As the economy worsens, people are cutting back on spending everywhere. Where do you look for savings? For many families, car expenses eat up a big chunk of the budget. It’s important to make the best choices, even more so today when every dollar matters. After all, the last thing you want is to undergo an involuntary conversion from motorist to pedestrian.
The news today is full of stories about our collapsing auto industry, and how consumers need to buy new cars to get the economy restarted. Maybe that’s true – I’m not an economist – but I can’t help but wonder if over-exuberant spending was what got us into this mess in the first place. Maybe we should all drive our cars a little longer as we work our way out. I’d like to offer some tips to help you do that.
People face tough car decisions every day. There’s not a week that goes by without someone asking me a variant of this same question:
My car needs $2,000 of repairs. That’s as much as the car is worth! Should I trade it?
Those words are music to a car salesman’s ears, but a salesman isn’t exactly the best person to turn to for advice in that situation. The first step in answering your question is to put it in a more realistic perspective. Trading your car is not a cost saving alternative to a repair. When you trade your car, you get a new vehicle, but you also get years of payments, usually totaling tens of thousands of dollars. The new car’s costs may be hidden, but they are almost always massively greater than any repair.
When you contrast a $2,000 repair with $20,000 in payments over a few years, things look a bit different. Is a costly new car really a wise move, given our current economic situation? My old Land Rover has 150,000 miles on the odometer, and it still drives like new. It’s paid for, and it’s solid, and it’s still a nice-looking rig. Would I abandon it over a repair bill? No way.
The salesman will say, Your old car is worth nothing! Look at the value in a new vehicle! Value indeed. One of the fundamental problems with automobile credit is the harsh reality that most three years old cars are worth less than their loan balances. There’s no value there – just a big debt. By the time your new ride is paid off, it probably won’t be worth any more than the car you have today.
One way to get a different perspective is to ask what would happen to your old car if you traded it. Will it go to the junkyard? If so, perhaps trading it is the right answer – your old car is just used up. But if your car is like most, the answer is different: Someone will fix it up and drive it a few more years. Who comes out ahead when that happens? The car dealer, certainly. And maybe the fellow who gets a few good years from your old car. Who’s the loser? You, in most cases.
You get some instant gratification from the new car, for sure. But it may come at the expense of added stress as the new payments get added to your budget every month. Is that a good trade – debt stress for new car smell and some gadgets? Only you can decide.
Today’s cars last a lot longer than the vehicles many of us grew up with. The lifespan of a typical car is now approaching 15 years. High end cars like Mercedes or BMW last even longer, with nice 20 year old vehicles being common. If your present car is less than ten years old, it’s probably got a lot of life left in it, at fairly low cost.
Cars of that age may not have much cash value, but they provide excellent transportation value for their owners. That’s especially true once they are paid off, when your only costs are fuel, insurance, and upkeep. Excise taxes – over $1,000 a year on many new cars – have dropped near zero. Insurance is cheaper too, in most cases. The only thing that costs more is maintenance and repair.
When you factor in all the various savings an older car offers, the occasional high dollar repair seems like a small price to pay. And if you’re going to drive the same old car a few more years, why not keep it in good shape? It will certainly be more enjoyable to drive if you do.
Once you make the decision to keep a paid-for older car on the road, the tradeoff of repair cost and cash value becomes meaningless. The cash value of your car does not really matter if it’s paid for and you’re keeping it a few years. As long as the repair costs are less than the costs of a replacement vehicle, you’re ahead of the game.
What happens when there’s a really big failure? What if the engine fails, or the transmission blows? If the rest of the car is in good shape, repair may still make sense. Situations like that are best discussed with a service professional who really knows your car.
In my next column I’ll offer some tips to help you avoid those big repairs, and handle them better if they occur.
Meanwhile, visit me online at www.robisonservice.com or on my blog, http://jerobison.blogspot.com
