GM - had to do it

[r0tor]

Allow me to rephrase: young people don't buy new cars anymore.

I'm not exactly thaaaaat old

[r0tor]

But have you paid off your house?

Yea...

[12,000 RPM]

Eh, does residual value really matter that much? If you buy a new car for $35,000 and sell it five years later for $18,000 you've spent $17,000 on the car. Had you bought a three-year-old used one for $22,000 and sold it five years later for $5,000 you're still at the same spot financially; you're still spending $17,000 over five years (or $3,400 per annum). If you drive it ten years and sell it for $1,500 you'll have spent an average of $2,050/yr. That's a lot of money freed to pay for repairs out of pocket if one's really worried about being out of warranty.

Ehhh the numbers don't generally look like that. I think a 5 year old $35K car is gonna be more like $12-14K private party. That same car at 10 years might be $7-8K. So depreciation wise you save a ton, but of course you run the risk of unplanned repairs. However cars are so reliable these days that outside of European luxury cars and pre-bailout domestics I think that risk is low. But yea residuals definitely matter. A few cars have been torpedoed out of the gate because of uncompetitive, unsubsidized residuals.

Personally I'm still at a loss as to why CPO leases aren't a bigger thing.

[GoCougs]

Eh, does residual value really matter that much? If you buy a new car for $35,000 and sell it five years later for $18,000 you've spent $17,000 on the car. Had you bought a three-year-old used one for $22,000 and sold it five years later for $5,000 you're still at the same spot financially; you're still spending $17,000 over five years (or $3,400 per annum). If you drive it ten years and sell it for $1,500 you'll have spent an average of $2,050/yr. That's a lot of money freed to pay for repairs out of pocket if one's really worried about being out of warranty.

Depreciation on a car doesn't work like that however.

$35k to $18k is $17k/$35k = 48.6%, whereas $22k to $5k is $17k/$22k = 77.3%, which is an impossible premise. A car depreciates far quicker from 0 to 5 years than from 3 to 8 year.

So, yes, it matters. A lot.

[GoCougs]

Chase has increased my credit limit 2-3 times this year even though I've been carrying around a balance the entire time without paying it off. (0% APR for another couple months)

They're increasing your credit limit because they think you'll use it (i.e., they'll make money off of you).

[93JC]

Ehhh the numbers don't generally look like that. I think a 5 year old $35K car is gonna be more like $12-14K private party. That same car at 10 years might be $7-8K.

Depends on the market; used cars in the US seem to be much cheaper than they are here.

I admittedly didn't really think the eight-year-old price through very well, was just thinking anecdotally of friends who ditched their eight-year-old car for only a couple grand, but they're not really a representative sample (she drove about 40,000 km/yr for the first six years she had it, so it wasn't worth much thereafter...).

Really that just reinforces my point. If I take a look at Honda Accord prices on kijiji.ca, asking price for a three-year-old is $21,000-$29,000. Let's say the average actual transaction price is about $25,000 (the one at the top end is a bit of an outlier). When new a 'typical' trim, a Touring with an automatic, is about $37,000. Five-year-old examples are asking for $15,000-$24,000; let's be a little conservative and say they're actually selling for about $20,000. Asking for eight-year-old Accords is $10,000-$16,000; let's say transaction average is $13,000.

New Accord: $37,000 at time of purchase - $20,000 after five years = $17,000 spent on depreciation = $3,400/yr
3-yr-old: $25,000 at time of purchase - $13,000 after five years = $12,000 spent on depreciation = $2,400/yr

So depreciation wise you save a ton, but of course you run the risk of unplanned repairs. However cars are so reliable these days that outside of European luxury cars and pre-bailout domestics I think that risk is low.

Back-of-the-napkin calculations above show you end up ahead if you don't spend over $5,000 on repairs over five years. And it's not as though the brand new car doesn't run a risk of having out-of-warranty repairs either: Honda's factory warranty is five years or 100,000 km on the powertrain, but bumper-to-bumper is only three years/60,000 km.


There's no way around it: it makes far better financial sense to buy slightly used and drive it for a looooong time.

A few cars have been torpedoed out of the gate because of uncompetitive, unsubsidized residuals.

Well, yeah, but this whole subsidized residuals BS—mastered by zee Germans—is a mug's game. You give your poseur-class Mercedes or whatever back to the dealer after three years and they get you right back on the treadmill, making payments on a new one for another three years.

[BimmerM3]

Yeah you guys are mostly agreeing with each other.

But the bigger point is that residual values, by themselves, don't really matter - depreciation matters. And while I'm sure you can find a couple exceptions out there, it's pretty well accepted that the vast majority of vehicles depreciate faster when they're newer.

[AutobahnSHO]

There's no shame in buying used, especially if new cars are such a stretch for you that you need a super-long loan. Cars last forever nowadays.

