“Millionaires don’t buy new cars” is something I have heard countless times. This concept probably gained popularity with the book The Millionaire Next Door, in which the authors observe that many millionaires pay cash for quality used cars at discount prices…
…the implication being that if you care about accumulating and maintaining wealth, you too should buy used. And pay cash. It’s just math.
That’s all well and good, but I just bought a new car. And financed it.
What to buy?
Now that we are are full-fledged residents of Suburbia, motorized vehicle ownership is somewhat mandatory (probably.)
We will still do our share of biking and walking, but a car is necessary for regular activities like going skiing, visiting the fam, and going through the drive-thru at Starbucks. It’s also a time and hassle saver… do I bike 30 minutes each way to bring Jr to basketball or do we drive in 5 minutes and also stop at the grocery store?
I had every intention of buying used and cheap… perhaps a sweet classic ride like a vintage Escort.
But with a desire to transport now 2 kids, car seats, sports gear, camping gear, etc, I started perusing slightly larger vehicles such as a Ford Escape or Mazda CX-5 (or similarly a Toyota RAV4, Honda CR-V, Nissan Rogue, Hyundai Tucson, etc…)
This exploration quickly narrowed for completely subjective reasons to the CX-5. (My brother is a long-time car guy and I have driven his CX-5 in the past – it was nice and he highly recommended it after years of ownership.)
“Slightly larger” – car size comparison on carsized.com
Buying used?
The buying and selling process has changed significantly since the last time I owned a car (I sold my Porsche in 2008) – it is now possible to do everything virtually
I started browsing through sites like Shift and Carvana, online used car platforms that will (sometimes) deliver to your home. They include a free Carfax so you can see the vehicle history and run all vehicles through a standard inspection. I thought this could be a good way to skip the car rental process entirely – I even emailed Shift asking if they could deliver a car to me at the airport on arrival, but I got zero response… not a good start.
5 year old cars have come a good ways down the depreciation curve and are often no longer covered by warranty, so it’s a decent value proposition for an used car buyer.
I found a large number of used CX-5s available… 2016 Grand Touring AWD models with 40-50k miles were going for $23,000 plus or minus. (This has come down even in just the past month.) Then add another $1,000 or so for the used car platform service fee.
But then I got to thinkin…
The TrueCar service pings a bunch of local dealers to get quotes for new and used cars. The dealers compete against each other for best price. I asked them to get me some numbers on new CX-5s…
I could get a new one (with warranty) and all the fancy stuff for 4% under MSRP or $31,175. Or just $7k more than the used price… and Mazda was offering 0% financing for 3 years with zero down. (Why not? I like free money.)
Now this is where it gets interesting… I took the Edmunds Total cost of ownership estimates for maintenance and repairs, and combined that data with the CarEdge depreciation model…
It’s no contest that buying used is better for depreciation – the new car loses $16k in value in the first 5 years and “only” $10k in the next 5 years.
Maintenance and repair wise though (Edmunds data) the 1st 5 years cost about $6k, mostly for year 4-5 maintenance expenses. And the Year 6-10 costs are about $12k.
Or in other words, New or Used, the 5 year ownership costs are the same. Just depreciation, maintenance, and repairs run an average of ~$4,400/year or $365/month.
Buying New (with a twist)
Now a savvy and multi-talented individual could certainly pay less by finding an undervalued used vehicle and doing their own maintenance and repairs.
With a rental car costing us ~$100/day or ~$500/week we didn’t have a lot of time for bargain hunting. And as for doing our own maintenance… I’m busy.
So I test drove a new CX-5 and I liked it.
But… then I got to thinking some more. And I said to myself, “it sure would be nice to have an electric car.”
And it turns out that there is a $7,500 federal tax credit for new EV purchases (except Tesla and GM. Requires that you owe $7,500+ in tax.) And California throws in an extra $1,500. So a $40,000 electric vehicle costs the same as a $31,000 gas powered machine.
Which is how I ended up test driving (and buying) a Volkswagen ID.4. (Fun test drive video that sealed the deal for me.)
The GCC Mobile
EV Cost of Ownership
So I can buy an EV for the same price as an ICE vehicle…But wait, it gets better!
