to buy new or used car?

[leonk]

Hi all,

Let's say a friend of mine wants to buy a car.
The question is to buy new or used.

I previously thought that the math goes like that.
Cars depreciate roughly 50% every 4 years (simplification).
So let's say someone buys new car for 40K drives 4 years and sells it;
amortization 20K. The person, who buys it next, drives 4 years and sells it
for 10K; amortization 10K. We're assuming of course,
no major investment is required in either time period (1-4 or 5-8 years).
See what I mean? Amortization of 10K vs 20K, 2.5K out of pocket annually
for a pleasure of driving slightly newer car.
I arbitrarily chose 40K as a price of the new vehicle
here, there are of course cheaper and more expensive cars.
I don't take financing or cost of money into account in the above example.

Here's another way to look at things. A friend of mine tends to drive his cars longer than 4 years. In fact he finds one he likes and drives it into the ground.
The buyer has the money and so can pay cash for the vehicle. The only debt he has is the mortgage (10 more years remaininng give or take).
He could buy brand new car or say 4 yo.
While there's a difference in price of a new vs 4 yo vehicle, it's not 50% as noted earlier, but something like 41K new/25K used. Assuming 15 years complete amortization, i.e. car worth $0 when 15 yo. The difference in average annual amortization is surprizingly low, I'd say practically negligible. The only remaning consideration would be the 'cost of money', i.e.
lost opportunity to put the difference between the cost of the new car and the used one towards the mortgage prepayment. While at current interest rates this is also not a big deal,
if the interest rates rise (and this guy's mortgage gets adjusted) the 'cost of money' can increase quite substantially.
He woulnd't consider 'investing' the difference, so please don't offer buying forex futures and such

Any thoughts? I am looking for validation (or not) of the above logic and any gotchas.

[kcowan]

Buying a four-year-old car will always be cheaper is you purchase a reliable unpopular vehicle. Often selected models of Ford and GM have good repair records but depreciate faster. So if you can put your ego aside, it is a good strategy.

We bought a one-owner 2005 Ford Escape AWD last summer for $12500. We intend to keep it for five years.

[Armi]

My dad bought a S60 from Volvo a few years back, used from BC. He drove it down to L.A. for work and drove it back. He sold it and got a profit. A tiny one like $50 or so but that's pretty good for adding mileage and age on the car.

You can sometimes find a tremendous deal if you buy used. There's no huge advantage of buying a new vehicle if you don't need the new car smell If you keep the car in good shape, it'll run great!

+ you have to pay all of those taxes and pay for the shipping costs, etc. Not worth it if you add up imo.

[MaxFax]

The answer to the question is really not determined by $$ but by risk.
It is pretty safe to say it is always cheaper to buy used, if you can presume that the auto has been 'used' to the same extent you personally would use/abuse it.

BUT when you buy 'used' the seller
* has more information than you (thus the price advantage you demand) , but also
* has a reason for selling that is most likely that there is some problem with the vehicle, and/or
* has anticipated his re-sale and so had driven the ---- out of the car.

[deaddog]

BUT when you buy 'used' the seller
* has more information than you (thus the price advantage you demand) , but also
* has a reason for selling that is most likely that there is some problem with the vehicle, and/or
* has anticipated his re-sale and so had driven the ---- out of the car.

Or more likely the seller is caught up in our consumer culture and feels he has to impress his neighbors with a new car every couple years.

I buy used, usually off lease/rental, less than a year old, less than 20000 km, with a couple years left on the warranty.

I hate driving a new car off the lot knowing that it just cost me $5000 plus in depreciaition.

[brucecohen]

I hate driving a new car off the lot knowing that it just cost me $5000 plus in depreciaition.

Depreciation matters only if you don't drive the car into the ground. Common wisdom holds that buying used costs less, and that makes sense. Still, it occurred to me that for the long-term owner buying new provides x years of transportation while buying used provides x minus the age of the car. I believe you said you buy off-lease cars that are only a year old. So this consideration is irrelevant for you, but would be a consideration for someone thinking about a car that's 3-4 years-old.

[couponstrip]

BUT when you buy 'used' the seller
* has more information than you (thus the price advantage you demand) , but also
* has a reason for selling that is most likely that there is some problem with the vehicle, and/or
* has anticipated his re-sale and so had driven the ---- out of the car.

Or more likely the seller is caught up in our consumer culture and feels he has to impress his neighbors with a new car every couple years.

I buy used, usually off lease/rental, less than a year old, less than 20000 km, with a couple years left on the warranty.

I hate driving a new car off the lot knowing that it just cost me $5000 plus in depreciaition.

