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ON: Automotive New vs. Used: The Math and Logic

Posted 06-27-2014 at 01:30 PM by Blondebaerde


Quote:
Originally Posted by rdflk View Post
I need help understand the reasoning of buying new vs used when it comes to the math, especially the depreciation argument so many used car fans talk about -- vs other factors. And maybe those others factors are too varied, I don't know.

Even with depreciation isn't buying new 'better'...doesn't that make more sense?
What am I missing?
For thoroughness, it's actually a fairly involved calculation. Not rocket science, just lots of "stuff" to consider.

You've got to factor in inflation, opportunity cost of the money you sunk up-front (or not, if financing), cost of the financing, estimated repair costs by vehicle and year, plus more.

Financing at 1.9% APR for new, which seems pretty common these days for cars, means they're losing money if we assume 3% annualized inflation (usually taken as the average). That is definitely a factor.

Tricky part is the real depreciation curve for any specific automobile model. Must exist somewhere, and pretty obviously isn't linear (exponential, I believe), with "condition", "mileage", and "elapsed time from new" being the three variables I can think of. Ditto is finding average maintenance costs, which I have seen on various automotive web sites for some models. They calc that out based on "average" mileages. Seems to me that could be broken down (amortized) on a per-mile basis, see above.

Yet another case for data-mining of "Big Data." A megatrend is that we (the collective "we") will start to see big data actually synthesized into useful outcomes, next fifteen years or so, from the currently woefully-underutilized state(1). Good examples at-current: Google Traffic, which has become indispensable to me for commuting. But there is so much more data that could be rolled into it. I digress.

The big data needed in our example here is aggregated repair costs, interest rates, average returns on investment, repair frequency and amount, for all or nearly-all vehicles by-year, and more. More data you've got, the more accurate the calculation and the answer will be black and white based on YOUR particular needs.

Pretty obviously, with sufficient data you'd run out the trend lines, new vs. used, in terms of expenses with everything considered. Cost on the Y, time on the X. At some point, after X years and/or mileage, new vs. used lines may cross. Or, maybe they never will. The value of the vehicle at any point in time...new or used...should be available. So you can decide how long to keep it and stay in the money, always understanding that 99.9% cars are money pits, not investments.

I went through the above on a rather-radical (for most people) vehicle, new vs. used, couple years ago. Of course that was a bit gray, too, because the 11 year old model I actually purchased (used) for $50K in 2012 dollars seemed in every logical way to be a better "deal" than the $178K, 2012 version of-same. But: the 2012 is certainly covered under 3 year full warranty (zero maintenance on big stuff), and may or may not be same, better, or worse quality than its predecessor (see the need for "big data," mentioned earlier).

What cannot easily be quantified is pride of ownership: the 2012 is probably "cooler" (to most) than the 2001, but a very few might actually say the opposite (mine may eventually be a "rolling classic", and the gradual depreciation curve reverse). In terms of sheer dollars and cents, would take a lot of repairs and everything else to make up that $128K difference. Assuming both were financed over the same period.

In that non-logical calculation (my example), "pride of driving a brand-new sports car" has an actual cost that is massively higher than buying the same model, used, 11 years older. It would take decades of ownership for those lines to cross.

(1) Global Trends 2030: Alternative Worlds (National Intelligence Council, US Government)
Posted in Lifestyle
Views 1368 Comments 1
Total Comments 1

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