I knew to keep it under our budget (after taxes/fees/etc…) it would have to be a used one. I’ve never had to shop for my own car before so it was a new experience for sure! I think we drove 4 or 5 cars and made offers on each of those before finally closing a deal on an ‘06 4cyl with 10,900 miles for $15k out the door.

I’ve been quite pleased with it and believe I made a good purchase but it was much harder and took a lot longer to get things done than I had anticipated. However, if I had really been in a pinch and had to replace a car in a much more immediate time frame, I’m not sure what we would have done.

Now I need to keep my 2000 Saturn SL1 running for a few more years so I can save up enough to pay cash out for it’s replacement! :P

John

Buy a well-maintained, carefully selected used ride for say, $10-15K. Keep it for 10 years and spend an average of about $1K a year on it for all maintenance, including occasional tires. Assuming you maintain it well, you can dump it after a decade and you still get $1-2K for it. The total spent may be about the same as you’d pay for a new car costing $24K-30K –on which you’d still pay maintenance costs for 6-7 years after the warranty goes away– but the monthly nut is less, along with lower costs for registration, taxes, insurance, etc. That makes the older car easier for lots of people to afford, either due to economic circumstance or preference for how they use disposable income.

I’ve bought just 2 new cars over the 39 years I’ve owned cars and while I don’t have records for any but the current fleet of three, I’m pretty sure the used cars were a lot cheaper to buy and own than the new ones. I am of the “keeper” brigade that buys a car and usually doesn’t let it go for at least decade or until it has 150K or so on the clock. One car stayed in the household for 20 years. A preference for DIY maintenance and using indy mechanics also drops the overall cost.

My current rides (one is in my daughter’s care at college) are all Saabs, which are wonderfully undervalued in the used car market. While quirky and not appealing to German car snobs and afficionados of Japanese blandness, are great values as “keeper” used cars. Similar values are in place with used second-tier Japanese marques and with used Bimmers, Audis and Mercedes, albeit with somewhat higher entry costs.

In my book, new cars are only a good deal if you keep them a long time and don’t mind the high upfront cost.

I think if you like a new model and want it now, buy new. IF a previous model appeals then you can reap the benefits of used.

A “trade in” and a “lease return” perceived the same by the “potential customer” follow different paths, with different players, different agendas to become CPO vehicles.

The dynamics that come into play on a lease return from a walk away lease that has a book value higher than the market value(captive finance/manufacturer), are distinct from the dynamics of the trade in(dealer) that is taken in trade at market value.

Graduated college in December 2004.

- 2004 Toyota Matrix XR, auto., bought new in Oct. 2003 (below sticker, but loaded with power everthing, alloy wheels). 1 mile on odometer, ordered from factory. As of now, it has 75,000 miles and have not spent any money outside of routine maintenance. Used for commuting each day 70-90 miles each day, 6 days a week, when I started working in Jan. 2005. Several trips monthly to NYC/Northern NJ from SE VA, where small wagon is practical. Unlike usual Toyotas, it remains flat when tearing around freeway ramps, wish this was the norm instead of the exception in the Toyota lineup, but they know the game, and the game (read: American people) want appliance vehicles. But anyways, to get back on track, this Toyota seems to be running fine. THIS CAR IS MY MILEAGE MULE. I plan to drive it until no longer financially practical to keep it running, 10 years I’m guessing or 200,000 miles.

- 2004 Acura TSX, 6sp manual, bought 3 years used just recently from an uncle in NJ. 46,000 miles. I got a “family” discount I’d like to think. It has minor dents, it did live in Jersey! Only had it a few weeks, but runs sweet, my auto Toyota is such a bore compared to this, but I do things in my industrial-oriented Toyota (park next to big 2-door cars, not slow down over speed bumps, dodge cabs, carry muddy objects-type things) that I’d never do in this finely engineered Acura. THIS IS MY VACATION / ROAD TRIP CAR. (EXCEPT TO NORTHEAST, USE SAID TOYOTA)

So, I like to think I’m a keeper. My dad is the ultimate keeper. He bought a 1981 Toyota Cressida (anyone remember when all 6-pot power from the Yo was I-6 RWD?) and kept it as his primary car until 1999 when he bought a Honda Odyssey, his only car…er…van…er…vehicle (besides the Cressida) to this day.

A lease return is a different “trade in” its in the sphere of influence of manufacturers through their captive finance companies.

Different dynamics come into play with lease returns, recapturing residual values, diminishing residual value losses.

