For many people, their car is an extension of their ego, but the fact is that the primary function of a vehicle is to provide transportation.
And in these days of economic turmoil, securing transportation for the smallest possible cost seems like a good bet.
But what does that mean to you, the owner of a car that, like us, is getting older by the minute — and maybe, like us, deteriorating by the minute too? Should you buy a new car to avoid the risk of expensive repairs, or should you keep the car you have?
To Buy New or Not to Buy
Many folks apparently believe they will actually save money by getting rid of their current car. Sick of the hassle of repairs, they feel that shifting to a new vehicle is a better financial choice. But does their thinking make any sense? A study by the Automobile Club of Southern California says no.
In the year studied, the Auto Club found that the average driver of a new car spent between $8,000 and $10,000 on auto finance payments, insurance, gas and other auto-related expenses. The Auto Club also looked at the costs for owners of five-year-old models that were paid off.
The results were illuminating: Drivers who logged 15,000 miles a year paid just $4,126, or 27.5 cents per mile. Those who put in 20,000 miles for the year got by even cheaper on a per-mile basis — 26.3 cents, or a lump sum of $5,266. In either case, it was about half of what new-car drivers paid on a yearly basis.
How can this be? Don’t new cars covered by a factory warranty have lower repair and maintenance costs than older cars?
Herein Lies the Answer
Although new cars do have lower repair and maintenance fees, these expenses are actually a relatively small portion of overall ownership costs — a highly visible portion, yes, but a small one. And the same thing can be said of fuel costs. Some folks actively seek out higher fuel economy vehicles in an attempt to save money, but figures indicate that if they are buying a new car to get better economy they are fooling themselves.
While gasoline and repair costs are in our face and thus get our attention, the biggest ownership costs for new cars in the first few years of ownership are depreciation and financing. Once the car is paid off, the financing charges vanish, and at the same time, depreciation slows markedly. So even though repair and maintenance costs do increase as a vehicle ages, they are more than offset by declining depreciation costs and the absence of financing.
So should you forget about buying a new car? Don’t get us wrong: We can cite many reasons to buy a new vehicle, including additional safety, better efficiency and more carrying capacity. But thinking you’re going to save money by purchasing a new vehicle is a fallacy. As for thinking the new car will help you with the opposite sex? That’s probably a fallacy too.
Luigi Fraschini Based in Cleveland, Driving Today Contributing Editor Luigi Fraschini writes frequently about the financial aspects of car ownership.
Image credit: sometimesdee
Driving Today is an independent editorial program edited by Jack R. Nerad and brought to you by Bridgestone/Firestone.