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If you have an aging car (say over 10 to 15 years old) and the risk of high repair bills is increasing. At what piont would you trade it in, instead of continue keeping it?
Let me guess, you are not much of a DIY mechanic, are you?
My newest car is 20 years old, my usual daily is 30. I do my own work, and don't beat the cars up, so beyond registration and insurance, I drive for about 10 to 15 cents per mile, no depreciation, no interest.
You can't get near that with a new or late model car.
The risk, my foot. To paraphrase Patton: "Accept the challenges (of owning and DIYing on an older car) so that you can feel the exhilaration of victory!"
This is my thinking:
Multiply you potential car payment by 12 (months). If your yearly repairs do not exceed that amount with your old car you are saving money.
Example: The last car payment I had was $500/mo which is $6000/yr. My annual repairs have yet to exceed that amount. The car used in this example is 20yrs old.
This methodology seems flawed to me for several reasons, the biggest being, it doesn't take into account the equity in your car.
The *real* replacement cost that should be looked at is not the payment but the depreciation plus financing cost plus opportunity cost on your equity (i.e. what you would earn on it if invested elsewhere.)
If we assume for the sake of simplicity that you would be replacing it with a slightly newer (but not brand new) car with similar gas mileage, then the replacement cost would be 10-25 cents/mile for a mid-sized car with around 100,000 miles on it. Let's say a car with 100,000 miles costs 7 cents/mile of maintenance and repair and 15 cents/mile for depreciation (i.e. replacement cost) for a total of 22 cents/mile (gas not included). If you can stretch the car out to 200,000 miles, then maintenance and repair might be 15 cents/mile and depreciation only 5 cents/mile, totalling 20 cents/mile (again gas not included). This means, unless your newer car would save on gas by more than 2 cents/mile (plus your financing/opportunity costs), you're better off with the old one.
However, the picture can change. Let's say we get to 260,000 miles and the car is burning oil heavily and requiring 25 cents/mile of repairs. Now, even if depreciation went to only 2 cents/mile (as it probably would for a car that old) it is costing more to keep than replacing it, unless the replacement would be a gas-guzzler costing an additional 5-10 cents/mile in gas.
Let me guess, you are not much of a DIY mechanic, are you?
My newest car is 20 years old, my usual daily is 30. I do my own work, and don't beat the cars up, so beyond registration and insurance, I drive for about 10 to 15 cents per mile, no depreciation, no interest.
You can't get near that with a new or late model car.
The risk, my foot. To paraphrase Patton: "Accept the challenges (of owning and DIYing on an older car) so that you can feel the exhilaration of victory!"
Well if you do the work yourself, you need to figure in the value of your time. You could do this either by using your actual hourly wage (or annual salary/hrs per year worked) or use the wage you could earn by doing similar work for someone else.
This methodology seems flawed to me for several reasons, the biggest being, it doesn't take into account the equity in your car.
The *real* replacement cost that should be looked at is not the payment but the depreciation plus financing cost plus opportunity cost on your equity (i.e. what you would earn on it if invested elsewhere.)
If we assume for the sake of simplicity that you would be replacing it with a slightly newer (but not brand new) car with similar gas mileage, then the replacement cost would be 10-25 cents/mile for a mid-sized car with around 100,000 miles on it. Let's say a car with 100,000 miles costs 7 cents/mile of maintenance and repair and 15 cents/mile for depreciation (i.e. replacement cost) for a total of 22 cents/mile (gas not included). If you can stretch the car out to 200,000 miles, then maintenance and repair might be 15 cents/mile and depreciation only 5 cents/mile, totalling 20 cents/mile (again gas not included). This means, unless your newer car would save on gas by more than 2 cents/mile (plus your financing/opportunity costs), you're better off with the old one.
However, the picture can change. Let's say we get to 260,000 miles and the car is burning oil heavily and requiring 25 cents/mile of repairs. Now, even if depreciation went to only 2 cents/mile (as it probably would for a car that old) it is costing more to keep than replacing it, unless the replacement would be a gas-guzzler costing an additional 5-10 cents/mile in gas.
Unless you are able to purchase below retail and sell before depreciation exceeds your purchase price there is no such thing as equity in a car, at least for the average person. Even after you pay the car off the annual operating expenses will eventually exceed the depreciation rate. Except for a case like mine perhaps.
If people thought in terms of cents per mile to operate the average car more people would drive diesels.
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Wow, I can't believe we hash this over and over, and of course everyone has different situation and so... different solution is probable for each.
I usually use $0.10 / mile maint + capital cost target.
thus a $10,000 car gets me down the road for 100k mile + extra miles spent on Maint, then I am fine with expenses. A $1000 repair or car needs to get me another 10k (~ 1 yr for average joe)
In actuality my car costs are a small fraction of the $0.10/mile.
