Buying a car — new: Part 2

Apparently right now is a particularly bad time to buy any type of car: Don’t buy that car yet, whether it’s new or used.

Something of a perfect storm: bad economy led to poor sales of new cars in 2008-09 (which means low supply of 2-3 year old used cars now), cash for clunkers wiped out a huge chunk of the supply of older used cars, and now the Japan tsunami has severely curtailed production of new Japanese cars as well as all sorts of parts used in other country's new cars.

wow, scorching comments to your first post. it seems as if some of your readers have been listening to and implementing Dave Ramsey's level of blunt-ness. In any case, we, too bought a new minivan in 2008. Yep, Chrysler at that time was offering a $5000 rebate, and the dealer was willing to give me $2500 in trade-in for my $500 vehicle (bluebook value $500). I figured that extra $7,000 took care of the off-the-lot depreciation. Normally, I would never buy a new vehicle. But we looked at used vans and they were selling for only $3,000 less than new after the discounts (and did not include the lifetime warranty on engine, transmission, and drive train that my new one has). And the used ones had 30-40,000 miles.

So recap: brand new minivan for $22,200 after rebate and trade-in with 3 yr bumper-to-bumper warranty and LIFETIME warranty on engine, transmission, and drive train...OR...
used minivan with 30,000-40,000 miles, no lifetime warranty, for $19,000.

To me, it's a no-brainer. Yes, we financed the purchase at 4.9% for 5 years. I started a new business and instead of paying cash for the car and taking out a business loan at a higher rate, I took the car loan instead and payed cash for business startup expenses. However, we paid the car loan off 2.5 yrs early.

It's important to remember that a vehicle is essentially a consumer good. Where do we draw the line with buying new vs used? Do we only buy used TV's, used laptops, used clothes, and used hamburgers? Granted, a car has a longer lifespan than a hamburger, but my point is that a car is meant to be 'consumed' over time. If the biggest argument against buying a new car is the off-the-lot depreciation, then that argument can potentially be mitigated/nullified with dealer/manufacturer incentives, higher trade-in values, and longer warranties, correct?

P.S. I'm 6'7" with 3 little kids who are still in car seats...a used Honda is not in the cards for me.

Despite the dealer incentives and peer pressure, I've always purchased used in the 3-4 year old range. The only time this thinking was challenged:

1. When one of the cars (2003 Nissan Altima) we purchased had secretly been in a wreck. Unfortunately they got it past me despite my extreme attention to detail. Fortunately the frame was not bent, but the paint started peeling after a few years which will probably run us a couple thousand for a good paint job. With 68k miles on it, the paint job will be worth it as we will keep it until it falls apart. However, the amount of interest we have saved by minimizing the amount of each car purchase more than makes up this mistake.

2. When peers showed me their new car financed using a dealer special at 1.9% or 0%! Although they spent more upfront than I did, it's hard to argue with any low interest rate if it's fixed for the life of the loan. The problem still is the overall debt you are adding which a lot of families tend to forget.

I do have to agree with Matthew though, the new factor opens yourself up emotionally for normal things which just happen in life through sometimes no fault of your own. (Dents, dings, scratches) On our 2001 Nissan Altima that I purchased for my wife, the hub cabs were making a terrible noise which the dealer could not seem to fix permanently. So purchased some new rims and sure enough, a year later, I hit the curb deeply scratching one of the rims while pulling into a parking space as the car next to me was parked over the line. What can you do but just cry and laugh at the same time. Just part of life.

Matthew,
This took courage to write this article. I commend you for being so transparent and honest.

I just bought a car in Dec. 2010, but the shopping took nine whole months. There were a couple times when I seriously considered new. Why? Because the last car I bought (a 4 year old BMW) and still own (9 years later) has been nice except for the times when it has gone to the shop. I've learned that I keep cars long enough that they will go to the shop several times under my ownership, but there have been times when I sort of wish I had bought that new VW instead. I certainly think it would have been just as good a purchase as the low mileage 4 year old.

So what did I do this round when buying an SUV for my wife? I did consider new, preferred 1-2 years old, but ended up finding a great deal on a 4 year old with very low mileage.

Hi Matthew.

I have purchased several new cars over my driving lifetime (24 years), and several used cars. I've had good luck with every new car, and I have had bad luck with every used car - even ones that I had checked out by a mechanic. So, I am now very wary of used cars.

My goal has always been to keep a car until the wheels fall off. I maintain my cars exactly as the manufacturer recommends, and they tend to last a very long time. I sold my 1994 Saturn when it had 127,000 miles on it, and kept up with the buyer who said it lasted until around 200k. When I sold the Saturn in January 2003, I bought a new VW Jetta 1.8T; that is my daily driver today and it has around 90k miles on it.

In 2006, my wife and I bought a 2006 VW Jetta TDI (diesel) new, and we sold it in 2010 to buy a used minivan for $5,000 cash. The original plan was to sell my 1.8T when my wife needed a replacement, and for me to drive the TDI literally forever (the diesel should have lasted the rest of my driving lifetime), but changes in our finances (a more-than-50% income loss) meant that even the meager monthly payment was out of reach. (For a while we had literally only $15 left over at the end of the month, after only paying bills. No charitable giving, no savings, no fun, no nothing.) Obviously that wasn't going to work, so we sold the TDI.

We still miss the TDI, for several reasons. One reason is that having it and the minivan would've meant owning two cars that my wife could drive. (My 1.8T has a manual tranny.) And, I now drive farther to work, and a diesel would mean significantly lower fuel costs. (Our total monthly fuel cost is more than 10% of net pay. Ouch.)

My current plan is to make both cars last forever. I love the 1.8T, and it should last long enough to be my 3-year-old son's first car. My wife loves having a minivan, but she doesn't love this minivan, but it's all we can do for now. Eventually we need to replace both, so we need to figure out how we're going to do it; today, I'm not sure how that's going to happen.

I did eventually get a small raise, but if I had it to do over again, I'm not sure we would've bought the TDI in the first place, and I'm also not sure we would've sold it instead of selling the 1.8T.

I absolutely do not regret buying the 1.8T. I wanted to sell my Saturn after owning it for just a year or two, but I forced myself to keep it for 9 years. I still love driving the 1.8T like the day I drove it off the lot. Moreso, really, because of the suspension mods and better tires that I have installed over the years. The years of enjoyment I have had driving it have, to me, been worth it. I can't say I would do it today, because of the income loss issue, but I do not regret buying it new when I did.

Daniel