An analysis from Car and Driver compared cost of ownership for gas vs electric vehicles and found the difference to be minimal for 2 versions of the same vehicle when the sales price was comparable, but that was when gas cost half as much and with non-zero charging costs.
For 3 years I get completely free charging at Electrify America public charge stations. Aside from a simple test charge at home, I am exclusively charging at public chargers (the closest station is <10 minutes from home.)
Even if I never charge at our place, our utility company gives a 1.5c/kWH discount for all of our Midnight – 6 am electricity usage just for having an EV. That puts total cost around 10c/kWH. Midnight is a good time to start the dishwasher.
A recent 240 mile road trip cost $0 in fuel for about 85 kWH of juice. Charging at home that would have cost $8.50. A CX-5 would have used about 8 gallons of gas. At $4.50/gallon price today that would be about $36. Projecting over a full year, we will spend $0 instead of $1,200 for gasoline.
And then there are the savings on maintenance. My other brother bought an used Nissan Leaf awhile back. In 5 years of ownership, their only maintenance expense was a new set of windshield wipers. No oil changes, no spark plugs, etc…
Insurance costs were a wash.
So overall I could expect to spend less on a $40k EV than a $31k ICE vehicle.
A wiser man would pocket that savings. I used it to get a higher end model (~$45k) with panoramic sun roof, power gate, faux-leather seats, etc… It’s nice.
Cash vs Finance
I can pay cash for a car. But should I?
Traditional personal finance advice says I should pay cash. But… I don’t have that much cash lying around. It’s invested,
For various reasons, my current marginal tax rate on capital gains is north of 33%. But I could borrow 100% of the purchase price / sales tax / fees for 6 years at 2.74% and easily cash flow the payments. That is half of the rate of inflation as of July.
Just the federal tax credit will provide the cash for the monthly payments for the first year… and this is with absolutely zero down.
So I borrowed. This will cost about $4k in interest, half of that in the first 2 years. That is better than $12k in taxes from selling stock for a cash purchase, and I’ll still get dividends and future gains.
Summary
I bought a new car, specifically a 2021 Volkswagen ID.4 Pro S. Used car prices have gone a little wonky in recent times, so…
… cost of ownership of new worked out about the same as cost of ownership used. With tax credits and free charging, buying an EV cost about the same (or less) than buying a similar gasoline powered car.
Renting money was cheaper overall than selling stock and paying taxes, and interest rates are lower than recent inflation rates.
Assuming I own the car for 10 years, my total cost of ownership will be in the range of $400/month (depreciation to zero, insurance, charging starting in year 4, financing.)
Would I have purchased this car if we were at the beginning of our accumulation phase? No. Does it matter now? Also no.
What about the longevity of the battery, when does it need to be replaced?
It’s got a 10 year full warranty. Sometime after that.
I think you made a great choice. Only risk is since it is a new model and new technology there might be teething pains.
I lease a 2021 Kia Forte for $220 a month. I like the safety features and I mostly just use it on weekends as I am a bike commuter. New cars are just less hassle and worry.
I agree about the risk. It’s VW’s 1st vehicle designed as an EV from ground up (but their 2nd EV overall.)
Fun post
I haven’t understood the anti-loan sentiment in FI space (if interest rates are lower than historical market returns)
I’ve been trying to figure out at what point I can transition to your perspective of “hey I can spend this money now.” We’ve really embraced the frugal way, and its worked really well. Maybe well enough to buy the vehicle and type of house we’ve been thinking about for years…
There is some sequence of returns risk with a loan as you have monthly required spending.
I think once you hit coast Fi it is reasonable to increase spending. Or if FI and withdrawal rate is super low. I’ll expand on this when I go through the home purchase in a coming post
Looking forward to that post
Also looking forward to what you hinted at on twitter. The gist was that you’ll go through different seasons of life in the future, and you’ll want different things. Its a challenge to anticipate what you’ll want far in the future.
