To Buy or Not To Buy
June 22, 2011 4:59 AM   Subscribe

When does it make financial sense to replace a car?

I'm driving a 1990 Mercedes sedan with 200k+ miles on it. The last few years have seen an increasing number of quirks developing, and I figure in the past 5 years I average about $600 a year in unexpected maintenance/repair expenses (ie, not including oil changes, tire replacement, brakes). I keep hearing that you get the most value out of a car by driving it into the ground; that it's almost always cheaper to keep fixing what you've got than to replace it. However, it seems reasonable to believe that I'm due for some kind of major repair work (tranny rebuild, engine mount replacement) or failure that essentially totals the car. So I've been keeping my eyes open for a replacement, with the intent of selling what I've got while it's still fully drivable.. but I keep thinking I can eke just a little more value out of my current car, and not being able to feel really good about replacing it.

I'd like some suggestions for algorithms / formulas to help quantify this decision.

Something like the popular NTY "buy or rent" calculator, except I'm envisioning something that takes your current vehicle info, proposed replacement info, and helps one understand what kind of net monthly/yearly amortized cost difference is actually present. Factors I'd like to see included: year/make/model, insurance cost differences, brand maintenance cost differences (ie, German car maintenance being typically more expensive than Japanese or American), a plausible curve for increasing repair expenses over time, etc. Other things I'm sure I'm not thinking of.. etc.
posted by kanuck to Work & Money (16 answers total) 8 users marked this as a favorite
Another factor is the inconvenience of having your car break down *again*. Having a reliable car is worth a good chunk of money, which is why many people sell just before the car's resale value dives.
posted by devnull at 5:13 AM on June 22, 2011

The tranny may go tomorrow. If it does, you can re-evaluate with the new information then. But it might last another 3 years, so don't guess.

FWIW. my 97 Mazda has averaged about $1200 a year over the last 4 years. That is equivalent to a $100 car payment. Could I buy a better car for $100 a month? I don't think so.
posted by COD at 5:23 AM on June 22, 2011

I'm surprised there's no mention of gas mileage. How much would you say you spend a year on gas for your current vehicle? For that type of car, I'm guessing that you're getting around 17-19mpg city. If you spent, lets say, $200 in gas per month driving then switched to a more efficient 29mpg city car, you'd save $100 a month. And the math is easy; over the course of a year that's $1200.

Might be a factor worth delving into. It's definitely what helped us switch from a Mercury Van to a Ford Focus.
posted by samsara at 5:32 AM on June 22, 2011

I got rather obsessive about doing this kind of analysis last year when my wife's VW Jetta had several expensive problems in quick succession, making it both expensive and unreliable. I had good maintenance and accounting records for the entire time we'd owned the car, so I built a spreadsheet that generated a graph that showed the long-term trend of maintenance, repair and depreciation costs per month, averaged over the entire period we'd owned the car, had dropped sharply for the first few years, then leveled off, then finally started to rise. That rise in the expense trend was my cue to replace the car.

The other thing I learned from my spreadsheet was that we'd lost more money the day we drove that (used) Jetta off the dealer's lot than at any other point along the way. By paying the asking price, which was roughly the typical 'dealer retail' blue book value at the time, we had thrown thousands of dollars in the toilet all at once. So last summer I applied my obsessive tendencies to the task of learning to negotiate a used car purchase. I read this book, prepared carefully, shopped carefully for both the car and the loan, and saved a boatload of cash. A year later, the ('09 Honda Fit) we bought last year still has a private party value that is about $1k more than we paid for it.
posted by jon1270 at 5:34 AM on June 22, 2011 [4 favorites]

Oops. Sorry about the giant link.
posted by jon1270 at 5:36 AM on June 22, 2011

I don't think you're going to find a precise algorithm, because part of it is subjective - how much does having a car break down inconvenience you? An older car is going to be in the shop more often, and with more unexpected problems (typically).

I think as COD said - one look at it can be - how have repair costs over the past year (and I think it's fair to include prospective repair costs if you KNOW something's in the process of flaking out, ex. a reliable mechanic has said your tranny is due for replacement.) compared with the equivalent of a payment? I'm not fond of car loans, so I'll express it as "the amount of money you'd either be paying for a car or could/should be saving for a hypothetical next car".