In the last year we bought a new car. We intended to buy used for all the usual arguments of depreciation and better value, but we were looking at 1-2 year old cars because the models older than that did not have the safety features we desired. However, the used version of the vehicle we were interested in were not in great supply - only four from 2007-2009. Only one used vehicle was added to the market during the two month period we looked, and two of the others sold. All asking prices were less than $2,000 off of the price for the 2010 vehicle undriven (new vehicle cost after negotiation using car cost canada data was $43,000 out the door). We made an offer of $40,000 to one of the used sellers and he told us his price of $41,500 was "firm". So we looked at the problem from a different perspective. For a less than 5% premium, we get an undriven car with full warranty and the security of knowing that we are not being sold a lemon or car with concealed damage, and we get to pick the interior and exterior colour. We felt that 5% premium was worth eliminating those "risks" as MaxFax has outlined above.

The used car strategy may have worked better for us if we had settled on a popular North American car which I understand tend to have more rapid depreciation and are in greater supply in the used market.

The depreciation that occurs within the first year is the greatest, but is irrelevant to us since we drive our cars for 10+ years, and there is usually little residual value when we are done with them.

[Bylo Selhi]

We intended to buy used for all the usual arguments of depreciation and better value, but we were looking at 1-2 year old cars because the models older than that did not have the safety features we desired.

That's the rub, and it applies whether you buy new or used, when you plan to buy-and-hold for the long run. Our 8-year old Subaru Forester runs great. If it stays that way I'd keep it for several more years. However among other recent safety features, it lacks Electronic Stability Control (ESC.) Transport Canada (as well as Consumer Reports) considers ESC so important that it will be mandatory next year. At what point is it worth changing cars for the improved safety?

However, the used version of the vehicle we were interested in were not in great supply - only four from 2007-2009. Only one used vehicle was added to the market during the two month period we looked, and two of the others sold. All asking prices were less than $2,000 off of the price for the 2010 vehicle undriven... The used car strategy may have worked better for us if we had settled on a popular North American car which I understand tend to have more rapid depreciation and are in greater supply in the used market.

You were probably looking at mainstream Japanese cars. They hold their resale value because of their high quality so you're unlikely to find any bargains there. The sweet spot for used vehicles is 2 or 3 year old off-lease Detroit iron. These are leased by large fleets, are well-maintained and they turn over at end of lease even if they're in great shape. That constant supply along with Detroit's perceived poor reputation depresses their prices.

BTW I have a friend who's bought two used Hondas in the past year from a dealer who specializes in importing inventory from the US. As is well known, cars sell for less in the US so a 2 or 3 year old used Honda can be purchased wholesale stateside for a lot less than a new one in Canada. He's happy with both vehicles and believes he got good deals. I haven't seen his numbers so I can't be sure. But it's worth a look and it may even work better if you DIY the importation. Since they're used cars there's no problem from Honda about buying them in the US or with getting warranty service in Canada.

[bones1]

I think new cars are likely a better buy now than used cars. With all the discounts and promos that manufacturers are offering, it doesn't make sense to buy used if you're only getting 5%-10% off the price. Personally, I wouldn't even consider a 1 year old used car unless it was at least 25% cheaper. 2 years old, I'd want at least 35% off the price.

My main concern with buying a 1 or 2 year old car is how it was driven. I don't want some idiot breaking in the car. A 1 or 2 year old car is likely to be a rental, or a lemon someone wanted to get rid of.

[Doug]

I bought a 3 year old certified car from a GM dealer. I didn't have a mechanic check it. Later on, when it needed repair, the mechanic told me that he thought it had been in an accident, based on front wheel alignment, paint and unusual wiring in the front right headlight. I subsequently drove that care for another 10 years, until it had a bit more than 159,000 miles on it. The engine needed replaced, and they were no longer being made.

I then bought a new car. Yes, it's more expensive than a used car. But I know what I'm getting. Also, my time is money. A high mileage car, with its attendant repairs, takes time. Right now, I'm planning to keep it for 6 years.

[AltaRed]

I don't want some idiot breaking in the car.

How bad could the break-in be? For some cars these days (not run-of-the-mill iorn), the factory runs the engine at redline on the dyno to conduct performance tests. I've seen cars driven out the Ford Oakville assembly line exit doors pedal-to-the-floor. You have no idea how that 'new' car has been treated. That said, there is some inherent risk in buying used.

[brucecohen]

I bought a new 2009 Subaru Forester for the safety features Bylo cited and also because it was a total redesign that's much quieter and roomier than the previous generation of Foresters. The only negative comments I heard/read from Forester owners was noise and cramped backseat space. Using CarCostCanada made the purchase process quick and painless.