I buy my cars 1-2 years old with low mileage, under 10k-15k miles when initial depreciation already came off. Mostly I buy Toyota Camry since it holds value one of the best and won’t need major repairs until you hit at least 150k-200 miles. I find the car I am interested in in the area I live within 100 miles radius on cars.com. I email to at least 3 finance managers of Toyota dealerships to give me their best price out of the door without any extra surcharges of any kind (like warranties etc). Just price for car only, taxes and title fees. That’s it. I don’t even go to dealership until I get the best estimate. I let them know I am ready to buy.
Also, I always ask if there are further discounts if I get a car loan from their dealership. Usually, there are incentives, like a $1,000 off the vehicle price. I get an auto loan with very low interest with my 840 credit score. I charge the first $ 5,000 to my new credit card to get introductory offer for rewards points. The rest gets financed. After the first payment on a car, I usually payoff car loan not to pay interest to them upfront for the first 2-3 years. I drive my Toyota Camry for many years, use free warranty for oil changes, etc. since the car is fairly new. I drive it until I reach at least 120k without major repairs. Then I sell my car myself for 6k thru Craigslist. I purchased it for $22k taxes included while new car is about $30k. Drove it for 6-7 years. Then got $6k for it for my next down payment for another almost new and reliable car. Very inexpensive way to own an almost new car without major expenses/repairs without paying founder’s fee of 1k to websites that will bring the car to your door.
If you can wait a few years to buy a car again this will likely continue to work, but in today’s climate it no longer works. 3 year old cars are selling for new car prices. 5 year old cars are selling for close to new car pricing. The auto shortage is real.
Please do good sir. I’m worried about all of your spending recently (I know I shouldn’t since I got my own problems and you are a smart guy).
So it would be nice to see a post where you reconcile it all :)
I totally get new cars being tempting at the moment. I’m looking at 2016-17 civics for ~18K. When a 2021 brand new one would be around 21K (prob 22+ with all the B/S dealer fees but the point remains).
With those numbers I would go new.
What is at the root of your concerns?
So looking forward to this post!
This is why I bought a Kona EV 2 years ago. It has a lifetime warranty on the battery too. With SMUD time of use rates for my solar and even better EV charging rates from 12-6, it is super cost effective. Just hit 10K miles and all it needs is tire rotation.
I looked at the Kona EV when they had $199/mo lease deals on the ’21 but there were zero cars available as they transitioned to the ’22. Hyundai has some pretty sweet deals and amazing warranties.
Nice job utilizing the $7.5k tax credit.
I’m done buying used cars for life. I’ll buy them new and drive them until the wheels fall off.
My next car will be a Cybertruck, assuming they actually build the thing.
I’d be curious to hear you elaborate on the phrase “For various reasons, my current marginal tax rate on capital gains is north of 33%.”
15% cap gains
3.8% NIIT
9.3% CA State
5% CTC phase out
33.1% total
Ouch!
How did this happen? I thought you were never paying taxes again. 😅
It’s kindof the curse of too much money – at some point you have to switch from zero tax to minimum tax. That and I’ve been violating Rule #1 for years.
You may want to look into deferring taxes by investing in an Opportunity Zone.
Actual analysis. Bravo! I think the advice of MMM to go for the 10+ year old car is awesome if it works for your life. If you have already accumulated multiple millions and you stay within your budget then there is no good reason not to buy something less spartan. And then you start breaking down the new v. recent cars and the contest is a lot closer. And then you look at the fact that electrics are so much cheaper to maintain and fuel and you end up in a very wise spot.
10 years ago I would have bought a 10+ year old car, but in 2021 the math works out
My partner purchased a brand new Honda Civic 6 years ago for $16k total, financed 5 years at 0.9% interest. Today the Kelly Blue Book value for the car is still over $14k. I think buying new worked out pretty well.
I’d say it worked out great! Used car prices are wild right now.
Congratulations on you new purchase great choice
How come 33% on capital gains. I thought that max is 20%
20% only applies to long term gains. Short term gains can be taxed at anywhere from 10-37%, depending upon your income and filing status.
Plus CA taxes capital gains the same as income so likely 9-10% if you have substantial come.
We came to the same realization about financing a car. We’re done with the accumulation phase of financial independence. For a variety of reasons that make sense to us (I still work, I have life/disability insurance through my job, we have credit cards, etc, etc) we don’t have an emergency fund. When we unexpectedly needed to buy a second car in 2018, we crunched the numbers and realized financing the car made a lot of sense. Thanks for this write up. Everyone’s circumstances are different, it’s good to hear FIRE stories from all over the spectrum.