Bought Odyssey in (Feb?) 2015 with 168k miles on it. Super great condition, cash= $5500.

Now has 231k miles, biggest expense was peace of mind in t-belt/ pumps replacement.

Adding purchase price and repairs (I do many myself) brings a "monthly payment" down to about $156/ month. Van isn't worth a ton right now though for resale.

But honestly I did the math awhile back and buying cheap ($3k-5k) cars and doing most maintenance yourself, keep them 3-4 years, I end up with an average $150/month payment.  Most people are scared of breakdowns or whatever but my costs above figure in the price of a few rentals and unexpected repairs. 

--------- -----------------
Not related directly to the quote:

Honestly the key to keeping costs down is holding on to a car longer than 3 years.

My wife bought her car new (2005 Impreza) and we still have it. Super low mileage when we got married 5 years ago, under 70k. But figure purchase price, interest, maintenance, and (due to stupid Georgia dealer) used motor replacement, an average "monthly" payment (over entire lifetime) at this point is around $190/month.

As noted above the people that roll negative equity into a new loan really dig themselves into a deep hole!

[dazzleman]

Chase has increased my credit limit 2-3 times this year even though I've been carrying around a balance the entire time without paying it off. (0% APR for another couple months)

They're hoping you'll get deeper in debt and be unable to pay off the balance when the high interest rates kick in.

[Soup DeVille]

I've said this before; buying used can sometimes be a luxury some can't afford. There are risks. Having a vehicle out of warranty means you either have to be willing and capable to perform repairs yourself, or have funds in reserve to pay for them and provide backup transportation if necessary.

If you've got a shitty enough job, missing work may even jeopardize all of your income.

[93JC]

True. I bought my Mazda new largely because I got sick of having a used car that I had to tinker on all the time to keep running right.

[giant_mtb]

It was a very nice blessing to have A4 from brand new. Had to worry about virtually nothing beyond oil changes and tires.  However, as it was around 65k miles and about to be out of warranty when I sold it...I was happy to be rid of it given the common horror stories.

With Taco, I'm confident in it, but it is a 176k+ mile vehicle, so I always have thoughts in the back of my head about catastrophic failures, though it has shown no such signs.  Just the usual wear items and maintenance. *knocks on wood*

[CaminoRacer]

They're hoping you'll get deeper in debt and be unable to pay off the balance when the high interest rates kick in.

Yeah, exactly. I've done nothing to prove that I deserve more credit, but that's why they're giving it out.

I'm just milking them though. If they're gonna give me a free loan, I'll take it. I've got more than enough to pay off the balance sitting in an Ally savings account earning 2% until it's time to pay off the credit card.

[12,000 RPM]

I've said this before; buying used can sometimes be a luxury some can't afford. There are risks. Having a vehicle out of warranty means you either have to be willing and capable to perform repairs yourself, or have funds in reserve to pay for them and provide backup transportation if necessary.

If you've got a shitty enough job, missing work may even jeopardize all of your income.

I think there's a wide berth between a new car and a money pit on its last legs. Especially with financing. You get something basic like a 9 year old Corolla or Sentra, you throw a warranty on top and stretch the note out... you will survive and probably have to do nothing but change tires/oil/brakes.

[Soup DeVille]

I think there's a wide berth between a new car and a money pit on its last legs. Especially with financing. You get something basic like a 9 year old Corolla or Sentra, you throw a warranty on top and stretch the note out... you will survive and probably have to do nothing but change tires/oil/brakes.

There's definitely probably a sweet spot for every car when it comes to cost of ownership, but I feel 9 years old is probably too old for most. (Yes, my new car right now is a 17 year old Toyota)

[MrH]

I think there's a wide berth between a new car and a money pit on its last legs. Especially with financing. You get something basic like a 9 year old Corolla or Sentra, you throw a warranty on top and stretch the note out... you will survive and probably have to do nothing but change tires/oil/brakes.

Where are you getting a warranty on a 9 year old Sentra?

[Eye of the Tiger]

Where are you getting a warranty on a 9 year old Sentra?

Private warranty companies are big business. They will warranty just about anything.

[MX793]

Private warranty companies are big business. They will warranty just about anything.

They're also often a rip-off.

[shp4man]

They're also often a rip-off.

+1000

[CaminoRacer]

They're also often a rip-off.

I know a guy who started one here in Utah that has now expanded into Arizona & Nevada. He's got a really nice, big house and a Deuce & a Half.

[MrH]

Yeah, you'd spend as much or more on the warranty as you would the car.

[Soup DeVille]

I know a guy who started one here in Utah that has now expanded into Arizona & Nevada. He's got a really nice, big house and a Deuce & a Half.

Deuces are cheap though.

