Update by JL’s Team
Thinking about buying a car but unsure whether to buy new or or used? This post is for you.
JL breaks down the per year cost of buying a new car vs three years old vs eight years old.
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Our trusty and faithful 2007 Subaru Forester left this morning with his new family. He was 12 years, 8 months old with 160,773 miles on the clock. In exchange, we were left with 45 small pieces of green paper.
Vicky and Jeff are readers of this blog, and they bought Steve for their son whose 1998 Civic died of rust poisoning. He’ll go first to VT while their son finishes college and then on to WV for graduate school.
We are thrilled that he has found a new home with people who appreciate him.
We bought Steve new on my wife’s birthday in 2007. Paid cash, of course.
He has been, in my judgement, an outstanding car. But he has not been one of those cars people claim to have run for 2-300,000+ miles with no attention other than oil changes and tires.
I confess, I am deeply suspicious of such claims, and chalk them up to selective memories. The same as I do when I hear the claims of people having bested the Las Vegas casinos or having out-paced the index with their stock picking. It is easy to fool ourselves.
This is a minor reason why I keep spreadsheets on my investments and on my cars. The major reason is I am just warped enough to enjoy such things. Here is the one I’ve kept for Steve:
And here’s the same file in Excel:
If you are warped like me, you’ll probably enjoy pouring over it. Among other things, you’ll see I tracked…
- every drop of gas run through him and you can see how his mileage varied from year to year*
- annual depreciation and the opportunity cost (at 5%) of the capital tied up in him
- repairs and maintenance, and you can see how those varied year over year
*this variation tracked with where we lived at the time (more rural = better mileage) and by who was driving him the most. Interestingly, our daughter always got the best mileage.
Now, it would be fair to point out that I have a tendency to “over-maintain” my cars.
You can see where, for instance, in 2013 and again in 2016, I took him in to have the door dings and scratches removed to keep him looking handsome. And did he really need those expensive new struts in 2017? Probably not.
Plus, I don’t do any of the work myself and that adds to the cost.
So, the case might be made that the repair costs could have been significantly lower. But we are looking at not what might have been, but what actually was. And that makes line 25, Total, especially striking.
In total we spent $67,003 over the ~13 years we owned him, an average of $5154 per year.
The first five years, the highest deprecation ones, were all above that average. In fact the annual cost doesn’t dip below it until 2012. No surprise there.
The lowest cost years were:
- 2015 — $2911
- 2016 — $3590
- 2019 — $3873
Each was after the big depreciation years early on. As you might expect and hope. But so were the two most expensive years:
- 2013 — $6463
- 2017 — $6115
In my last post, Why we bought a brand new car, I made this assertion:
To be clear, if you are on the road to FI, you should not be buying new cars.
And I pointed you to the Frugalwoods saying…
In fact, as Mrs. Frugalwoods explains so well in her recent post, you shouldn’t even be buying a newer, low mileage used car.
But is it true?
Well, as my friends at Millennial Revolution say:
Let’s math this shit up!
We’ve already determined that buying Steve new has cost…
- $67,003 over ~13 years
- $5154 per year
What if we had bought him three years old at the beginning of 2010, with 41,721 miles?
- $50,243 over ~10 years
- $5024 per year
How about if we waited until he had 100,000 miles? That would put him at the beginning of 2015 with 104,341 miles.
- $21,992 over ~5 years
- $4398 per year
Why so much lower? Well, in those last five years we enjoyed three of the least expensive years, even while enduring the second most expensive one in 2017.
Let’s get crazy! What if we only kept him for the first three years and then bought new again? You know. Like normal people.
- $16,760 over ~3 years
- $5587 per year
What does this all mean? Well, a few things jump out at me…
- In 2013 and 2017 we had years that cost over $6000, more than any of the first five years big depreciation years
- Even so, the average yearly cost dropped the older Steve got
- Buying Steve new and running him for a long time was cheaper than if we’d moved on after three years…
- …but more expensive than if we had bought him at three years old or at 100,000 miles
Do those last two bullet points mean that buying new and running a car “into the ground” is the more expense choice? This data set can’t tell us. Steve still has many more years of useful life left and the cost trend is down. Vicki tells me her son is warped like me and likely to keep this spreadsheet running. If he does, maybe in a few years he’ll share it.
There are also a few factors to consider that might make Steve an unrepresentative illustration.
- As already noted, I tend to over-maintain my cars. Someone doing just the necessary stuff would have still lower costs in the later years.
- Steve is the base model Forester, as is Steve 2.0, so the depreciation hit over the years is less. As I explained in my last post…
Most cars have a wide price spread between models, and the (2020) Forester is no different. The MSRP for them ranges from ~$26,000 to ~$36,000. That’s a $10,000/38% difference between them. Each year that difference will shrink on the used car market until somewhere 7-10 years out, a used Forester is a used Forester and the price difference is solely based on miles and condition. Indeed, for some cars, the simpler versions might just become more desirable and command a higher price.
- Subarus are modestly priced cars to start with and historically hold their value better than most.
The cars that tend to deprecate the most are the expensive premium brands and the highest optioned models of the others. The moral?
- If you want to buy new, you’ll be hurt less with a base model of a mid-level car.
- If you want all the luxury options and/or a premium brand, buy used. Those take the biggest depreciation hit and thereby give you the the most reward for buying used. Of course, they are likely to need more, and more expensive, repairs as they age.
This has been fun to work through and I confess I wasn’t sure how the numbers would fall out. As Kristy and Bryce say, it pays to “Math that shit up!”
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The dark side of buying used…
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I haven’t forgotten that in the last post, I teased you with this…
We just bought a brand new 2020 Subaru Forester and (gasp!) we even had to take a loan to do it. But it’s not what you think.
I’ll explain later in the next post: How we bought our new car. I’ll also explain there the process we used to buy Steve 2.0 and why we didn’t buy it from the dealer offering the lowest price, who happened to also be the one closest to us.
Still teasing, but one day…
In the comments, Nancy asked how I calculated the depreciation and opportunity costs. My reply…
At the end of each year I look up what the car is worth on sites like Edmunds and KBB. Once I decide on that number, I subtract it from what the car was worth the year before and that is the depreciation.
The opportunity cost is 5% of whatever the car was worth at the beginning of that year.
5% is pretty random, but I chose it because it is a fairly low return that should be easily obtainable were the cash not tied up in the car.
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From our friends at Stop Ironing Shirts…
The 150,000 Mile Decision: Repair or Replace?