This doesn't take into consideration the uneven aging of cars depending on driver habits, the cost of lost time spent repairing a car (much less on new cars) or finding a car (much less on new cars as well), etc.
Actually, I think it might take some of those into account. It mentions a Lost Wages term, assuming 1/3 day per failure. It also has includes "Transaction costs" for buying a new(er) car. It's been 5 years since I bought my first, and so far only car (a '96 Camry, still going strong), but I'd disagree that the cost of time looking for a new car is much less, if at all.
I would also be inclined to disagree with their assertion that "your car is in no way a positive-dollar-value asset". While I'm sure there are usage patterns where this statement is true, in cities with poor public transit, employment may be effectively directly conditioned on owning a car, thus very quickly making it a positive-dollar-value. I suppose the counter argument is that no one is forcing you to live in that city, but that starts getting really hairy.
Either way, I would like to see the paper that this poster is connected to (if there is one). A lot of the terms and figures
If you know what car you want, you can buy a new car in about an hour without getting cleaned out too badly. If you only pretty much know what you want, add an hour or so to that.
You can easily spend 10-20 times that amount of searching for a used car if you're at all particular about just color, miles, brand/model, etc. "There are no used car factories." If you're very particular about options and condition, it only goes up from there.
All new cars are roughly the same (as other new cars with that config). No two used cars are the same. So you need pre-purchase inspections, research into the history of the car, need to consider whether to throw your money away at used car warranties, etc. I can understand why people who "just want any car" buy new cars.
All that said, I bought one brand new car 14 years ago (when I was 25) and think it was a huge mistake; I'm still driving that car today, 158K miles later, which lessens the failure somewhat.
Even though I could pay cash for any new car the average person has heard of (no Maybach, McLaren, etc), I probably won't buy another new one until I'm too old to work on them. They're just too damn expensive, especially when you look at the huge selection of 3-4 year old off-lease cars selling $0.30-0.40 on the dollar.
This explains better what I was trying to say. Used car shopping is stressful. You never know (unless you're a mechanic or something) if you're getting a good car. You never know if you'll have problems a week later. With a new car, you're protected by warranties at least for a while. Also consider that being the sole owner of a car might make it easier to sell used.
I think the simple fact is that the issue is not simple. It's not enough to say new cars have a huge initial depreciation, so you shouldn't buy them. There are way more things to consider.
I've never owned a new car. In fact, most of the cars I've owned were between 5 and 10 years old when I bought them. That said, I really prefer buying off private sellers, especially when they're the ones that bought the car new. They might be pulling one over on you, but it's easier to judge the history of the car when you meet the owner, see their garage/driveway.
If you just need a car to get you from point A to point B, there's no reason a 5-year-old Honda won't work for you. Especially if you're a two-car family.
Obviously, though, there are other considerations. If you drive 50,000 miles a year for work, a new car is probably smarter. But for the average commuter, I don't think it's necessary to drop 25 large to get a reliable vehicle.
Plus I imagine there is a limit in many jobs to the number of times you can call up and say "I'm sorry I can't make it today, my car broke down" before you don't actually have a job.
While an interesting examination, the problem with articles like this is they have lots of graphs and math to maximize dollars without any consideration of value that can't be stored in the bank; like pride of ownership, owner enjoyment, confidence in reliability, and predictable monthly expenditures (as a function of warranty).
I think his optimism comes from what he has experienced as an average annual growth over the life of the market, I haven't checked the figures myself though.
I often wondered why Dave Ramsey wasn't more popular with HN, he promotes starting businesses like a startup needs to start, work on the side, build your business logically, work your tail off and run LEAN (though he goes a little further and says pay cash for everything).
A car costs about $10-12k per year on average (including gas, insurance, payments, repairs).
If you live in a city with great public transportation, an annual pass will cost about $1200. Taking taxis and renting cars to fulfil those other trips won't add up to much. You can save even more money this way and go green at the same time :)
Yes. I sold my car and motorcycle before moving to SF. Now I use a Zipcar occasionally, taxis a few times a month, and mostly rely on my feet, public transit and my bike.
In SF, a transit pass costs $60 a month for an adult. I probably spend $60 a month on Zipcar (at most), and maybe $30 on cabs. So that's $150 a month on transportation. When I lived in Seattle (a cheaper place than SF) with my beater car, I paid that in auto insurance and parking alone. Even though I didn't drive that much, I was easily spending $300 a month on the car.
I've done this for over a year now, and I really don't miss having a car. Services like Zipcar really make it convenient for those rare occasions when I need a vehicle. The rest of the time, it's incredibly nice not to have to think about it.