For the CPO folks, I have seen too many examples of vehicles that were marketed and were simply not up to snuff. In fact, there’s quite a few dealers out there who will market a frame damaged vehicle that way. If you decide to go this way, I would still encourage you to get an independent mechanic that specializes in that make to inspect it before you buy.

Another problem you have to deal with is the HIGHLY inflated price of these vehicles. Most new car dealers have very substantial overheads. It’s very easy in this business to lose well over 50k a month and the cost of the entire ‘presentation’ of vehicles to the public usually runs well into the seven figures. Most of the premium of the CPO vehicles reflect the need to recuperate all of these fixed costs. Especially since it’s much easier to compare and contrast new cars vs. used cars.

My advice is to…

1) Use Ebay’s ‘finished items’ section as a general guidance to the real market value of the vehicles. Look for several listings of vehicles that were sold at ‘no reserve’. Or, go to your local bank and receive a copy of the Manheim Market Report that will usually list the wholesale and retail valuations of the vehicle. Keep in mind that ‘retail’ units are ones that have already received the reconditioning expenses (tires, fluids, eliminating dings, dents and scratches) that wholesale units have not.

2) Use Carfax and Autocheck, to get a firm grasp of the vehicle’s history and hire an established auto repair facility to inspect the vehicle.

3) Find out the potential wear issues of the vehicle before you buy it. There are plenty of enthusiast sites that are either dedicated to a particular model or contain reviews from folks who have actually owned the car. This information will give you a lot more perspective on what you can expect if you decide to buy.

I prefer private owners, car buying services and Ebay sellers who have at least 30 positive feedbacks related to automotive purchases. If you take the time to read the literature related to buying a used car (and follow up on it), you’ll be far better off than just showing up at a dealership for a CPO vehicle.

The reason NICKNICK posted those numbers is because we already did those calculations because each of us was considering a new ‘07 4runner when they were running the 0% incentive. I ended up buying one and took the 0% finance over the cash on the hood because after crunching the numbers including savings rates and inflation the 0% looked a couple of thousand better after 4 years.

I have a google spreadsheet here: http://spreadsheets.google.com/pub?key=pziqUx97ZjkJ2dV0uZ3IvSA
that works through the numbers. I don’t think I can set up google spreadsheets to be editable by everyone, so if you want a copy to put in your own numbers, let me know. The fist column is the month number, the second column is the payment, the third is what the payment feels like in today’s dollars, the forth cash on hand if you decided if you put the whole loan amount in the bank the day you buy the car, and the fifth what that cash will feel like in todays dollars.

In your example of a new Toyota 4runner vs a used Jeep Grand Cherokee, I have some issues with your calculations and (un-stated) assumptions.

Based on the numbers that you came up with, I don’t understand your earned interest on the principal of $30,000. What percentage are you basing it on? I’m assuming for my example an interest rate of 5%, which is what you can earn with a good money market account. I’m also assuming that these figures are “out the door” including all taxes and fees. I don’t know what trim of each model you’re comparing against, so I made assumptions on that as well. Furthermore, in order to look at monthly payments and not depreciation is to assume that you’re not selling the car at the end of the five years and even more so that at the end of five years it will literally have to rot on your back porch (as otherwise for years 6 and onwards you would incur additional costs of insurance, gas, maintenance, and repairs).

Your figures are correct only if
a) you account for depreciation in the monthly costs and sell your car at the end of the five years
b) your earned interest on the principal is 5%. If you invest your money in the stock market and earn 10% annual interest (good luck with that, I know, but this is a theoretical argument), the used car becomes a much better bet.
c) you ignore the fact that true inflation figures in the US are completely distorted by the government and Federal Reserve. Suffice it to say, w/out getting too technical, that the total amount of dollars in circulation worldwide increased by almost 14% in 2006. This figure is called M3 and consists mostly of electronic dollars all over the world (there are only US $300 billion in CASH in the world). The Fed stopped publishing M3 (saying that the $2 million a year it cost to publish it was “too expensive” – and the gross income of the Fed is $25 BILLION) in March of 2006 (right after Iran opened its oil bourse, trading oil barrels for euros). Only through keeping interest rates artificially low does the Fed stop us from realizing that once the rest of the world collects the monetary debts of the US, inflation will hit double digits (like it did in the 70’s).

I clearly don’t agree with looking at solely monthly costs over the five years of ownership (as opposed to relative value based on depreciation). But I will give my calculations below both based on monthly costs (with your car rotting on your back porch at the end of five years) as well as based on depreciation (and your car is sold after five years).