You could also get a handle on that by looking at repair costs per mile in the past period. The IRS allows $.51 a mile, currently, for tax purposes. Subtracting fuel costs (which can be a part of cost-justifying a different vehicle if you're planning to replace the car with something more fuel-efficient), are you paying more than this to keep the thing running? If so, it may be time to consider another vehicle.

Getting back to inconvenience of repairs, I'll admit I have a low tolerance for that. I travel a lot in my work, and can't stand the idea of breaking down, or my wife breaking down. So I start getting nervous as cars get toward 100K miles, which was probably cost me something over the years - cars can really go much further nowadays.

Something I realized in the past couple of years because of winding up doing a lot of car trading (one car totalled, was part of the issue) - there is a high transaction cost in replacing a car. So if you trade every 2 years, say, there are all the purchase taxes, etc. along with the cost of trading in a car at wholesale (less than it's supposedly worth) and buying one at retail. You could minimize this by buying from an individual, but unless you trust this individual you're taking more risks.
posted by randomkeystrike at 5:41 AM on June 22, 2011

Unfortunately, a big part of this equation is how much you, personally, value having a car that you know isn't going to break down on any given Tuesday afternoon. I had to do some of this thinking myself about this time last year. My 1999 Subaru Impreza had about 150k miles on it, but was starting to get kind of expensive. I'd spent about $1000 on it in the previous six months, and was looking to spend another $1000 on it in the next six. I had replaced the radiator and gotten the timing belt redone, but needed to do the brakes and rear differential, and I was going through spark plugs way too fast, suggesting that there may have been something more seriously wrong somewhere expensive.

The car hadn't actually broken down on me, but the repairs came at a time which caused me a temporary liquidity crisis which I had only just dug myself out of. So I opted to trade it in, because the payments on my current car, while more than I was going to spend on repairs in a given year, were fixed and known amounts, so I could plan around them. Am I spending more money on my car now than I was then? Yes. But because I don't have to worry about an unexpected $600 payment cropping up out of the blue, I sleep better.

How do you value that?

Also, the Prius gets about twice the gas mileage of the Subaru, and I've saved over four car payments in gas over the past year. So that's good.
posted by valkyryn at 5:41 AM on June 22, 2011

I recently ditched my 14-year-old Ford Escort (with only 67,000 miles on it) for a nearly-new Prius because, although the Escort had never broken down on me, things were beginning to wear out that would cost too much to replace.

- the passenger side electric window motor. Cheap to buy on eBay, but expensive to fit.

- a little plastic doohickie inside the door which was affecting the central locking from time to time. A replacement could be picked up for pennies at the breaker's yard, but again, a lot of money to fit.

- a rust bubble that was beginning to flake away.

All these things I could live with, because they didn't affect how the car performed. But then the electrics started playing up and the car would cut out on me when I braked sometimes. I never knew when this would happen. Then I knew it was time to say goodbye, because the cost of fixing that was more than the vehicle was worth and it was starting to become unreliable.

So now I have car payments for two years, but after that I'll have a vehicle which I should be driving for at least the next 10-15 years (I do under 5,000 miles a year) which, unless I'm unlucky, should have little more than routine maintenance and servicing expenses for much of that time.
posted by essexjan at 6:04 AM on June 22, 2011

Hey jon1270, your spreadsheet sounds like a great tool for the OP as well as the rest of us. Care to share?
posted by MustardTent at 6:15 AM on June 22, 2011

I think $600 is still a pretty low annual investment for a car - $50/month. I didn't trade in my last car until I had done one $1500 maintenance job and was looking at another. At that point, it was fairly easy to make the determination. Also, I drove it into the ground to maximize the value, and so I didn't want to sell it on the private market. I traded it in and negotiated a good sale for a used vehicle. So you don't strictly have to keep it in salesworthy condition, if you know how to negotiate a sale with trade that doesn't leave you taken advantage of.