If you used taxis and rental cars like you'd use a car you owned, it would be far more expensive, even in the cases where it would be possible (want to run out to the store when you discover you don't have any X while Y is cooking? You're out of luck in most places, unless you have a car).
I just spent a year and a half without a car, and it was a nightmare some weeks. It basically means no spontaneous trips unless you happen to have an extra half an hour to get there, on average. Oh, and the choice between spending several hours a week grocery shopping (mostly in walking to and from the store) or paying 15% extra to have most stuff delivered isn't fun. I think if you put an hourly price on all the inconvenience, a car comes off as the less expensive option.
I wouldn't base that large an expense on something like the cooking problem. I just try to plan better, improvise, have someone cooking for me or just eat out (not these days tough). The problem exists even if you have a car but live out of town.
As always, you need to look at your life and make the appropriate choices. I spent many years without a car and I look back to it as a good time. The trick is to look at things globally and then not sweat on the small expenses (like the grocery delivery charge and taxi fares) if they were budgeted as a way to afford bigger costs.
I just try to plan better, improvise, have someone cooking for me or just eat out (not these days tough).
Ultimately, that's the choice, yes: is it worth having a device to avoid having to plan your life around not having it.
The problem exists even if you have a car but live out of town.
That's true. The difference in rent/mortgage is important there, though. In reality, the car I bought last weekend will not cost me anything like 10-12K over the next year (2K for the car, 1K for insurance, 1-2K for gas) unless it has terrible repair costs, but there's an upper limit of 2-3K on repairs before I just buy a different car. Now, if you're paying $500/mo plus insurance and drive it 50 miles to work every day, it might be different.
Around DC, there are several such, including Peapod (operated by Giant) and Safeway.com. I've used both, and while neither have a great selection or a perfect web interface for shopping, they do okay if you take the inherent limitations into account (don't order produce or breakables, and assume they'll fail to stock sufficient quantities of low-margin things, like 2L soda, in my experience).
--and 10 minutes is the outer limit. Good dense places to live have food shops open long hours within 5 minutes walk, because all those people depend on them.
Yet this completely wipes out the savings from not having a car, in most places where not having a car is otherwise feasible, I'd imagine.
But 25 minutes (10 each way and an optimistic 5 to get something, wait in line, check out...) is too long for this use case anyway, in my opinion; it's just barely possible with a car, and I live about 12 minutes walk or 3-4 minutes drive from a store right now.
Where'd you get that figure? AAA says 71c/mile, or $7100/year if you drive 10K miles, and that's an average, meaning it's possible to do much better.
Otherwise, I agree with you in principle, but living in a city with great public transportation isn't an option for everyone.
As for the original analysis, the point where maintenance costs exceed the value of the vehicle is irrelevant. I typically drive cars way past the point where they're basically worthless; as long as the maintenance costs are under a couple of thousand a year, I figure I'm better off than I would be buying a replacement.
Even after looking at the graphs, I find it disconcerting that our society considers something as complex and expensive as a car to be disposable after 10 years.
Disposable? I don't see anything that suggests that you bury it in a landfill after 10 years. All I see is a sweet-spot calculation for when to liquidate the asset. I think the assumption is that someone would buy it and use it.
I'm in the process of selling a condo and buying a house. Does that make my condo "disposable"?
Sure, someone would probably buy it and use it, but ultimately at a disadvantage; they would end up paying more in maintenance costs than the vehicle was worth. They would be doing that out of necessity; if they had the credit or initial funds, this pretty clearly indicates that they'd be better off, financially, buying a 5-year-old car instead.
If the car's maintenance costs exceed its value after 15 years, then it should be considered "disposed" at that point, even if it hasn't been thrown away. Just because you can sharpen the blades on a disposable razor doesn't make the razor less disposable.
After looking more closely at the graphs though, I realized that I misinterpreted the headline here. The headline suggests that the car becomes disposable at 15 years of age, and the graph actually has it closer to 20 I think. That's not quite so bad.
Still, do not despair. The problem here is not that the car is considered disposable by that criteria. The problem is the criteria itself, in particular: 1) the definition of the asset's value, 2) the definition of maintenance costs, and 3) the notion that the asset should be considered "disposed" when those ill-defined maintenance costs exceed that ill-defined value.
The problem with #1 is that an asset's value to its owner is only partially represented by the amount of money for which it can be liquidated.
The problem with #2, is that they include operational costs (fuel, etc.) that one would bear regardless of which car they owned.