If you have $30,000 to invest however you choose, and it’s either to buy a the new or the used cars in your example, for the sake of the argument, ALL of the remainder will automatically be invested in the money market fund at 5%. Also, your argument neglects differences in depreciation, insurance, gas and maintenance between the two vehicles (you’re only accounting for repairs). My numbers are based on edmunds.com, so they are only accurate as averages, but they still prove my point. So, over a five year period:

1) New car (Toyota 4runner Sport Ed. 4.0L V-6 5A): 5% interest earned on a principal of $30,000 that is reduced by $466.67 monthly for the car payments is $3,600. Total payments of $28,000 for the car reduced by $3,600 equals to a cost of $24,400. Add to that additional costs of $27,740 including: insurance ($10,415), fuel ($11,780), maintenance ($4,880), and repairs ($665) – all figures from edmunds.com. Total cost over 5 years (accounting for compounded interest earned on money saved on bank and not accounting for inflation): $52,140.

2) Used car (Jeep Grand Cheerokee Laredo):
5% interest earned on a principal of $17,000 (initial $30,000 in the bank minus $13,000 paid in cash for car) is $4,696.78. Cash payment of $13,000 for the car is reduced by $4,696.78 and equals to $8,303.22. Add to that additional costs of $31,862, including: insurance ($8,330), fuel ($12,695), maintenance ($7,393), and repairs ($3,444) – all figures from edmunds.com. Total cost over 5 years (accounting for compounded interest earned on money saved on bank and not accounting for inflation): $40,165.22.

So, if at the end of five years either car is left to dessicate on your back porch, the new car costs you $11,974.78, if you calculate only based on monthly costs (car payment and other).

————————————————
However, if you calculate based on depreciation instead:

New Toyota: $15,200 in depreciation and $27,740 in additional costs minus $3,600 in interest earned on stocks = $39,340 in costs.

Used Jeep: $6,313 in depreciation and $31,862 in additional costs minus $4,696.78 in interest earned on stocks = $33,478.22 in costs.

The new Toyots costs $5,861 more than the used Jeep if you sell either car at the end of the five year period.
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There are two general problems with the borrow to save methodology. First, you can usually get a better deal cash than you can 0 APR. Often they tell you so right on the commercial. Even when they claim it isn’t so, I think they are up to no good. They aren’t taking risk for nothing, they plan to get something for their trouble. Second, I have heard several personal finance guru’s talk about this and they all say the same thing – It won’t work for 95% of the population because they will some how blow it. Either they will spend the money rather than invest it, or they will invest it badly, or whatever. The truth is that if you pay cash you make a better buying decision on the car than if you borrow. The interest you will earn will not have more value than paying cash in the first place.

Andy D.
You are the man. Anyone who claims to love cars ought to be more like you. If you make cars your hobby, then you can justify a lot more money spent on cars. Only you actually get a lot more value for your money, so you don’t have to spend more. The savings is part of the fun, BRILLIANT! I need to learn to do more repairs!

CPO’s
CPO’s are usually better than buying new, but only for the savvy buyer. They will try to sell you a CPO for more than the new car if you let them. Caveat Emptor. If you are spending 25k on a CPO vs. 25k for a lesser model that is new, then fine. What not to do is justify borrowing because it’s a CPO. Avoid borrowing in the first place.

Used vehicles that do not fit CPO parameters are still a viable discussion from how most people view used vehicles. Recent model used vehicles have a new version called CPO.

In most instances CPO vehicles are lease returns, with the CPO program to bolster values of lease returns.

Manufacturers with their franchised dealers are trying to make money twice with the same vehicle. Once when it was new, then as a CPO. On the premise that most vehicles are quite reliable up to at least 100,000 miles,its out once when new for 50,000 miles, and out again as a CPO on a walk away lease for another 50,000 miles.

The CPO vehicle from a same make franchised dealer, is more attractive than the same vehicle for thousands less from an independent dealer.

Consider a new 4runner for appx $28K at 0% (2007 sales incentive). Its competition was a 2004 Grand Cherokee for $13,000 cash. Accounting for the lost interest on the $13,000 and the GAINED interest on keeping $30K at the bank and chipping away at it monthly, and accounting for estimated repairs (edmunds) on the Cherokee, the end-of-five-year costs were:

Cherokee: $21K
4Runner: $26K

$5000 over five years for a NEW 4runner versus an OLD Cherokee? Making payments on the 4runner vs. paying cash for the Jeep!? You’re darn right! Some of this stuff is somewhat counterintuitive, so you’ve GOT to crunch the numbers. And you’ve got to wait for sales incentives.

