Anybody that's read a few personal finance blogs or websites knows the conventional wisdom: buy a used car, or if you can avoid it, don't use one at all. Use public transportation, walk, bike. In short, do everything you can to avoid owning an expensive depreciating asset - especially with those rising gas prices! Anybody that's seen An Inconvenient Truth or ever spoken to an environmentalist has heard pretty much the same advice. I usually think of myself as pretty good at the personal finance thing. And I generally try to do what's good for the environment. So I have a confession to make. I drive. Daily. And I own a 1-year old car that I bought brand new.
Why have I chosen to commit such personal finance sins? For me, it turned out to be all about the numbers.
New vs. Used
My last car was a '99 Audi A4, which I bought in July 2004. It was super low mileage and just out of warranty (due to age, not mileage). And best of all, it was only $10,500, plus the $3,500 in repairs that I knew it would need right away. The mechanic that checked it out told me that at $14,000 the car was a great deal, and all my research confirmed that. Unfortunately, it was also in the shop almost every month for the entire 2 years I owned it, cost me an average of $200/month in maintenance and repair costs, and used the premium gas, which is, let's say 20 cents per gallon more expensive than the cheap stuff. With its great, fun to drive V6 180 hp engine, it also got horrible gas mileage, especially for a small car.
Let's assume 3 14-gallon tanks of gas per month at $3 each and do the math. My old car was costing me, on average $14,000/24 + $200 + $3x14x3 = $909/month over the 2 years I owned it. If I factor in how much I sold it for $6000, I still average out to $659/month.
Now, let's talk about my new car. It was a brand new '06 Jetta, a little bigger than the last one, and has almost as good of an engine a V5 with 150 hp. To me, it's just as good, but it's also under warranty, uses the cheap gas, and gets better gas mileage. We've already skipped the gas mileage in our calculations, so let's stay with that. With the car spending less time in the shop, I probably drive it more anyway. The car was $18,880, which ends up as $506/month over 3 years with 1.9% financing. So let's see, over the first year, we have $506 + $2.80x14x3 + $100/12 = $632/month (The $100 is the cost of my very expensive artificial oil change, which I need only once every 10,000 miles). The car isn't paid off yet, but according to Edmunds, it's current "true market value" is $16,000, while the amount owed on my loan is around $14,000, so I'd make $2,000 on a sale... or another $167/month, making my cost for the car $465/month.
Sure, my old car ended up being a bit of a maintenance nightmare, and I sold it pretty cheap. And my new car was bought at a very good price and has kept its value well. But that's not my point. My point is that the conventional wisdom is great, on average. But it's always good to run the numbers for your own individual situation. It's not always the same as the "average" or "typical" one. My discussion for driving vs. public transportation is still to come, but is essentially another exercise with the same theme and method.