What made you go with purchase instead of lease? especially as someone mentioned it being 1st edition with new tech model?
nice car btw, would love to drive an EV, congrats!
The monthly rate for a 3 year lease was $800-ish as the terminal value was really low. With 10 year warranty on the battery the only part of new tech I’m expecting is a bit of hassle.
There is also a mileage limitation with a lease. Since we get free charging for 3 years we are thinking of doing some big road trips for Western US national parks.
I was leaning towards a honda crv / hybrid crv, but forgot about possible tax credits on getting an EV. Need to check that option for CO.
Also don’t know anything about EVs. Like how far it goes on a single charge? Or what the maintenance will be like.
You can get credits on PHEVs too. The <$7500 tax credit is federal but some states have their own credits too.The ID.4 will go 260+ on a single charge. I've been charging it once a week for about 20 minutesTake a look at the link I provided comparing cost of ownership for ICE vs EV for maintenance examples.
Good to know – thanks. I need to educated myself on EVs a bit more.
Nice car! I prefer new ones too. Used cars aren’t that much cheaper, IMO.
Anyway, I hope our car lasts until our son goes off to college. Then, I won’t replace it. There are many other options now. We don’t drive much and I want to travel a lot more.
I still find used to be the best deal if you are patient. I scan the Lexus lot occasionally for about a year before I trade in and up. Elderly rich peeps trade in their hybrids every 3 years on lease. My last purchase had only 8,000 miles on it. And it was only three years old and over $20,000 dollars less than new. And I have never had an issue with Lexus hybrids. The one I traded in had 250,000 miles on it and the batteries were still good. I pay a little more for quality, but still paid less than you did. For an SUV.
Not adverse to new…just haven’t found it to be advantageous.
Sounds like a good system
Interested to learn more about the battery warranty. As all batteries lose capacity (mileage) over time, at what point does the warranty kick in? If you can go 260+ miles per charge now but only 200 miles per charge in 6 years and it’s not at warranty levels… will it be worth it?
Please let me know what you figure out.
Warranty is %70 after 8 years/100,000 miles.
I have really enjoyed seeing how your financial journey has evolved over the years of reading. It has really opened my mind to the possibilities. Thanks for continuing to share.
As always, thought provoking! It really depends on where you are in the FI journey and how aggressive you want to be. My last two cars I bought new. Agree that with low financing costs taking the loan is probably the better move as well. I Cheers!
TCO calculators are great for justifying buying a new car if that is what you wanted to do anyway. In my experience they almost uniformly tell you it’s cheaper to buy new – even 5 years ago before the pandemic used car insanity that was the case. I think it’s possible – just possible – that the numbers are actually total bullshit and most used cars require almost $0 in maintenance.
More likely is companies like Edmunds have access to a huge database of vehicle maintenance and repair costs and they use the average of those expenses in their TCO calc. But then most expenses apply to a small-ish percentage of total vehicles.
The variance in maintenance costs then is important. If TCO is driven by high costs for a small percentage of owners, then most owners will come out well under TCO while a few will be far above it. It’s another type of risk that a purchaser would be taking on. You can probably summarize this as saying that for most purchasers, costs will be lower with the used car, but if you get unlucky costs could be *much* higher. Almost no one will experience the mean TCO.
Good idea. used vehicle prices are still hovering at all time highs. I bought a 2020 Ram for 42500 two weeks into COVID after moving back from Europe last year. Carmax offered me 39500 with 27000 miles last week . Private sale is still close to what I paid in March 2020. Received about $3000 in mileage and reimbursement from my employer. I would like to sell, but It needs to be something substantially different in model year to really come out ahead
I got an email recently about somebody who bought a used car a year ago, put 12,000 miles on it, and then sold it for $1k more than they paid for it. Then they got a new car of same model with 0% financing for about the same sales price. It’s crazy out there
A perfect example of ‘it depends.’ It’s always best to run the numbers as I do not believe that one strategy is always the best in any scenario. Plus you never know what you will learn by running the numbers and looking at the variables. Your car buying example clearly illustrates this. Enjoy that new car smell!
