The economy is in the tank, home values have fallen, and stocks are down. No wait… they’re going back up… oooh nooo, they’re… not. The outlook for the near future is not good. Now is probably not the time to be spending money unnecessarily.
…which brings me to the current topic. Is this a good time to replace your current vehicle with a new one? Car dealers, desperate for sales, are giving steep discounts right now, and a new car can be tempting, especially if you’re considering a vehicle that is more efficient or environmentally friendly.
Your vehicle is probably the second most expensive item you need after shelter. It costs to fuel it, maintain it, inspect it, insure it, and replace it. Let’s examine the pros and cons of buying a new vehicle with the idea that it might just be possible to save a little money vs. spending a lot.
Let’s look at why it may be better to invest in your current car rather than replace it:
PROS of keeping your current car
- Lower, or no, car payment.
- Insurance on an older vehicle is less expensive.
- Most of the depreciation probably already has occurred.
- The car is probably worth more than you owe on it.
- The decline in resale value slows after a few years.
- With a little TLC, your vehicle can run efficiently and safely for many more miles.
CONS of buying a new vehicle
- New car payments are high.
- Insurance on a new vehicle is expensive, offsetting the benefits of new-car warranty coverage.
- Rapid depreciation in the first year alone decimates any dealer discount you may get.
- If you must offload a relatively new vehicle, you may owe more than the car is worth.
- Buying a hybrid could be a smart idea, BUT they sell at a premium and you might want to wait for the plug-in hybrids, with significant efficiency gains, to arrive in a year or two.
Unless your old clunker is ready to ship off to the scrap heap, you save the most by keeping your current vehicle. Still, if you find yourself looking to purchase a new vehicle, I have a few suggestions to offer:
WHAT TO CONSIDER if you must buy a new vehicle
- Buy the smallest, most efficient engine available on the model you’ve chosen. The price of oil is more volatile than gas fumes, so don’t count on gas staying below $2 per gallon.
- A fuel efficient vehicle will have better resale value. Especially if you have a pattern of selling a car every few years, remember that on resale, a fuel efficient car may well command a premium over a gas guzzler.
- If you want a hybrid, consider waiting until plug-in hybrids become available.
- Avoid leasing, which makes your car an expense and not an asset. I’ll leave you and your accountant to figure that one out.
- Skip the extended warranty. Put the money into a CD instead and you’ll usually come out ahead. (I used to suggest the stock market, but that’s now flatter than the spare tire in my 1959 Jaguar XK150.)
- My favorite money saving tip is to buy a 2-3 year-old vehicle. Most of the depreciation already has occurred, and you still drive a newer vehicle. Have us or someone else do a pre-purchase inspection before committing to the sale.
If you decide to stay the course with your current vehicle, have someone you trust (like us!) check it over and give you an opinion on its current condition and how to best to keep it running in a safe and reliable manner. Some things may need attention now and other items can be scheduled for future maintenance. In fact, I would recommend this inspection as the first step when considering a replacement, since the expense of maintaining your current vehicle may factor heavily in your decision.
Most people are surprised to learn just how long their car or SUV will last with a little bit of R&R. Think 250,000 miles PLUS!
Posted at June 1, 2012