OTOH DW spent a lot of time hunting and, shortly I bought my car, she bought a 2006 Forester that had come off lease. She paid about 40% less than I did. It's a great car with almost everything upgraded....but lacks the sunroof that was a "must have" for me. After doing the deal she learned that it had been driven by Subaru's Canadian customer service manager. NOTE: Her car lacks the ESC that mine has, but feels much more solid on the road. Likely due to the design; it sits lower to the ground and the body height's a bit less. The ESC actually bugs me because a dashboard light comes on when it's activated. So at the very time I'm focused on a near-skid, a new light diverts my attention for a second.

[pmj]

The ESC actually bugs me because a dashboard light comes on when it's activated. So at the very time I'm focused on a near-skid, a new light diverts my attention for a second.

Yet another use for electrical tape (hoping that your instrument panel has a black background)

[brucecohen]

The ESC actually bugs me because a dashboard light comes on when it's activated. So at the very time I'm focused on a near-skid, a new light diverts my attention for a second.

Yet another use for electrical tape (hoping that your instrument panel has a black background)

[marty123]

We're assuming of course,
no major investment is required in either time period (1-4 or 5-8 years).
See what I mean? Amortization of 10K vs 20K, 2.5K out of pocket annually
for a pleasure of driving slightly newer car.

Buying used will save money, but the math is not that simple. You cannot assume that a car in the 5th year won't cost more in maintenance than a car in its first year. It's probably reasonable to factor annual maintenance in the high 3-digits or low 4-digits for a car that is 5+ years and over 150K, with a low risk that you'll have to replace a major component (tranny, head gasket, etc.). Something will break down after 4 years (might be many things), and it won't be covered by the warranty.

It's just not repair, although repairs are 100% certain to be needed between years 5 and 8. On most cars, a tune-up combined with all the fluid changes recommended between 100K and 160K (transmission, differential, cooling, A/C service, etc.) may set you back betweed $500 and $1,000. Add to that a few lights, tires that are 50% worn and brakes that are 50% worn, and a battery that has a 1 in 2 chance of needing replacement and you're possibly up to $1,500 - $2,000 of upkeep (in addition to repairs) in years 5-8 that you didn't see in years 1-4. I'm not making the case for new cars, I'm just saying that it's not just a matter of depreciation.

[rant]Something I can't figure out, is the fact that brake jobs don't seem to last as long as original brakes. I drove 90,000km on my original breaks when I had them done at an independent. They barely lasted 30,000km, so I paid the price to have them redone at the dealers with OEM parts at 120,000km, and now at 165,000km, they'll soon need to be redone again. Most of my mileage is highway. This seems to happen all the time (new car brakes always last longer), and I can't find someone who will explain the reason. Similar situation with my wife's vehicle, and similar situations with past vehicles. Maybe it's just our driving that's getting worst[/rant]

[newguy]

[quote="marty123[rant]Something I can't figure out, is the fact that brake jobs don't seem to last as long as original brakes.[/quote]You can buy longer lasting(harder material) brakes. If you do you'll just replace your discs sooner.

newguy

[Dennis]

If you do you'll just replace your discs sooner.

Many repair shops (try to) insist that the rotors be turned with every brake pad replacement. Insisting that this not be done will only bring on the intimidation that the brake job can not be guaranteed....yadda....yadda....yadda. If there in no vibration when braking, I tell them firmly, thanks but no thanks.

My sister had to have her Toyota Corolla certified on buying the car at the end of her lease. The dealer ripped her for turning the rotors "because they were rusted" even though they did not suggest replacing the pads. I've watched my Honda dealer's mechanic sand the rust off the rotors during a pad replacement. What a novel idea, eh?

[Bylo Selhi]

The ESC actually bugs me because a dashboard light comes on when it's activated. So at the very time I'm focused on a near-skid, a new light diverts my attention for a second.

Perhaps that light is trying to tell you to drive con un vigore po 'meno

<OT>A known problem with the 2003 model is that the Air Bag warning light comes on when you start the car and then won't extinguish. The reason is that the sensor runs on very low current. There's a connector under the driver's seat that's presumably to allow for seat removal/replacement. Apparently the contacts get slightly corroded, that interrupts the current, and causes the warning light to stay on. There's really no easy way to fix this on the 2003s apart from an expensive rewiring job. (They've fixed this on 2004+ models.) I've thought about taping over the light but that seems like putting on blinders. So instead, when it happens I rummage under the seat, reseat the connector and that fixes the problemextinguishes the light for another few weeks.</OT>

Her car lacks the ESC that mine has, but feels much more solid on the road. Likely due to the design; it sits lower to the ground and the body height's a bit less.

Interesting. I love the road-hugging stability of my 2003. Adding a few inches to the rear passenger compartment was a no-brainer, but I don't see any need to raise the car. (Although admittedly, with the sunroof, tall drivers might appreciate a bit more headroom.)

[pmj]

Although admittedly, with the sunroof, tall drivers might appreciate a bit more headroom.

