Detailed used vs new car cost comparison

[RWD]

I've been considering replacing my wife's vehicle and have done some in depth mathematics to compare purchasing a used versus new car. While it is clear that purchasing used will always be the cheaper option, it is not clear by how much. The initial purchase price is only a small part of the total cost of ownership. I used IntelliChoice.com and Kelley Blue Book's 5-Year Cost to Own for my initial research and extrapolated a bit to cover a 10-year timespan. Extrapolating further would essentially just be an exercise in compounding the interest on the lost opportunity cost.

IntelliChoice and KBB don't line up exactly, so I'll be making my own assumptions to try and keep the comparison as fair as possible.

For my comparison I'll be using the 2015 and 2010 base models of Honda Fit. It's an MMM recommended vehicle and one of the cheapest new vehicles you can buy today based on total operating costs. Also, it's been around for long enough that IntelliChoice has expected costs for the used model that I can use.

Assumptions:

• No financing
• Purchase used at KBB dealer price ($10,030)
• 4% investment interest rate after inflation
• 10% depreciation per year after inflation
• 15,000 miles driven per year
• Halve IntelliChoice insurance estimate
• Ignore sales tax
• All numbers in today's dollars (USD)

Note, numbers are rounded from a spreadsheet and may not add up exactly.

	|			Used	2010	Fit			|			New	2015	Fit			|
Year	|	Insur.	Fees	Fuel	Maint.	Deprec.	Lost Interest	TOTAL SUM	|	Insur.	Fees	Fuel	Maint.	Deprec.	Lost Interest	TOTAL SUM	|
1	|	632	94	1,600	703	1,003	401.20	$4,433.20	|	749	150	1,450	74	1727	690.80	$4,840.80	|
2	|	632	94	1,600	558	902.70	538.41	$8,758.31	|	749	150	1,450	370	1,554.30	815.35	$9,929.45	|
3	|	632	94	1,600	484	812.43	675.30	$13,056.04	|	749	150	1,450	484	1,398.87	956.73	$15,118.05	|
4	|	632	94	1,600	1,440	731.19	814.72	$18,367.95	|	749	150	1,450	1,440	1,258.98	1,108.32	$21,274.35	|
5	|	632	94	1,600	933	658.07	997.95	$23,282.96	|	749	150	1,450	933	1,133.08	1,304.21	$26,993.64	|
6	|	632	94	1,600	703	592.26	1,168.22	$28,072.44	|	749	150	1,450	703	1,019.78	1,487.66	$32,553.07	|
7	|	632	94	1,600	558	533.04	1,336.11	$32,825.59	|	749	150	1,450	558	917.80	1,669.24	$38,047.11	|
8	|	632	94	1,600	484	479.73	1,504.92	$37,620.24	|	749	150	1,450	484	826.02	1,852.29	$43,558.42	|
9	|	632	94	1,600	1,440	431.76	1,677.51	$43,495.51	|	749	150	1,450	1,440	743.42	2,039.70	$50,130.54	|
10	|	632	94	1,600	933	388.58	1,895.25	$49,038.35	|	749	150	1,450	933	669.08	2,272.85	$56,354.47	|

So this works out to $732 per year more for the new car including the lost interest from opportunity cost. Or $413 per year without the opportunity costs factored in.

EDIT: Fixed depreciation being counted as opportunity cost.

[RWD]

I have a bit of commentary to add to my own numbers:

• You could save a bit more money by going for an even older car
• You save way more money by not having a car entirely
• Most of the cost difference between used and new can be attributed to depreciation
• Keeping a new car longer didn't help even out the costs as much as I expected, due to the early lost opportunity costs
• Where I live sales tax is not charged for private party used car sales, so that's an additional incentive to buy used
• Take all these numbers with a grain of salt; do your own calculations for the specific vehicles you are looking at

[Undecided]

You've treated depreciation as a cost, but then haven't sold the asset at the end of the comparison period. How would doing so affect the comparison?

[Rezdent]

Thanks for posting this - I'm sure that some will find it very useful.

