Common Cents #6

Common Cents # 6 for June 1, 2020

 

Let’s talk about cars. Some places where public transportation is quick and reliable, cars are a luxury. For most of us they are a necessity. For most people, an automobile is the second most valuable piece of property owned after the cost of their house or apartment lease.

Cars can tell other people about one’s lifestyle and personal taste, or it can simply be a way to bring home groceries.  It can represent a ticket to freedom or it can be a heavy weight of responsibility and expense. Because it is a costly and depreciating asset, it is important to know how we view our automobiles and seek ways to be wise with purchasing, maintaining, and then selling our car.  

So how do I go about buying a car? There are four tiers and a wild card. The top tier is a new car from a dealer. Driving a new car off  the lot with a new car warranty is about the safest way to have dependable transportation for the length of the warranty, providing that the car is correctly maintained even as a new vehicle.  The argument against buying a brand-new car is high first year depreciation. Since most new cars are sold at a discount and feature special financing, rebates, or longer warranties, first year depreciation is not as big a deal as most people think, especially if the car is owned for many years.

The second tier is Certified Pre-owned or CPO. This low mileage one or two-year-old car would be purchased from a reputable new car dealer that has essentially a new car warranty. This often proves to be an excellent choice.

The third is a used car from a respectable dealer, often connected to a new car dealer. The dealership has likely checked the car to know that it would be good for their used car sales reputation, even though it does not provide the owner with a long or robust warranty.

The bottom is a “Buy Here, Pay Here” dealer who specializing in selling high mileage cars to people with bad credit. The worst of these dealers make their profit by selling the same car over and over again and the buyer usually feels like the victim because they are. Don’t go there.

The wild card is buying from an individual. It could be a great car, or it could be one that is just one expensive repair after another. Always beware.

What kind of car should I buy? There are literally hundreds of makes and models to choose from.  Add trims and options and the choices are mind-boggling.  A few people really do need a pick-up for work or a hobby, most people don’t. The fact that pick-ups are the largest selling category is a recent North American phenomenon which somebody will write a book about someday. If we need to haul things, a van or SUV may a better choice to eliminate the problem of inclement weather.

Many people like SUV’s because of their versatility. These are really just tall station wagons. Station wagons are currently out of style in the United States, though station wagons are still the most popular body style in many countries. Today, 52% of all cars sold in France are station wagons.

Sedans come in every size and price range. If our goal is to get to work every day and stop for groceries on the way home, we don’t have to spend a lot of money. Since my wife and I think a good time means getting in the car and driving 3,000 miles, our requirements are for a car that will eat up the miles without beating us up in the process. That means a nice car with a comfortable riding experience.

Some people would rather go for a drive than fish or play golf. They would gladly give up utility for driving pleasure. They would want a car that is fun and responsive to drive. That might be a true sports car like a Porsche or Corvette, or a sporty car like a Mustang or Camaro.

If we are in need of new car, we need to think carefully about what our needs and values are. How important is being able to drive long distances without getting tired? How often do I need to haul a bale of hay? Do I need to pull a trailer? There are no right or wrong choices. I heard somebody say that if you can get out of your car and walk away without taking a glance at it over your shoulder and smiling, you bought the wrong car. I am in that camp. Style is important too.

The most basic way to understand the expense of owning a car is “cost per mile.” The biggest expense is generally depreciation. By looking at the value of a car on Kelly’s Blue Book (www.kbb.com) on January 1st and again on December 31^st one will be able to see how much the car depreciated or lost value during the year, or over several years. Add to that amount insurance, taxes, maintenance, and fuel and divide by the number of miles driven. Typically, this will be between 10 and 50 cents per mile. If we only drive 2,000 or 3,000 miles a year, the cost will be closer to $2.00 or $3.00 per mile. The easiest way to lower our cost per mile is to drive more. Using this calculation, cars are made to be driven, not parked.  Maintaining the car to keep it in the best possible condition is always money well spent.

Knowing when to sell a car is also an important financial consideration.  We want to have received good value from the automobile during the time we owned it, but keeping the car too long can be very costly if we end up spending more on repairs than the value of the car.  When a particular car has been a part of many wonderful memories, it is difficult to part with this big, shiny companion.  If the car owner has not developed a sentimental attachment to the car it really makes it easier to trade or sell the car to the next owner.  Really keeping up on the car’s Blue Book value should be part of the decision, and some hard decisions just have to be made. 

I have always had a love of cars, and you might also enjoy a link to a song I wrote a few years ago, “What Would Jesus Drive?” (VIDEO)

Happy motoring!