We had two of the same car - one with a sunroof, the other without. The sunroof tracks, housing, mechanism, etc, reduced the headroom .

[leonk]

Good points, marty, although I personally manage to get all the repairs done at very
reasonable prices and therefore it doesn't affect the math/logic a lot.
The only considerable risk is a major repair like engine or tranny and one just hopes
it doesn't happen (also by buying decent brands, which of course cost more).

Most importanly, the question wasn't buy new or old for next few years,
but rather, buy new or slightly used with an intent of driving it into the ground
and in that case repairs are unavoidable.

On the brake thing - IMHO, usually with old rotors and more 'play' in suspension components
on older car brakes could last less, than the original ones, foremost I make sure I get OEM
everthing. Don't need better, harder, stronger, just get OEM from a dealer or from the web.
I have 231K on the SUV and new OEM brakes pads were put in at 85K when I bought it, still have
some pads left. That speaks to my driving style (city/HW mix).
BTW, rotors are not 'turned' they're 'machined', me thinks, and I'd just buy a new (OEM) ones.

We're assuming of course,
no major investment is required in either time period (1-4 or 5-8 years).
See what I mean? Amortization of 10K vs 20K, 2.5K out of pocket annually
for a pleasure of driving slightly newer car.

Buying used will save money, but the math is not that simple. You cannot assume that a car in the 5th year won't cost more in maintenance than a car in its first year. It's probably reasonable to factor annual maintenance in the high 3-digits or low 4-digits for a car that is 5+ years and over 150K, with a low risk that you'll have to replace a major component (tranny, head gasket, etc.). Something will break down after 4 years (might be many things), and it won't be covered by the warranty.

It's just not repair, although repairs are 100% certain to be needed between years 5 and 8. On most cars, a tune-up combined with all the fluid changes recommended between 100K and 160K (transmission, differential, cooling, A/C service, etc.) may set you back betweed $500 and $1,000. Add to that a few lights, tires that are 50% worn and brakes that are 50% worn, and a battery that has a 1 in 2 chance of needing replacement and you're possibly up to $1,500 - $2,000 of upkeep (in addition to repairs) in years 5-8 that you didn't see in years 1-4. I'm not making the case for new cars, I'm just saying that it's not just a matter of depreciation.

[rant]Something I can't figure out, is the fact that brake jobs don't seem to last as long as original brakes. I drove 90,000km on my original breaks when I had them done at an independent. They barely lasted 30,000km, so I paid the price to have them redone at the dealers with OEM parts at 120,000km, and now at 165,000km, they'll soon need to be redone again. Most of my mileage is highway. This seems to happen all the time (new car brakes always last longer), and I can't find someone who will explain the reason. Similar situation with my wife's vehicle, and similar situations with past vehicles. Maybe it's just our driving that's getting worst[/rant]

[Doug]

About driving a car into the ground (which I've done), two points to consider. First of all, if a reliable car is essential to making a living, a high mileage car can be trouble. The first point wasn't relevant to me, but the second was. For long trips, a high mileage car can be trouble again. I did have two trips where my high mileage car ran into problems; one of those trips had to be aborted midway because of it.

[kcowan]

...I did have two trips where my high mileage car ran into problems; one of those trips had to be aborted midway because of it.

We drove our low mileage 1993 Explorer to Mexico in 2008. (120k KM) Only problem was 2 flat tires, each caused by nails. Lucky for us, they both occurred in towns where someone else could fix them. Total delay was about an hour.

[brucecohen]

For long trips, a high mileage car can be trouble again.

Years ago I lived downtown and had no car while my gf drove a 20-year-old Chevette (really!). For long trips we simply rented. Week-long rates can be really low. And it's sooooo nice to travel in a clean car!

[bones1]

About driving a car into the ground (which I've done), two points to consider. First of all, if a reliable car is essential to making a living, a high mileage car can be trouble. The first point wasn't relevant to me, but the second was. For long trips, a high mileage car can be trouble again. I did have two trips where my high mileage car ran into problems; one of those trips had to be aborted midway because of it.

I've never really noticed a problem with high-mileage cars, in terms of reliability. They do require more maintenance, but I've never been stranded. Just make sure to take it in for servicing if it starts to make strange noises. IMO, newer cars with their all-electronic controls have a bigger problem with suddenly dying. I have been stranded by new cars.

[flamingo]

We just bought a used 2006 Nissan X-Trail from a private sale. That car would have cost the owner about $30K in 2006 and we got it for $12K.

It only has 70K on it and I have it inspected at my garage and everything passed with flying colors. Nissan is that *other* Japanese car-maker and I am not going to pay a premium for Honda/Toyota and trust me and you, people were asking for the moon for their used CR-Vs and RAV4s.

There is my answer to your question.