Posts like this are why I appreciate GCC- there’s not just one “right” answer when it comes to making personal finance decisions. Appreciate you walking through the process, rather than just the easy “Always buy used for cash”! I’d have to agree, with finance and inflation rates where they are today, borrowing probably makes most sense in just about every scenario.
Do you plan any expanded home charging ?
120v or 240V ?
ChargePoint, Tesla, EvoCharge etc.
I am curious because in our new garage
electric car charging support is mandated
by code and we installed two 60A 240v
circuits for it.
I have a 240V outlet on the side of the house where the previous owners parked their RV. I can use that but will probably put something in the garage at some point.
it will need to be rewired for the charger. An RV plug is 120V on 2 legs. It will be a simple plug change to rewire it so that its 240V on 1 leg.
My assumption was wrong – I thought it was a NEMA 14-50 plug but it is actually a TT-30. I guess in the short term I could unplug our clothes dryer and run the charge cable out to the garage.
Or just do a trickle charge on 110 with a regular plug. My Tesla gets ~4 miles an hour or 100 miles in 24 hours. Okay for me in retirement.
Nice. I’d recommend charging at home since your time is worth something.
I can read books or write dumb stuff on Twitter at home or at the charge station, its all the same to me. I just do it when I’m out anyway. Eventually I’ll have a faster charger at home but at present I only have a type 1 which does almost nothing.
“big road trips”:
The main reason for retirees having a car – if on the road for months. A motor home and no home if for years. Else taxi / delivery is much more economical. But when spending money that would otherwise never be spent in one’s lifetime …
Purchased my petrol 4×4 from auction of ex-government fleet cars when 3 years old cars selling for 1/3 new. So little used that I must connect a battery charger every few weeks.
Next wave of battery technology soon: 3 x energy, 40 x power, 5 x life span (wheels will fall off first). That and ‘my price’ before I buy one.
How soon?
Our big road trips will be more limited in nature, just revolving around the school calendar. Trips to Yosemite, Yellowstone, Grand Canyon, etc… perhaps with a bit of tent camping.
“How soon?”:
Button batteries next year, ‘a few’ years for the next best battery system to prove long term technical superiority.
Graphene likely to be foundational material. Many international groups see the potential and are investing early.
Re-cars:
https://www.carsales.com.au/editorial/details/australian-aluminium-ion-battery-breakthrough-129973/
Congratulations! Although my motivation was emotional (I was frustrated when my remote job turned into a 100+mile round trip twice a week), in April 2019, I bought a new Nissan Leaf and financed $12k of it. Never thought I would do that but the math made sense. My payment was about what I would have spent on gas for the commute and a free fast charger was next door to work. Based on the prior year’s tax return, we qualified for a $2500 rebate from our power company, Nissan was offering $7000 off the MSRP for the smaller battery version, and when we filed the next year’s taxes, we could use the $7500 federal tax credit. The car was 50% off! I recently did the math and discovered that paying to charge at home (my no charge to charge card has sadly run out and a good chunk of that time I wasn’t commuting!) on the reduced EV rate is getting me the equivalent of 81 mpg if I were to be buying gas and driving my Outback. Not bad.
I think the lesson is to consider the options and make the best informed choice you can.
Nice one – a friend leased a Chevy Spark EV for his commute with free charging at work and the lease payment was less than he was previously spending on gas. Gotta run the numbers!
Hmmm… long live frugality and tax avoidance! Forgive my sarcasm, I find it interesting to see new EV owners coming up with all kinds of justifications for their purchase. Wouldn’t it be better to write it all as “Years of financial discipline and independence allowed me to indulge, because I can”.
I did some analysis. It’s what I do.
I also joined the millionaires buying a new car club this year, new Ridgeline because I wanted one!
You lost me with the year 6-10 maintenance and repair costs of a used car being “about $12k”. You buy a small reliable car, don’t drive much, go easy on it, maintain regularly, and those could be below $2,500, potentially below $1,000 if you can do some maintenance yourself. My current car was bought 7 years old and the year 7-11 maintenance costs were $3,905.49 ($781.10 per year). Also the purchase price of my car was only $8k, so it has depreciated just $2k in the 7 years since, not $16k as Edmunds would expect in years 5-10.
