The Money Mustache Community
Learning, Sharing, and Teaching => Case Studies => Topic started by: Cmdm on January 21, 2020, 10:07:22 AM
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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.
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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.
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As mentioned above, you have already lost the $6,000. The only additional money you would lose is just the transaction cost of buying/selling. If you buy and sell from a dealer you will always pay them some profit in addition to the cost of taxes and registration. Buying and selling to a private party generally gets a better deal but it can be difficult to find people who can buy a $21,000 car without help from dealer financing.
The Tiguan you own will depreciate faster than the Pilot will at this point in their life. But, the Tiguan will probably run longer with minimal maintenance (because it's much newer) although Honda's typically have lower maintenance costs than VW's.
I don't think it's a slam dunk either way because the transaction costs will eat up some of your savings. But, the optimal path is probably to switch to something like the Honda Pilot you found while trying to minimize the transaction costs (dealer profit being the big one you can influence).
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Just wondering, what occasional places does your wife go that require her to do so in a 3 row SUV?
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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 looks 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 used will come with two many problems.
Re the third row..honestly for day to day I’m sure you are right and it’s not necessary. At the same time we have family visit and the one thing I did like about the Tiguan is that third row would come in handy. CR-Vs and Elements were basically the same price (I realize they get better gas and are reviewed a little better) but all in all I just thought the convenience of having the third row was worth it. Also with the third row down there’s tons of cargo got those I need to haul something.
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There might also be some insurance savings based on the lower value vehicle.
Now, make sure you apply that cash flow to something useful!