[Eye of the Tiger]

They're also often a rip-off.

You don't get to be big business by giving money away.

[shp4man]

Aftermarket warranty companies are for the most part a bunch of thieving snakes. They disallow legitimate claims for technicalities, cheat mechanics, and game labor times on jobs.
This will be a whole chapter in my Auto Repair tell all book. 

[BimmerM3]

I mean, all warranties and insurances are a cost/benefit analysis by the provider. Whether that's Honda offering a factory warranty or someone else offering a third party warranty, you're paying for it. That's a large part of why newer cars depreciate faster than used.

On average, most people will not receive the same value in benefits that they are paying for the warranty/insurance unless the provider got their actuarial probabilities wrong, so it's a matter of determining whether the peace of mind of not having to worry about repairs is worth the cost, whether that be in additional depreciation or as an aftermarket warranty.

It might be true that the payout vs. cost for aftermarket warranties is even less than that of factory warranties (I have no idea), but the overall concept isn't really that different.

[AutobahnSHO]

I've said this before; buying used can sometimes be a luxury some can't afford. There are risks. Having a vehicle out of warranty means you either have to be willing and capable to perform repairs yourself, or have funds in reserve to pay for them and provide backup transportation if necessary.

If you've got a shitty enough job, missing work may even jeopardize all of your income.

Yup.

And I (silently) curse everytime I have to go wrench on my vehicles. No matter how minor the work is, if I finish without going too far over the time I expected it to take, and without too many bumps/bruises I breathe a very long sigh of relief.

[AutobahnSHO]

Non-OEM warranties are kind of like insurance.

Insurance is a bet against a catastrophic event (or series of, like health insurance) which the consumer doesn't really budget for.

If you have a bazillion dollars in the bank though- there's no reason to pay for life insurance, or comprehensive auto insurance, or home owners insurance. Because you could cover any events or issues yourself, no reason to pay a company.

With non-OEM warranties it's kinda the same idea. If you have money set aside for big repairs, I wouldn't consider paying for a warranty. But they could provide peace of mind to someone who otherwise couldn't handle an unexpected huge repair job.

[MX793]

Non-OEM warranties are kind of like insurance.

Insurance is a bet against a catastrophic event (or series of, like health insurance) which the consumer doesn't really budget for.

If you have a bazillion dollars in the bank though- there's no reason to pay for life insurance, or comprehensive auto insurance, or home owners insurance. Because you could cover any events or issues yourself, no reason to pay a company.

With non-OEM warranties it's kinda the same idea. If you have money set aside for big repairs, I wouldn't consider paying for a warranty. But they could provide peace of mind to someone who otherwise couldn't handle an unexpected huge repair job.

3rd party warranties are more often than not a scam.  Many of the most notable ones have been taken to federal court for fraud.  General advice is to get an OEM extended warranty or none at all.  They aren't cheap either.  If you can come up with the couple of thousand that these cost, you can set aside some money to cover repairs into an emergency fund.  I'm not sure I've ever shelled out more than $2000 in total repairs (I'm not counting maintenance items like tires and brakes, which wouldn't be under warranty) on any vehicle I've owned, and I keep all of my vehicles at least 5 years and I owned some that were >8 years old.  A lot of these 3rd party warranties cost more than $1500.  If you can find a clean, 6 year old car, it should carry you reliably for 4-5 years with barely more than basic maintenance.  Especially if you live someplace with a milder climate and salt-free roads.  Put the 2 grand you didn't spend on a scam 3rd party extended warranty in a coffee can and bury it in the back yard. 

[BimmerM3]

3rd party warranties are more often than not a scam.  Many of the most notable ones have been taken to federal court for fraud.  General advice is to get an OEM extended warranty or none at all.  They aren't cheap either.  If you can come up with the couple of thousand that these cost, you can set aside some money to cover repairs into an emergency fund.  I'm not sure I've ever shelled out more than $2000 in total repairs (I'm not counting maintenance items like tires and brakes, which wouldn't be under warranty) on any vehicle I've owned, and I keep all of my vehicles at least 5 years and I owned some that were >8 years old.  A lot of these 3rd party warranties cost more than $1500.  If you can find a clean, 6 year old car, it should carry you reliably for 4-5 years with barely more than basic maintenance.  Especially if you live someplace with a milder climate and salt-free roads.  Put the 2 grand you didn't spend on a scam 3rd party extended warranty in a coffee can and bury it in the back yard. 

Can people roll the cost of the warranty into their used car loan? That would make it more accessible, even if it's still not really a great idea.

[MX793]

Can people roll the cost of the warranty into their used car loan? That would make it more accessible, even if it's still not really a great idea.

Maybe if it's sold through the dealership.  I don't believe you can with a 3rd party (though the 3rd parties may offer a monthly payment plan).