These are ENORMOUS savings in one’s lifetime costs of car ownership versus the Edmund’s estimate – $25k or more per decade, or hundreds of thousands of dollars in future investments.
I suppose it would be hard for a car to depreciate $16k if you paid $8k for it.
Congrats on your new car! =D New smell – new everything is fun! Zero percent interest is like paying cash if you pay it off – and we all know you will. I cringe at the people that are eternally upside down in the “I can afford the payment” thinking….. I know and am related to many. My favorite car is the one that is “paid for” AND that can manage my practical needs. Cheers to you! And ski season is almost here! Woo hoo! =)
I’m ready for ski season – waiting to hear how the nearest ski areas fared with the wildfires before getting the season pass.
In 2018 the wildfire season was bad but in 2019 we were still able to ski at Heavenly at the end of May!
Cars are mostly toys, and nothing wrong with that as long as you can afford it.
It’s fun to read the breakdown, but what’s wrong with just saying you wanted it and you bought it?
1st time on my blog, eh?
Thanks for walking us through your decision and the financials! Wife just got a new VW Golf; if my 17-year-old Hyundai car dies and we decide we it needs replacing we’ll go electric for #2. Hopefully by then Mini will have released a convertible SE.
It annoys me that VW is all about the ID.4 and ID.8 in the US but not the ID.3. And they’ve just discontinued the Golf. It’s not particularly helpful for those of us who don’t need (or like to pretend we need) massive land yachts.
The ID.3 does look pretty nice. Hyundai has some good looking EVs too
Congrats on the new car. Makes sense to get an EV. Did you get the ID4 because it’s still eligible for the rebates?
In a way – I didn’t look at Tesla or GM because there is no rebate for those manufacturers.
Smart decision. While we are frugal on many of our choices, we do buy vehicles new but keep them for many, many years. Would also love to have a full electric but it’s just not practical for all of our vacationing each year, since I’ll still drive 6-700 miles per day for some trips. Instead we are finally getting rid of our second vehicle, an H3 Hummer we have owned for 13 years, in favor of a hybrid Ford Maverick. That way for trips of only a week or so we can drive the Maverick that gets 40mpg rather than having to drive the F-150 that get 21mpg at the most, leaving the F-150 for our months long trip each winter where we need the carrying space.
Best of luck. The car is a beauty, btw.
A 700 mile drive in the ID.4 would be doable but not nearly as convenient as a gas-powered machine. You basically have to stop at a fast charger every 2-3 hours for about 30 minutes.
example: From home to the Grand Canyon is ~800 miles – The app ABRP (A Better Route Planner) plans charging time/location for a trip. It says 12 hours of driving and 6 charge sessions for a trip total of 15.5 hours
Did you consider using a margin loan against your taxable equities for financing? If your car loan allows it, you might be able to pay it off with margin cash to “refinance”.
Yes and no – the car loan was easy to setup and cheaper fixed costs than the margin rates at Fidelity. I could move funds to interactive brokers for some smalls savings. There is no pre-payment penalty.
Electric cars don’t work for us, 1,000 mile plus road trips are very common and they simply do not have the range. Our routes usually have long stretches where gas stations are available but not chargers. Not to mention we pull a boat and a trailer and that destroys the range on EV’s. I buy used, because the car I like is out of production, I’m currently on my third one of them. My wife buys new and keeps them for 15 years and I agree, the new versus used penalty isn’t that bad. But even with free money to borrow I’m never doing that, I like being debt free. It’s a luxury I can easily afford, but the math is on your side, so smart move all the way around!
Yeah if you travel with heavy loads the EVs aren’t the right car. The batteries on the long-distance semi-trucks have to be massive
“Our big road trips will be more limited in nature, just revolving around the school calendar. Trips to Yosemite, Yellowstone, Grand Canyon, etc… perhaps with a bit of tent camping.”:
The dreaded school holidays. ‘Turn serene scenery into a sweaty squabble.’ I’d be testing the limits of Law on parental responsibility to have children enrolled for rolling remote learning. ‘Colouring in for travelling children’. Zoom-zoom.