I drive a $35 car that has 300k and burns FREE fryer grease. If the wheels fall off, I can grab any one of ~20 body style cars from 1975 - 1999.5 and my complete drive train will drop right in with about 4 hrs effort. I can easily find dead gassers for $500 that will live another 30-40 yrs (that's longer that I will live...)
For my 'Sunday-go-to-meeting-car' (Passat wagon TDI) I paid $1700 used and have put 140k on it for $78 in parts and $40 in tires (this EQUALS = $.0169 / mile cost of car + repairs) THAT is WAY expensive for me! but ok for a Sunday 'spiffy' car.
(I buy tires @ $5 from wrecking yard, most are Dandy, I go for Kuhmos and Yokohama).
At some point you need to do a cost/benefit calculation and make a choice.
I don't ever plan on 'upgrading' and if it gets wrecked or wheels fall off, I will do a transplant.
For more benchmarks... My Cummins Diesel truck costs are $0.03055 / mile (cost of truck + repairs / miles driven).
My Mack... YIKES Over $0.10
My recent minivan (RIP) $0.06888
Last edited by StealthRabbit; 03-06-2013 at 08:55 PM..
If you have an aging car (say over 10 to 15 years old) and the risk of high repair bills is increasing. At what piont would you trade it in, instead of continue keeping it?
I think it depends on what you need a car for. If you need reliable transportation, an older car that is breaking down more than twice a year probably has to go. If the repair bill is more than a certain value of the car, it's time to go. If the risk of a huge repair is imminent, it's time to go, but any 10+ year old car could have any number of catastrophic repairs come up. The good news is that these days, 10 year old cars are more reliable than ever.
For me the limit is 200k miles. That's when enough things need serious money that its better to just trade up for something without a cloud over it, so to speak. Fwiw, the highest mileage I've ever put on a car was around 250k mi, but the odometer stopped working so it was hard to know the exact final count.
The comment about how each person's situation is totally different is about the most solid thing anyone can really answer to a web discussion on this topic. There isn't a correct answer that fits everyone.
For example, I could never lease, put too many miles on, travel with my two hunting dogs regularly etc.
Add to that we have a horse which requires a good solid rig to tow him and I have much different needs for vehicles then someone living on the edge of urban suburbia who just needs a small reliable commuter vehicle.
Why would someone invest say $20K cash in an investment guaranteed to lose money?
I would rather finance for the lowest rate I possibly could, and leave the rest of the cash invested in something earning north of what I am paying in interest.......
Sounds simple enough, but isn't that what helped cause our current recession, too many people taking on HUGE amounts of debt thinking they can get a bigger return on there money by investing it instead of just paying off debt.
While yes you could possibly get a bigger return on your 20k if you invest it, you could also lose it all and be stuck with a 20k loan to pay all. I really don't consider any debt "good" debt.
So, for 10 years, averaging the cost with repairs, tires, etc...probably around $3500 a year.
WAY High in my opinion, With oil chances and tires I've been well under $500 a year for the last 10 years for my Honda Civic. The most expensive "repair" I had done last year was the timing belt, front brakes and engine mount and that only cost $1000. Even with gas I don't think I'm anywhere near $3,500 a year.
I would like to know how you came up with that figure, most new cars have zero repairs the first 5 years, assuming your driving 15k miles a year, even the tires should last at least 4 years. So your figuring 7k in car repairs a year for the last 5?
Quote:
Originally Posted by stan4
Take a 30k car. Bought in 2002.
So, for 10 years, averaging the cost with repairs, tires, etc...probably around $3500 a year.
That's assuming cash paid or zero percent interest.
Averages out to cost of ownership being about 300 bucks a month.
Your math is WAY of too. If I purchased a car for 30k and I was spending $3500 on car repairs a year, after ten years I would have 65k in total car costs excluding gas. That works out to $541 a month, not $300. Your also assuming you just throw away the old car after ten years and buy another one. Your overlooking residue / trade in value. My car is over 10 years old and it worth at least 3 to 4 thousand dollars. Your going to have to do a better job than that to justify the lease payments are a better deal than buying and holding onto a car.
Quote:
Originally Posted by stan4
Soooooooooo...hmmmm...new car with less hassle and pain and uncertainty every couple of years or some deluded mindset that you're saving thousands and thousands of dollars?
I'm not deluded, I have math on my side. By my calculations the cost for my car is $105 a month. 2003 Honda Civic purchased in Oct. 2002 for $15,200, Trade in -$4,000, Tires, brakes, timing belt $2,000, total $13,200 / 125 months = $105.
Last edited by TechGromit; 03-07-2013 at 09:37 AM..
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) THAT is WAY expensive for me! but ok for a Sunday 'spiffy' car. 