But also, it's true there's no magic formula for this, and a lot depends on your lifestyle (gas usage, need for reliability, need for occasional long-distance travel, commutes, how crippling the breakdown and car-in-the-shop time periods are in your household, etc). Ultimately, I think people drive themselves needlessly crazy worrying about maximizing expenses to do with their car - there's something about the seeming majorness of car purchases and the unpredictability of repair work that freaks people out, when in reality, I spend a lot more money on groceries annually than I do on my car, and have a lot more opportunity to control there.

For me, the point at which I just don't feel safe and don't want to make long trips in the car, and fixing it enough to make that possible is too expensive to justify given the expected additional lifetime in the car, signals trade-in time.
posted by Miko at 6:16 AM on June 22, 2011

What you're paying now for repairs is still far below what you'd pay to service a car loan. Keep the car in good shape and drive it until it becomes hopeless.

FWIW, our 2001 Maxima now has over 375,000 miles on it. Still going.
posted by Thorzdad at 6:17 AM on June 22, 2011

MustardTent: your spreadsheet ... Care to share?

I do still have it, but it wasn't exactly designed for publication. It's messy and customized to our situation. If you want to have a look, memail me your email address and I'll send it along.
posted by jon1270 at 6:27 AM on June 22, 2011

Also, keep in mind that if you make a major repair that thing is now fixed. For example, if you need to replace your transmission, you now have a new transmission (which often comes with its own 3-year/36,000 mile warranty). You might end up replacing the transmission and have the engine rebuilt for less than you would spend on a new used car and drive your Benz for another $200k miles.
posted by VTX at 7:10 AM on June 22, 2011

I am struggling with this myself, being the owner of two cars with a combined age of 32 and mileage of 411,000. They are moderately well maintained, but I am starting to get sick of the drag of something going wrong every damn time I get in the car.

Don't discount the unquantifiable value of not having to fuck around with constant annoyance. On paper, you can't justify it. But when $300 a month for 5 years starts to seem like a smaller annoyance than the unreliability, it might be time to cut bait and buy some peace of mind.

(Note to jon1270: you are absolutely right about a car losing value once you drive it off the lot, that is an unavoidable consequence of buying retail. But I will say that you got lucky with the Fit; they seem to actually be rising in value. Compare the MSRP from Honda's website to what Carmax is selling them for. It is almost unbelievable. All you can do is mitigate the loss, and amortize the price of the vehicle over the life of the vehicle.)
posted by gjc at 7:40 AM on June 22, 2011

a car losing value once you drive it off the lot, that is an unavoidable consequence of buying retail.

Agreed, but I think most people lose more than they need to, especially with used cars. With new cars, dealers don't necessarily have a lot of room to drop the price and still make a profit. With used cars, the markups can be really ridiculous and there is lots of room to come down. The spread between trade-in and dealer retail on a late model used Fit is in the neighborhood of $2k. Ask yourself: what is it that dealers are doing to the car that they need such a markup? (Not much, and they don't.)

We did get lucky in that we bought our Fit just before it started to get really popular in our area. The deal was probably much easier then than it would be today, for our particular car.
posted by jon1270 at 10:34 AM on June 22, 2011

Forgot to address: Compare the MSRP from Honda's website to what Carmax is selling them for. It is almost unbelievable.

Even last summer, we saw a lot of used Fits being advertised at prices higher than MSRP. We also saw that Honda dealers had no shortage of new Fits. We took that to mean that those asking prices were the equivalent of mid-court Hail Mary shots that they didn't expect to make. So we did as the book I recommended above suggests; we ignored the sticker price. The book was right. We bought our Fit for $2,794 less than the big number that was stickered across the windshield. We also turned down the dealer's lowball trade-in offer on the old Jetta, and sold it in a week on Craigslist, saving another $2K.

Sorry if I've belabored these thoughts. I was really shocked at the amount we saved by retaining control of the transaction instead of letting the dealer lead us by the nose. I'm left with the sense that I was taken advantage of during previous car purchases, and I may be permanently mad about that. But I'll get off my soapbox now.
posted by jon1270 at 10:57 AM on June 22, 2011

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