“From home to the Grand Canyon is ~800 miles – The app ABRP (A Better Route Planner) plans charging time/location for a trip. It says 12 hours of driving and 6 charge sessions for a trip total of 15.5 hours”:
The destination or the journey? Plenty of slow back roads and marvellous places along the way to stay and re-charge at leisure.
I was a little surprised that safety wasn’t mentioned in your discussion of buying a car, especially since you’ll be toting kids around in it. So many advanced safety features are becoming available. I’m curious what sort of accident avoidance the new Curry Cracker Chariot can perform.
All modern cars are pretty safe so I didn’t think that much about it. The ID.4 has air bags and traction control, adaptive cruise, and if you fall asleep at the wheel it will stop the car, honk, and turn on the hazard lights.
Even before the current (and hopefully short-lived) inflation in used car prices, the used vs. new debate was much closer than most assumed.
I’m 100% sure the right way to analyze it, but amortizing costs over the remaining mileage of the car feels like a pretty good way.
Insurance, gas, maintenance, depreciation, etc…they’re all variable costs that can change over the life of a car.
This article breaks them down and comes to the conclusion that Used vs. New is a 50/50 choice.
https://bestinterest.blog/cost-of-car-ownership/
As someone who feels like they over-analyze every purchase big and small, this was a DELIGHTFUL read for me. Appreciate you taking the road less traveled compared to popular personal finance advice and sharing your journey. Will be looking at a VW EV when the time comes based on this.
I have 700 miles on this one and it is great so far :)
The analysis is always fun too
Good on you that you’re able to spend all this money during retirement!
I think those published costs of maintenance and repair are greatly inflated. I purchased a 3 year old car with 20k miles, put on 170k miles in 8 years, and my cost of ownership is $1499, the majority of that is two sets of tires. Then oil changes, a few headlamps, and one set of brake pads. Zero other maintenance required. (Prius)
Sure – a CX-5 and a Prius probably have different expected maintenance costs.
My 20 year old Chevy Trailblazer with 165k miles, purchased from new, probably doesn’t have more than $4000 in maintenance & repair. Nowhere close to the 18K for 10 years. If someone needs to spend 18k during the first 10 years for maintenance, I’d argue that’s not a car worth buying. Or, the estimate is grossly overstated.
As with almost everything else, the pandemic has rewritten our rules (as has the second kid). My first two cars were new, in my pre-partnered life, and while I very much enjoyed my first car, I decided I wasn’t going to do that anymore. So for ICE cars: used and under $10k only.
Fast forward to today and everything has shifted. Our space needs for two kids, car seats and a dog and luggage is a lot more urgent than we had anticipated. Since we’re still in the accumulation phase we both wanted to push a new car buy out a couple more years but it’s simply not going to be practical considering how much time and trouble it is to rent a car every time we need to go somewhere for more than a few hours. So now looking for cars, we don’t want an ICE, and that narrows the options considerably. And then the chip shortage is here to bite us in the caboose. If we were to buy used, it would cost nearly as much as new. New is selling over MSRP, which I have never paid in my life, and they’re selling like hotcakes. Plus the manufacturers are cutting production further.
I’m not sure where this saga will end but I’m glad I read this because I had been pretty laser focused on paying cash and it didn’t even occur to me to consider financing would just be cheaper overall if we’re even considering selling some stocks to cover the outlay. Duh! Even if we don’t sell any stocks specifically to cover this, and we just take it from cash reserves, it might still not be worth the opportunity cost of not putting that money in the market. A thing to ponder if the right car pops up on the radar and we can get it before someone else does.
This is the exact line of reasoning we went through earlier this year. I ended up trading my 11 year old jeep Patriot in for a brand new Chrysler Pacifica, hybrid/EV model. This is a very high income year for me so the tax credit will be great. 0% financing meant I didn’t need to sell any of my stock RSUs. Tax avoidance in a high income year plus stock has performed crazy well the last 6 months. This van’s range is only 35 miles on battery, plenty for my around town needs. Gas tank for road trips is super convenient. Last time I filled up (over 1 month ago) 500 miles of has used (mostly from a road trip), 1200miles on battery! Highly recommend this family friendly option to readers!