The catch is you’ve got to have money in the bank to be able to earn interest on it to play games like this. So, yeah, for the most part Landcrusher is right: SAVE. My most recent purchase was an 8-year-old japanese car for cash.

iNeon :
“the happiest people I’ve ever known in my life have always owned 10 year old beaters, and have driven them hard.”

I’ve had more fun with beaters and rental cars than I have with the one nice car I bought new and cared about. Lesson learned; money saved.

People will pay more money for a “something point 9″ deal, than a better price at a higher rate. Especially when franchised dealers offer CPO vehicles at “something point 9″ rates.

In locations with a good climate older cars, and many aspects of this thread are very sensible. In locations with an harsher climate accompanied by extensive use of road salt during the winter months, vehicles tend to deteriorate quicker, and require additional maintenance.

I haven’t borrowed money on a car in years, but I do recall back in the day that the terms for used cars were often so short that the payments were much higher. Is this no longer the case?

This is simply a case of poor math.

If you financed a $20K new car over 5 years at 6%, your monthly payments would be $387. Compare that to the same car, but a year old selling for $15K, financed at 8%. The payments are still $387 per month, but for only 45 months. Meaning you save $6,000.

The only people who can logically claim that the additional interest on a used car justifies purchase of a new car are new car sales reps.

The first is the issue of repairs. While, in theory, repairs should stay at a similar rate, I also believe that this has to do with location. Being a northeastern guy for most of my life, I can tell you that the somtimes severe weather can wreak havoc on a vehicle. If you don’t have a garage for your vehicle, there is only so much weather metal components can take without breaking, thus are increasing your chances of repair every year. Hell, my seven year old car has already had some part failures due to rust from when I lived in Upstate NY. Living in Virginia now,having an older car is not as big of a deal.

I also think that reliability depends on outside factors. Living alone and needing to get to work/school, I need a reliable car and having it in the shop is a major issue. There are only so many times you can hit a friend up for a ride. So, I think that the new car issue depends on circumstances as well. As for the more car for the money issue, that is why you get a 2-4 year old appliance and then spend some of the money you save on a 10-15 year old sports car to drive the hell out of.

Yessssss, that is what I want. What is it?

I just hope they do as you say, not as I do. :)

I say carpe diem as well. And we are not far off on the debt thing. As long as you never go upside down, it’s not the worst thing. Especially if you are borrowing so that you still have savings in the bank to cover a few months with no income.

However, I think you should consider two things. One, I bought the ‘97 Crusher in 2002. Normally, I would be looking to trade again, but this thing is just so solid. Second, consider the math.

Figure out how much you spent on your car since day one, and divide it by the months you have had it. Include all the finances, taxes, etc. Now, start budgeting that much for car expense every month, even after you don’t have a payment. Keep at it as long as you can stand it, and watch the money grow. Even if you can’t wait long enough that you can trade for cash, you will see that you have a lot more to put down. Since you are not buying cash, try to get the most carpe for your diem. Buy a fun, but inexpensive car, like a mazda speed 3, or whatever. Get as short a term as you can while staying in your budget. Hopefully, this will be your last loan.

I am betting that as the money grows, you will find you enjoy the bank account more than a new car. If you don’t, then by all means spend the money. Also, I know that once you get to the cash level, you will be able to buy more car for the money EVERY TIME until you stop driving. If you are an enthusiast, I suspect you would have more fun with a 5 year old Porsche than a new Nissan 350Z. If you have the cash to put aside for the repairs, you can make that choice. Or, you can get a used 350Z and afford to chip it, put on high performance wheels and tires, etc.

You can carpe more dies with cash if you stop borrowing against future dies as soon as possible.

If I am weirding anyone out with my financial fanaticism I apologize, but it’s a passion.

Everybody,

Not to start another semantics war, but think about a warranty as insurance. You are insuring yourself against a big repair bill. All warranties contain profit. A warranty only saves a very few people in a hundred money. Everyone else in the pool of risk pays for those repairs. The manufacturer, or after market warranty company also takes in a profit on the deal. Even when they say they “lost” money due to repairs, car manufacturers are just making an accounting trick. In reality, they just didn’t make as much on the car and/or it’s warranty as they originally planned. If an after market warranty company lost money, it would likely fold immediately and leave you hanging.

The only reason you “need” a warranty is that you are buying a car you probably can’t afford if you ever want to retire. The younger you are, the more this matters. If you are not maxing out your 401k matching or IRA limit, you likely are driving too much car.

Last thing, someone mentioned a 200k car not being worth 15k. If anyone knows of a Defender I can get that has 200k but is in otherwise good condition, I would be happy to make an offer of 15k.