The problem with #3 is your concept of 'disposable', which may work for you but is not universal. Someone else might only consider it 'disposable' when problems begin to appear in a notoriously expensive-to-repair subsystem, like the transmission. And, even then, the car tends to not actually be disposed because its parts can be used to keep other similar models alive.
I guess I feel like your lament hinges upon one very narrow possible meaning of the word 'disposable'. Perhaps "fully depreciated" is more close to the idea you wanted to capture?
I pretty much adhere to this -- I buy an older car, somewhere in the 5 to 10 years old range. I pay cash. That way I don't worry about totaling it. I know that no matter what happens to it, I can just replace it with maybe a week's notice without making a significant dent in my cash flow.
I made someone's day once when they rear-ended me and I told them the car was a piece of shit anyway, so have a nice day. It's a load off one's mind.
Having a fair and trustworthy mechanic makes a large difference in effectively managing/achieving the cost savings of a used car.
I've gone through a couple of referrals that have provided me with honest, helpful service (the first went into full-time commercial work, whereupon she referred me to another shop she respected). They may not always quote the cheapest price, but it's a fair price, and I understand or can have explained exactly how it breaks down. They also understand my position with regard to keeping the vehicle safe and reliable, but not spending money unnecessarily.
Further, their work is entirely reliable. The owner is someone who has a personal investment in doing things right. It's not just about the money; he finds value in a quality job.
As a result, they've had my steady business for years. Win, win. And a few repair jobs in the average year is a lot less that new car payments.
(I even switched to doing my oil changes there, as well. It takes a bit more planning and works best if I schedule and show up first thing in the morning, before they get other work onto the lifts. But it provides them a bit more income, and I don't struggle with mismounted filters, nor find my tire pressure varying 50% between the different tires, etc., etc.)
The real treasure is finding a shop like this. It's something I worry about, if/when I have to move.
If you have a mechanic like this -- someone you know and really trust -- and are looking to buy a used car, ask them what they like for your circumstances. It's a pretty good heads up on what is reliable and economical. Plus, you know they'll work on it. (Do also check Consumer Reports' ratings, though.)
33 comments
[ 3.5 ms ] story [ 78.4 ms ] threadI would also be inclined to disagree with their assertion that "your car is in no way a positive-dollar-value asset". While I'm sure there are usage patterns where this statement is true, in cities with poor public transit, employment may be effectively directly conditioned on owning a car, thus very quickly making it a positive-dollar-value. I suppose the counter argument is that no one is forcing you to live in that city, but that starts getting really hairy.
Either way, I would like to see the paper that this poster is connected to (if there is one). A lot of the terms and figures
You can easily spend 10-20 times that amount of searching for a used car if you're at all particular about just color, miles, brand/model, etc. "There are no used car factories." If you're very particular about options and condition, it only goes up from there.
All new cars are roughly the same (as other new cars with that config). No two used cars are the same. So you need pre-purchase inspections, research into the history of the car, need to consider whether to throw your money away at used car warranties, etc. I can understand why people who "just want any car" buy new cars.
All that said, I bought one brand new car 14 years ago (when I was 25) and think it was a huge mistake; I'm still driving that car today, 158K miles later, which lessens the failure somewhat.
Even though I could pay cash for any new car the average person has heard of (no Maybach, McLaren, etc), I probably won't buy another new one until I'm too old to work on them. They're just too damn expensive, especially when you look at the huge selection of 3-4 year old off-lease cars selling $0.30-0.40 on the dollar.
I think the simple fact is that the issue is not simple. It's not enough to say new cars have a huge initial depreciation, so you shouldn't buy them. There are way more things to consider.
If you just need a car to get you from point A to point B, there's no reason a 5-year-old Honda won't work for you. Especially if you're a two-car family.
Obviously, though, there are other considerations. If you drive 50,000 miles a year for work, a new car is probably smarter. But for the average commuter, I don't think it's necessary to drop 25 large to get a reliable vehicle.
There is more to value and cost than money.
http://www.daveramsey.com/etc/lms/drive_free/player.cfm
I often wondered why Dave Ramsey wasn't more popular with HN, he promotes starting businesses like a startup needs to start, work on the side, build your business logically, work your tail off and run LEAN (though he goes a little further and says pay cash for everything).
If you live in a city with great public transportation, an annual pass will cost about $1200. Taking taxis and renting cars to fulfil those other trips won't add up to much. You can save even more money this way and go green at the same time :)
In SF, a transit pass costs $60 a month for an adult. I probably spend $60 a month on Zipcar (at most), and maybe $30 on cabs. So that's $150 a month on transportation. When I lived in Seattle (a cheaper place than SF) with my beater car, I paid that in auto insurance and parking alone. Even though I didn't drive that much, I was easily spending $300 a month on the car.
