The Old Car
My “new” car is not so new anymore.
My Malibu is the only car that I ever bought new from a dealership, so I still think of it as the “new car”. However, a few things here and there have started to break down recently, which caused me to reflect on the fact that it’s actually ten years old. I recently passed 166,666 miles (the mileage of the beast!), making it no spring chicken. (Side note, that puts me almost exactly dead on the average miles per year of 16,550 as calculated by the Federal Highway Administration, which is especially amazing considering how many different phases of life and locations of living the car has covered. They must be doing some good math over there at the Highway Administration!)
All of this has caused me to reflect on the fact that my Malibu might be nearing the end of it’s life. Sara and I thought back to all the old cars we had, and we realized that every single one was jettisoned when it was somewhere between 12 and 15 years old. Based on that, we came up with the following metric: barring anything unusual like an accident, you should expect to get 10 years out of a car. If you get to 10 years, you can’t be disappointed. However, anecdotally we usually got at least 12 years, so if you’re lucky you should get an additional 2 unexpected, “bonus years” out of your car. You shouldn’t necessarily plan on them, but I think it is reasonable to expect that you can get them. In a perfect world, you could get as much as 15 years. Plan on 10, expect 12, and hope for 15.
Now of course the 10/12/15 isn’t a hard and fast rule, but more of a guideline. This actually correlates well with another anecdotal metric of mine, which is that you should be able to get about 200,000 miles out of your car. Well, assuming I continue to do about the average miles per year of 16,550 on my 10 year old car, I’ll cross the 200,000 within 2 years.
I’ll hold on to it for as long as I can, but it does sort of feel like a death sentence for the old girl. She’s been given two years to live. All in all, the Malibu is a very good car, and I am very satisfied with it. However, I probably won’t buy a new car again.
My car had a price tag of around $22,000 when it was new 10 years ago. So that averages to $2,200 a year (not counting car ownership costs like insurance, plates, oil changes, etc.). However, according to edmunds.com, a 2012 Malibu costs $22,110 and a 2010 Malibu costs $13,603. So we could say a Malibu loses about 38% of its value in the first two years. I’m making a lot of assumptions here (although not crazy assumptions, since Edmunds predicts you will lose on average 31% of the value of a new car in 2 years), but if we apply that same formula, that would mean that if my Malibu new in ’02 cost $22,000, I could have gotten it used in ’04 for about $13,640 (which actually seems kind of high for a 2 year old used car). If I then owned that car for 8 years (because I expect 10 years out of a car, but it is already 2 years old, so I only get 8), it would only have cost me around $1,705 a year. I would have saved $495 per year by owning the exact same car, just purchased at a different time. In other words, I just gave myself $3,960 of free money.
My quick calculations assume you paid cash for everything, so none of this includes the 7% interest rate I had on my 5 year loan. So if I spent those two extra years saving up to pay cash for my car rather than taking a loan, I give myself an additional $4,137.58 in free cash, for a total of around $8,000 in free money.
Of course, these numbers are just my quick calculations, and I’m no expert. There are mitigating circumstances on both sides. Hypothetically, if you paid cash and got a phenomenal deal, you could be the one who beat the system, but even then you just come out even with the used car case, not ahead. Chances are you didn’t beat the system (and you don’t really even know if you got a good deal or not until you can compare used car sales in a few years), so if you are a betting man, the odds are on the used car.
Anyway, the numbers work fairly well as a rough guideline for me, and it gives me an opportunity cost number to consider. Even though buying a new car is never cost effective, it might be other things effective. For example, most of the time I had my new car it was hassle and stress free. That’s got to be worth something I suppose, but for me personally it was probably not worth $3,960 (Of course, I didn’t have any trouble with the car in the first two years, so if you think about it, buying it at two years old wouldn’t have given me any more hassle or stress than buying it new). On the other hand, I bought my Malibu when I got my first job out of college, both as a sign of independence and a splurge to celebrate my new financial security. So I guess those might be worth something. And if money is not an issue for you, then the “cost penalty” might be lower for you (i.e. if $3,960 isn’t a lot of money to you, then it might seem like a small price to pay compared to other things). For example, you might value “looking good” more than $3,960.
Anyway, we’ve had a good 10 years together so far, and if the Malibu dies tomorrow, I’d be satisfied that I got my money’s worth. However, we’ll keep our fingers crossed for at least another 2 and hope for the full 5.