Keep Car or trade in? (sale, prices, value, old)

[chicagotodc]

Curious to see what individuals have to say of the below thought process. Current car is a 2006 BMW X5 that sucks up gas and money at approximately the rate of a small countries GDP. Yes, yes, I know, what am i doing with a BMW.... It was a stupid purchase. I know. Anyway, I'm sick of throwing money at it, and am debating a new car, perhaps a honda CRV or VW Jetta wagon TDI (which gets tons of miles to the gallon).

Here's the analysis;

Honda Cost: $24,300 approx from Truecar
X5 Trade in: $17,000 (KBB)
Balance Due X5: $7,500 (plus or minus $100)
New Loan Required for Honda: 60 months, 2.9%, $14,900 loan
Insurance difference: Honda is $28.40 more per year than the X5
Daily usage: 26 miles to work / 5 days a week little use on weekends
Actual X5 MPG: 14 vs Honda MPG: 25
Assumed Cost per Gal: $3.80
Cost Per Day X5: $7.06
Cost Per Day Honda: $3.95

Now for the 5 year comparison.

BMW:
Payoff $7,500
plus $7.06 * 5 days a week * 50 weeks a year * 5 years
plus insurance of $618 a year
plus annual maintenance of $1,000 a year (approx)
TCO: $24,350 approx

Honda:
Payments for life of loan at $267 = $16,025
plus insurance of $646 a year
plus annual maintenance of $300 a year (assumed to be much lower as basically everything is under warranty for the first several years)
TCO: $25,690 approx

Virtually an identical figure. Thus, I question whether it makes sense to even keep the BMW at this point, as maintenance costs are likely to increase over time - last year it was nearly $3,000 for brake work, we've just been tossed $1,000 for inspection.

If I run through the same mechanics with the Volkswagen Jetta Sportswagon Diesel, the figures end up at $23,250, actually LOWER than the X5 over a 5 year period (in that case, the first 36,000 miles are 0 cost maintenance).

In either case, I could also just pay cash.

Any thoughts on the framework? Things I haven't considered?

[westcoastforme]

I would say you have pretty much figured eveything out from a financial aspect over the next five years. I would also add that I think the maintenance on the X5 will definately increase over time. What happens when you need a new transmission or the electrical system goes?! Time to get rid of the BMW.

[Ohiogirl81]

I wouldn't even need to add up all the numbers. Getting rid of the BMW is a sensible choice.

[PastTense01]

Extend the analysis to 10 years.

[ReadyFreddy]

The CR-V is brand new? So you could be driving a brand new car for the cost of your 6 year old car. In 6 years, you'll have a young Honda or an old BMW. The resale value of the Honda will be much higher.

I drive a 3 year old CR-V and I haven't spent anywhere near $300/year on maintenance. I think it's had 3 oil changes. Maybe $30/year.

How come the interest costs are added into the costs of the Honda but not the payoff of the BMW?

[RyanR]

Did you run your pricing numbers past a dealer? You referenced KBB but as I recall, their numbers are skewed (and you probably won't get what they say as their value). I'd also run your X5 through Edmund's and NADA guide and average out the 3 companies values.

Maybe I missed it but even after looking twice, I don't see where you put fuel in the Honda. For the X5, you have "plus $7.06 * 5 days a week * 50 weeks a year * 5 years" but where's the following for the Honda?
"plus $3.95 * 5 days a week * 50 weeks a year * 5 years"
Without it, you're now off nearly $5,000 on your numbers.

Another consideration is that it's an election year. What will the election results and subsequent administration policies mean to fuel prices? What happens in your algorithm if fuel drops to $2.00 per gallon or increases to $6.00 per gallon?

[chicagotodc]

I modified the analysis a bit.

* Corrected the fact that I was using the X5 payoff figures excluded interest costs (good catch)
* Modified trade in value to reflect average of KBB + edmunds + NADA to $17,383. Waiting on dealer to give me an actual quote.
* Changed to reflect that X5 takes premium gas, not regular, so it faces a higher per gal cost

If I do that, without changing anything else, I end up with nominal undiscounted cost for the BMW for a 10 year period of $43,868. For the Honda, $35,213. In NPV terms, X5 is $35,000, Honda is $28,600.

It became clear though that the sensitivity here is both in the mileage (which is hard to predict for a 10 year period - who knows if it will stay constant) and in the maintenance costs. I dont know of a good source for average maintenance costs so I pulled from edmunds.com 5-year TCO, which is not entirely accurate because it assumes you are looking at a new car (I think). Does anyone know of a good source for average annual maintenance costs?

If I use the edmunds 5 year figures and just take the average, the X5 averages $1,888 while the Honda averages $593. Those figures seem high, but if I think of what I've paid for the X5 over the last few years, its perhaps not that far off.

Now, the staggering thing is that if I plug those figures into the 10 year projection, I get even more absurd divergence. In nominal terms, the X5 costs $52,000, the Honda $38,000. Discounted, $42K and $31K respectively over that same 10 year period. A huge difference, but im not sure its reasonable to use edmunds TCO maintenance figures.

As for playing with gas prices, I personally think they are already artificially low - some spots in Europe already pay near $10/gal; Maybe I'm wrong, but I'd much more likely believe $6 gas than $2 gas, no matter who wins the election; and anyway, truth be told, if we hit $6, $7, $8 gal in the next ten years, the impact that will have on the economy and my portfolio will make my daily commuting costs seem rather trivial.

Talking to dealer now, well see what the actual figures come up as.

[cittic10]

A buddy of mine had a Jetta. Not a TDI but a Jetta gas. I have never heard so much horror stories about reliability. His experiences made my experiences with Chrapsler and F.O.R.D. seem like a walk in the park.

I didn't crunch the numbers for you but I'd just give you a heads up if you're just looking for a reliable car. The Japanese brands have a better reputation for reliability.

Also you asked about just paying cash.
If you can afford to pay cash then why wouldn't you? It doesn't make any sense to finance a vehicle so you can give heaps of profit to the banksters if you can afford to buy the car outright.

[chicagotodc]

Originally Posted by cittic10

If you can afford to pay cash then why wouldn't you? It doesn't make any sense to finance a vehicle so you can give heaps of profit to the banksters if you can afford to buy the car outright.

Depends on the note. I'd rather get 5 or 6% annual return on $25K and pay 0.9% financing if that happens to be offered. Right now, I'm looks like it isn't, but perhaps in due course.

[shmoov_groovzsd]

LOL I had an '03 X5 so I feel your pain!
I had payments on it and when I decided to get rid of it, decided to pay the car off. Where I was in payments, the dealer probably would have negotiated that more into their favor than mine.

I would advise against a used car. Its not that buying one is bad, its just that used car prices have gone up in price over the past 7 or 8 years due to several factors. One of them being lack of decent inventory (less lease returns etc) and people holding onto their cars for a little longer than they might have in the past. Thus finding the valuations between used and new are getting pretty thin in variance.
We went with a new Honda Pilot and got a great deal trading in the BMW which was in excellent condition. BMWs are still getting top dollar and trade ins vary from car to car.
We didnt do the car payments and paid in cash, so cant comment on the monthly nut based on your calcs, but if possible might be worth considering.

Have you tried Edmunds to have dealers fight for your business?