As there is no financing there is no mandatory full insurance coverage for the newer car.
That means the owner bears the full cost of replacement if the plans are liability only and the car is totalled with no one else at fault (flood, fire, suicidal deer).  Just pointing this out for any folks who are making a decision. If you are stretching for the newer model and can't cover the loss, the older model is cheaper to replace.  But it looks like the older model still wins even with lower mpg  and higher maintenance costs anyway.

[RWD]

You've treated depreciation as a cost, but then haven't sold the asset at the end of the comparison period. How would doing so affect the comparison?

I didn't include the cost of the initial purchase either, so I don't think there is an effect.

However I just realized I was counting the depreciation towards opportunity costs, which is incorrect since I already accounted for the inital purchase price as opportunity cost. I'll fix that shortly.

[neo von retorch]

How do miles already on the car affect the calculations? For example, I bought a 2008 Honda Fit this summer, but with just 56,000 miles on it.

Also, how does miles per year affect it? Do you have an Excel spreadsheet with inputs that could show these calculations?

[rachael talcott]

I drive a 2001 Toyota Corolla, and maintenance is nowhere near what you have budgeted for either new or used. 

[Mr. Frugalwoods]

Yeah, I was going to say that the maintenance seems pretty high, for both vehicles.  Where were you getting that from? 

We've spent about $300/year for the past 4 years on our 1996 Honda Odyssey minivan... with 200k+ miles on her.  Anecdotes != data and all, but that number seems odd.

[Khaetra]

I think you're maintenance costs are way off.  I will have had my 'new-to-me' Altima for almost a year now and the only thing I had to replace was the brake switch, a $30 part and 15 seconds of work.  I do my own oil changes and brakes which saves quite a bit but I don't think I've ever owned a car that required that much money for yearly maintenance.

[Returnoftheyeti]

You always pay more taxes on a new car, as the taxable amount is before any rebates, discounts, etc....

These rebates are often in the thousands of dollars.

[RWD]

Sources are KBB and Intellichoice, as linked in the first post. I agree that maintenance costs are high. The source assumed 15k miles per year and probably servicing it at a dealer. These numbers are better in comparison to each other than as an absolute guess on actual costs.

How do miles already on the car affect the calculations? For example, I bought a 2008 Honda Fit this summer, but with just 56,000 miles on it.

Also, how does miles per year affect it? Do you have an Excel spreadsheet with inputs that could show these calculations?

Lower mileage than usual will typically result in a higher initial purchase cost and lower maintenance. More miles driven per year will increase your fuel and maintenance costs.

I drive a 2001 Toyota Corolla, and maintenance is nowhere near what you have budgeted for either new or used. 

See above for why maintenance is estimated so high. As a side note, the source I used only has numbers going back to 2010 model vehicles. I wish I could have included older vehicles as well.

You always pay more taxes on a new car, as the taxable amount is before any rebates, discounts, etc....

These rebates are often in the thousands of dollars.

It is mentioned in the first post that this all ignores sales tax. Though depending on the vehicle this will be partially offset by rebates/discounts. I didn't want to include this as it is variable depending on your state and price negotiations.

[RWD]

Do you have an Excel spreadsheet with inputs that could show these calculations?

I did make a spreadsheet, but it's really not plug and play. I mostly used it to sum values and calculate depreciation and lost opportunity cost.

[Bob W]

Get your dealers license for $300.   You can then purchase cars tax free for 35% below retail at auction. Sell them as often as you like for a profit.   Spend about 40 hours per year,  drive for free,  and make money on a great side gig.   After 10 years you'll be 100,000 ahead and will have a great and easy way to earn 20% on your your stache in retirement.

[Fastfwd]

Assumptions:

• 10% depreciation per year after inflation

In my experience depreciation is not stable year to year and you can easily get 20%+ depreciation on a new car and almost no depreciation past 10 years. Also insurance is much higher in the first few years and sometimes requires additional costs such as having major components stamped with a serial#. Those are the main reasons why I keep away from new cars. With insurance the same and depreciation stable I would buy new and just keep it a very long time.

[Indexer]

Just thought I would throw in some info on a car with a little more long term information.

