. It'll save us a both a lot of time because I can already tell that I'm not going to like where this ends up. I don't like the idea that the more aggressive I am, the less money they make. I don't want to swindle people out of money. I can't do it. It's like heckling, I'm impressed and respect people who can, but it's just not in my system to do it. I've tried it at dealerships, and it just doesn't feel good. They play games with emotions and sh*t too much.

Some people it's just part of business. Some it's entertainment. I just can't handle it. I would much, *much* rather go to the dentist.

[ender]

The answer is no.  Now negotiate yourself into a good deal on a new car if you want one.

Follow up question: Is it Mustachian to pay a premium to not negotiate the price of a car? I don't negotiate beyond the basic craigslist offer (will you take $40 for that $50 bookcase?). I effing hate hate hate sales people. With a passion. I forgot how much I loathe the experience when I let a door-to-door window salesman in my house. Once the pricing started, I asked them to leave. "You must sign here to day, NOW to get this offer". Well, that means I'm not buying from you. It'll save us a both a lot of time because I can already tell that I'm not going to like where this ends up. I don't like the idea that the more aggressive I am, the less money they make. I don't want to swindle people out of money. I can't do it. It's like heckling, I'm impressed and respect people who can, but it's just not in my system to do it. I've tried it at dealerships, and it just doesn't feel good. They play games with emotions and sh*t too much.

The internet has helped massively with this because pricing is more transparent.

In larger metro areas on popular cars you can search a specific one across a large area and just buy the cheapest.

You might lose out on a bit but you're going to be much further ahead than you would have been pre-internet.

[StashingAway]

The internet has helped massively with this because pricing is more transparent.

In larger metro areas on popular cars you can search a specific one across a large area and just buy the cheapest.

You might lose out on a bit but you're going to be much further ahead than you would have been pre-internet.

Yeah, I don't buy cars that often these days anyway (thanks mmm!), and with the mileage that I drive buying one that is 5-10 years old and at 100k is just fine. For those racking up more miles this is probably a bigger concern.

[ChickenStash]

The answer is no.  Now negotiate yourself into a good deal on a new car if you want one.

Follow up question: Is it Mustachian to pay a premium to not negotiate the price of a car? I don't negotiate beyond the basic craigslist offer (will you take $40 for that $50 bookcase?). I effing hate hate hate sales people. With a passion. I forgot how much I loathe the experience when I let a door-to-door window salesman in my house. Once the pricing started, I asked them to leave. "You must sign here to day, NOW to get this offer". Well, that means I'm not buying from you. It'll save us a both a lot of time because I can already tell that I'm not going to like where this ends up. I don't like the idea that the more aggressive I am, the less money they make. I don't want to swindle people out of money. I can't do it. It's like heckling, I'm impressed and respect people who can, but it's just not in my system to do it. I've tried it at dealerships, and it just doesn't feel good. They play games with emotions and sh*t too much.

Some people it's just part of business. Some it's entertainment. I just can't handle it. I would much, *much* rather go to the dentist.

There is a middle ground for those that hate the car dealer experience but still want to be in the new car market. There are car buying services that handle negotiating with the sleazy sales people for a flat fee. They just ask for what car and what required options then go off and beat the bushes to get the best price they can then add a few hundred for their service. Costco has a plan for members that kinda does this, too - pre-negotiated rates on new cars.

It will wind up being a bit more than a good negotiator could get but I'm not very good at negotiating (I hate it) so it would usually wind up a wash.