I've done this for over a year now, and I really don't miss having a car. Services like Zipcar really make it convenient for those rare occasions when I need a vehicle. The rest of the time, it's incredibly nice not to have to think about it.
I just spent a year and a half without a car, and it was a nightmare some weeks. It basically means no spontaneous trips unless you happen to have an extra half an hour to get there, on average. Oh, and the choice between spending several hours a week grocery shopping (mostly in walking to and from the store) or paying 15% extra to have most stuff delivered isn't fun. I think if you put an hourly price on all the inconvenience, a car comes off as the less expensive option.
As always, you need to look at your life and make the appropriate choices. I spent many years without a car and I look back to it as a good time. The trick is to look at things globally and then not sweat on the small expenses (like the grocery delivery charge and taxi fares) if they were budgeted as a way to afford bigger costs.
Ultimately, that's the choice, yes: is it worth having a device to avoid having to plan your life around not having it.
The problem exists even if you have a car but live out of town.
That's true. The difference in rent/mortgage is important there, though. In reality, the car I bought last weekend will not cost me anything like 10-12K over the next year (2K for the car, 1K for insurance, 1-2K for gas) unless it has terrible repair costs, but there's an upper limit of 2-3K on repairs before I just buy a different car. Now, if you're paying $500/mo plus insurance and drive it 50 miles to work every day, it might be different.
But 25 minutes (10 each way and an optimistic 5 to get something, wait in line, check out...) is too long for this use case anyway, in my opinion; it's just barely possible with a car, and I live about 12 minutes walk or 3-4 minutes drive from a store right now.
Otherwise, I agree with you in principle, but living in a city with great public transportation isn't an option for everyone.
As for the original analysis, the point where maintenance costs exceed the value of the vehicle is irrelevant. I typically drive cars way past the point where they're basically worthless; as long as the maintenance costs are under a couple of thousand a year, I figure I'm better off than I would be buying a replacement.
I'm in the process of selling a condo and buying a house. Does that make my condo "disposable"?
If the car's maintenance costs exceed its value after 15 years, then it should be considered "disposed" at that point, even if it hasn't been thrown away. Just because you can sharpen the blades on a disposable razor doesn't make the razor less disposable.
After looking more closely at the graphs though, I realized that I misinterpreted the headline here. The headline suggests that the car becomes disposable at 15 years of age, and the graph actually has it closer to 20 I think. That's not quite so bad.
The problem with #1 is that an asset's value to its owner is only partially represented by the amount of money for which it can be liquidated.
The problem with #2, is that they include operational costs (fuel, etc.) that one would bear regardless of which car they owned.
The problem with #3 is your concept of 'disposable', which may work for you but is not universal. Someone else might only consider it 'disposable' when problems begin to appear in a notoriously expensive-to-repair subsystem, like the transmission. And, even then, the car tends to not actually be disposed because its parts can be used to keep other similar models alive.
I guess I feel like your lament hinges upon one very narrow possible meaning of the word 'disposable'. Perhaps "fully depreciated" is more close to the idea you wanted to capture?
I made someone's day once when they rear-ended me and I told them the car was a piece of shit anyway, so have a nice day. It's a load off one's mind.
I've gone through a couple of referrals that have provided me with honest, helpful service (the first went into full-time commercial work, whereupon she referred me to another shop she respected). They may not always quote the cheapest price, but it's a fair price, and I understand or can have explained exactly how it breaks down. They also understand my position with regard to keeping the vehicle safe and reliable, but not spending money unnecessarily.
Further, their work is entirely reliable. The owner is someone who has a personal investment in doing things right. It's not just about the money; he finds value in a quality job.
As a result, they've had my steady business for years. Win, win. And a few repair jobs in the average year is a lot less that new car payments.
(I even switched to doing my oil changes there, as well. It takes a bit more planning and works best if I schedule and show up first thing in the morning, before they get other work onto the lifts. But it provides them a bit more income, and I don't struggle with mismounted filters, nor find my tire pressure varying 50% between the different tires, etc., etc.)
The real treasure is finding a shop like this. It's something I worry about, if/when I have to move.
If you have a mechanic like this -- someone you know and really trust -- and are looking to buy a used car, ask them what they like for your circumstances. It's a pretty good heads up on what is reliable and economical. Plus, you know they'll work on it. (Do also check Consumer Reports' ratings, though.)