Toyota Camry, all the most basic models.  For used models I use the clean trade in value.  This is the same value used by financial institutions for valuing a used car.  At least in this part of the country the banks and dealerships are going off NADA.
http://www.nadaguides.com/

2015:  $22,970
2010:    $9,625
2005:    $5,626
2000:    $2,475

I couldn't get the 5 year cost of ownership for all 4, but I did get the cost estimates for the 2015. 
Depreciation:  13282
Insurance:  5119(83/mnth)
Fuel: 9853
Taxes & Fees:  2601
Maint:  4020(this seems high)

(I added)Opportunity cost of 22970 not invested for 5 years(4% ROR): $5077
Total for 2015:  $39951.29

Obviously depreciation is HUGE early on, and almost meaningless after 10 years.  These cars all have pretty similar MPG.  Insurance will probably go down as will taxes.  Maint. might go up some because you need more repairs on an older car, but 4020 already seems really high so I doubt thats going up to much if at all.

[RWD]

Assumptions:

• 10% depreciation per year after inflation

In my experience depreciation is not stable year to year and you can easily get 20%+ depreciation on a new car and almost no depreciation past 10 years. Also insurance is much higher in the first few years and sometimes requires additional costs such as having major components stamped with a serial#. Those are the main reasons why I keep away from new cars. With insurance the same and depreciation stable I would buy new and just keep it a very long time.

Yes, first year depreciation is typically the worst and there will always be a floor where it stops depreciating. 8-10% seems to be about the average though.

I've never heard of serial number stamping costs for a new vehicle. I do know that if you finance your vehicle the insurance company will require a higher level of coverage. States with an annual use tax will probably be more expensive for a new vehicle as well.

[CDP45]

Great example here RWD. I think your 2015 numbers are more accurate, and if you add up the first 5 years of depreciation it comes very close to your 2010 used cost. 
I think your maint. costs on the 2010 are way too high- $8,236 over 10 years? Nawww.

Code: [Select]

| Used 2010 Fit $10,000
Year | Insur. Fees Fuel Maint. Deprec. Lost Interest TOTAL SUM
1 | 632 94 1,600 204 1020 401 $3,951
2 | 632 94 1,600 184 918 538 $7,917
3 | 632 94 1,600 165 826 675 $11,909
4 | 632 94 1,600 149 743 815 $15,942
5 | 632 94 1,600 134 669 998 $20,069
6 | 632 94 1,600 123 616 1168 $24,302
7 | 632 94 1,600 113 566 1336 $28,643
8 | 632 94 1,600 104 521 1505 $33,100
9 | 632 94 1,600 96 479 1678 $37,678
10 | 632 94 1,600 88 441 1895 $42,429



Yielding a difference of  $13,926 from your 2015 numbers, so about $1,400/yr, or $116/mo. So a new question arises, is a 2010 total car cost worth $353/mo all in averaged over 10 years? 15k miles/yr is quite a bit of driving though, and compare these costs to living close to work and occasional paid car cost/mo, I think rent/mortgage would easily be $200/mo close in, and the opportunity costs on a more expensive house/condo would be even greater.

Edit: How about the margin investment difference between a 4% investment gain and a 2.49% loan? I think this low rate environment really cuts back on the opportunity costs.

[RWD]

I think your maint. costs on the 2010 are way too high- $8,236 over 10 years? Nawww.

Regular maintenance includes oil changes, brake fluid changes, brake pads/rotors, air filters, tires, drive belts, timing belt, clutch, wipers, bulbs, transmission fluid, coolant, spark plugs, battery, etc. And then you have repair costs on top of the expected things. According to IntelliChoice repairs are expected to be 1/3 of the total maintenance/repair costs.

Let's add these up using the lowest numbers from repairpal.com:
Oil change (x13) + filter: $29 * 13 = $377
Brake fluid (x4): $93 * 4 = $372
Brake pads and rotors, front and rear: $812
Air filter (x10): $41 * 10 = $410
Drive belts (x5): $111 * 5 = $555
Timing belt: (Fit has a timing chain, expect $500+ otherwise for service) $0
Clutch: $782
Tires (x2 sets): $400 * 2 = $800
Tire rotations (x20): $30 * 20 = $600
Wipers (x5): $20 * 5 = $100
Coolant flush: $86
Spark plugs: $138
Battery (x2): $133 * 2 = $266

Total maintenance only: $5,298

And this is with using the low numbers and leaving out some things (like the bulbs, transmission fluid, only one clutch replacement, etc.). If we expect repairs to be half that (as estimated by IntelliChoice) then our total comes to $7,947. So for 15k miles per year, not doing service yourself, I think the $8k figure for 10 years is reasonable.