I have always been a “buy used from a private party, in cash, and drive it ’til it dies” person. It’s worked tremendously well for us in the past. I’m still driving an ’07 Yaris we bought with 120k miles for $5k in 2011.
However, for our most recent vehicle, a Prius, I was running the numbers, and it actually came out roughly the same cost per mile to just buy a new one, and get all the newest safety features, and not have to deal with the hassles of private party transactions. So we did.
And I got a $0 down, 1.99% 36-month loan from my credit union while still getting all the cash buyer incentives from the dealership. After inflation, that’s practically no cost. Oh, and I bought this car right before COVID hit, so I was super glad to have all that extra cash on hand to plow into the market as it was crashing in March and April. No regrets at all.
I haven’t bought a used vehicle since college. Every time we need another vehicle, I think about it, but the discount for used is never anywhere near enough to account for the shorter lifetime, and the hassle of buying something non-fungible (new cars of the same model are practically the same, but every used car has a different history.)
I tried to buy a used Subaru Forester 8 years ago. It didn’t work out. The used car was only a few thousand less than a new car at the dealer and the new car came with incentives such as 0% financing for 5 years.
When I did the math, the cost per year, assuming that the car lives for 12 years was about the same, new or used.
I would have loved to have gone electric, but there weren’t any options 8-years ago that had the things we required (4-wheel drive for New England weather, SUV style, price at or below $25K).
We love it. It’s perfect in the snow and beach and I’m not worried about it getting dirty.
I prefer new cars to used ones. I drive the new ones for years. My current “new car” is now old at 16+ years but is nearing 200k miles.
Now that you’ve owned the ID.4 for a while, I’m curious to hear your thoughts on it. Perhaps a follow-up piece on the pros and cons of it?
Hi Neil! I’m approaching 4,000 miles now, including a couple trips to Tahoe and SF area. Quick thoughts:
Pros:
drives great – smooth quiet ride, comfortable seats, great visibility
great acceleration (probably true for all EVs)
$6-$7 to “fill the tank” – good for 240 miles or so (or $0 at Electrify America station)
Cons:
Charging during our utility’s discount EV charging time (midnight to 6 am) doesn’t work reliably (known issue, waiting for software update Europe has had for months)
Had an issue with battery coolant system pump (needed replacement, car was in shop for a week waiting on parts)
– the silver lining was that I was given a 2022 Passat as a loaner, which made me appreciate how great the ID.4 is for normal driving use (Passat was loud, clunky, bad suspension, terrible and delayed acceleration, etc…)
A bunch of minor issues – key fob emergency button is too sensitive (goes off in pocket daily, fixable with $12 key case), sometimes hard to figure out if rear passenger door is unlocked for the kiddos, rear gate has a feature to kick open the gate… seems to work 1/3 of the time, etc… (all makes/models have their specific issues.)
2022 version is gonna have some better features (at a higher price point)
– option to use car battery to power house (requires external inverter)
– bigger battery with faster charging
The downside for EVs in general is when you do longer road trips you have to charge. Charging from 20% to 80% takes 30 minutes or so, so if you plan to go somewhere that is more than 250 miles before returning home you need to plan a food/coffee/pee break somewhere. This has been pretty easy for us to manage.
How do you handle road trips of 800-1000 miles? Plenty of Level 3 chargers?
I’ve noticed most EVs have bizarrely low clearance- have you driven on any unimproved roads? How does it do?
Loads of L3 chargers. More everyday. On our most recent trip I charged when we stopped for lunch, easy.
I haven’t done any off-roading. When I was looking at snow tires I read a few trip reports of people who had done some steep and deep trail runs with RWD and the results were good. ymmv
Would you still buy it again today? Seems like VW tends to have endless electrical issues, and this being an electric car….. NHTSA has like 3 or four recalls out for these already including the the 2023 model. It’s still the cheapest way to get into and EV, but I’m wondering if dealing with all the BS is worth the savings
The cheapest way is likely to be a new model3
I have had no issues. Works great.