Of course, as a true Mustachian you should learn how to do most of the basic maintenance yourself and save at least 50% on these costs.

EDIT: forgot clutch replacement...

Edit: How about the margin investment difference between a 4% investment gain and a 2.49% loan? I think this low rate environment really cuts back on the opportunity costs.

I'm not sure what you're asking here. The 4% investment interest is after inflation.

[CDP45]

Well I don't think you have an opportunity cost to money you don't have.

One can borrow $10,000 for a used car loan at 1.99%-2.49% no money down, so that would reduce the opportunity cost and increase the monthly payment. The opportunity cost (and really it should be labeled forgone market interest earnings) would then start at $0 and increase at the monthly payment, so really much less than plopping down $10,000 of savings.

I think IntelliChoice is not really accurate on all those repair costs, such as spark plugs being $138. Spark plugs cost $7/each (Bosch Iridium/Spark Plug Price: $6.99, stock spark plugs are $1.99/ea) and are easier to chance than blinker bulbs. Batteries cost more like $80, and brake fluid $94?? An automatic tranny doesn't need a clutch at $150k either. That brake job price is like double also.

Baking cinnamon rolls and using the internet is probably more technically challenging than most of these auto maintenance tasks.

[RWD]

Well I don't think you have an opportunity cost to money you don't have.

One can borrow $10,000 for a used car loan at 1.99%-2.49% no money down, so that would reduce the opportunity cost and increase the monthly payment. The opportunity cost (and really it should be labeled forgone market interest earnings) would then start at $0 and increase at the monthly payment, so really much less than plopping down $10,000 of savings.

The numbers I used assumed you paid cash for both the used and new car. The opportunity cost difference is reflected in the Lost Interest column. If you were to finance then yes, the lost interest would not be as significant. Doing this would favor the new car more.

I think IntelliChoice is not really accurate on all those repair costs, such as spark plugs being $138. Spark plugs cost $7/each (Bosch Iridium/Spark Plug Price: $6.99, stock spark plugs are $1.99/ea) and are easier to chance than blinker bulbs. Batteries cost more like $80, and brake fluid $94?? An automatic tranny doesn't need a clutch at $150k either. That brake job price is like double also.

Baking cinnamon rolls and using the internet is probably more technically challenging than most of these auto maintenance tasks.

Are you not reading what I'm writing? The itemized list is from repairpal.com, which is supposed to be realistic estimates for each individual repair task at a shop. I picked the lower range of their estimates. I added them all up as a second opinion to validate IntelliChoice's numbers. I am now more confident in their numbers.

I've stated multiple times that these values are assuming you don't do the maintenance yourself. I agree that you should be doing as much yourself as possible, but I want an apples-to-apples comparison to the new car costs which are also assuming paying someone else to fix your car.

I'm seeing people posting about being quoted $500 for spark plug changes at a shop/dealer (not on Honda Fit). $138 honestly sounded too cheap to me.
The last battery I bought for a car was $100. I think $133 is in the ballpark.
Pep Boys lists $70 for a brake fluid change on their site. $93 (don't know where you got $94) doesn't sound outrageous.
An automatic transmission doesn't even have a clutch, what are you talking about? I'm assuming manual transmission for this car though. The used car will already have some 40-75k miles on it when you buy it, as it will be five years old. If you don't need a clutch replacement before 200k miles I'll be amazed.
I was extremely generous with only allotting one full brake change. Some further Googling suggests $500-800 is reasonable to expect for replacing all four rotors and pads. In addition, brakes are expected to last between 50k and 70k miles, which means I could make an argument for doubling the cost instead af halving it. Maybe triple if the brakes haven't been done before you buy it. And I didn't even include the possibility of needing to replace the pads separately from the rotors more often.

My intention with this topic was to get a decent relative comparison of the costs between purchasing used and new. Not to argue whether the absolute value of either was too high or low. I could redo all the numbers assuming you do maintenance yourself, but the end [relative] result would be more or less the same.