Like marriage, a car purchase is not always guided by reason. Instead, we follow our dreams. We propose to the psychotic lingerie model, confident that all will be fine (her seven previous trips to rehab notwithstanding). And, by the same token, we succumb to the leather-lined, optioned-out Escalade or the low-slung Italian exotic that needs a $5,000 valve adjustment after every drive.
Yes, the arc of a car purchase can parallel that of romantic love: First comes infatuation. Then comes ill-advised commitment, followed by the kind of payments that the Greek government has to make to its creditors. Whether your money goes to a divorce lawyer or a car company makes no difference.
But it doesn't have to be that way. After several decades of owning vehicles, working on them and consulting with countless buyers, I've learned things about the true cost of vehicle ownership. One car cost me $82 a month. Another cost me more than $500. But even that was a bargain compared to what others have paid.
Never mind the shell-game mathematics of car salespeople who can juggle the numbers to yield a monthly payment that will make you buy. The real cost of a car is simple to figure out (and the results may surprise you).
To see how it works, calculate the cost of some cars that you've already owned. Write down the purchase price, including fees and taxes. Add the interest you paid on the car loan. Add the cost of repairs, including routine maintenance. Total up these figures, then deduct what you sold the car for at the end. (If you scrapped the car, this figure will be zero.) Then divide this total by the number of months that you owned the car – this is your actual monthly cost.
I've done this calculation on dozens of cars. Some were my own. Others belonged to friends. And the results included findings I didn't expect. Among my conclusions:
- Buying new can make sense (but only if you’re willing to keep your car for a long time).
- Test drives and car reviews don’t mean much.
- You should never base a purchase on a monthly payment.
- Manufacturers only offer the warranty they can afford (a long warranty usually means a reliable car).
- Numbers count: Look for high reliability and owner-satisfaction ratings.
- Unless you’ve got the money to follow your dreams, it’s best to buy with your head instead of your heart (cautionary tales to follow).
My obsession with the logic and economics of car purchasing began many years ago, after a costly experience with a Volkswagen Jetta. My wife and I bought the Jetta because it was an attractive car that drove well and got good fuel economy. It got good reviews in car magazines and came off well in our own test drive with well-weighted steering and accurate shifting.
I also had an emotional attachment to the VW brand (I lived in Germany as a little boy and later spent several years as a VW-Porsche mechanic). But our Jetta was a lemon – after two-and-half years and thousands in repairs, we sold it at a deep loss and resolved to buy our next car based on logic instead of emotion.
After a few hours with a spreadsheet, I saw that the Jetta had cost us more than $380 a month (and this was back in the 1980s, when $380 really meant something). After reviewing Consumer Reports and J.D. Power owner surveys, I saw that the Jetta had scored low. It also had a short one-year warranty.
We decided our next car would be chosen from models with the highest reliability ratings and the longest warranties. We chose a Honda Civic. We weren't really excited about the car, but logic said it was a good choice.
Depreciation is usually the largest component of a car's long-term cost. Despite this, we bought the Civic new and kept it for as long as possible. This proved to be an excellent decision. The Civic lasted for more than 14 years, with virtually no repairs (the only things that ever failed were the rear power windows, which our kids rolled up and down incessantly when they were younger).
At the end of its long life, the Civic's resale was zero (it was so rusted that I had it hauled away for scrap). Even so, the car's total cost over more than 14 years came to $82 per month. That included everything from interest on the loan to repairs.
Soon afterward, I made a car purchase where I let my heart overrule my head. After returning from several months in New York City and Afghanistan (I was covering Sept. 11), I bought a new Honda Odyssey minivan so I could go on an extended trip with my family and tow an ultralight plane.
The Odyssey was great, and the trip was therapeutic, but we had to sell the van after less than three years when a house renovation ran over budget. This time, the numbers didn't look so great – with taxes, interest and dealer charges, the van had cost us more than $39,000, and we sold it for $24,000 after only 32 months. Our cost per month was $468.74 – almost six times the cost of our Civic.
But even this was a bargain compared to what some of my friends had gone through. A newsroom colleague fell for a new BMW and spent thousands on an Alpina customization kit. The bulk of the purchase was financed with a high-rate consumer loan and his payments were three times as high as his rent. He loved the BMW – for a few months, at least. Two years later, he sold it for a fraction of what he'd paid. We calculated his monthly cost at more than $2,000.
Then came my friends who leased a brand-new, optioned-out SUV. They couldn't actually afford the SUV, but after the dealer had finished his closing-room prestidigitations, they believed that they could. By the time my friends got rid of the SUV, it had cost them more than $58,000 in interest, depreciation and repairs, for a net monthly cost of more than $2,400. (Their next car was a used Civic that they kept for 10 years, for a net cost of less than $90 per month.)
The lowest-priced car I've purchased in the last 20 years was a used Honda Civic that my wife and I bought from a friend for $1,200. It lasted exactly one year, and had a zero resale (we had to scrap it). Our net cost was $100 per month, which was good. But I couldn't help remembering that we had done even better with our new Civic.
Although I do own a sports car that cost a lot more than I can justify (you only live once), my daily driver is an accountant's dream: a well-worn 2002 Honda Accord that my wife and I bought from her mother's estate back in 2007. The Accord's all-in monthly cost is about $155. But the old Honda is far from done. Who knows what the final number will be? $100? $75? We'll see. The car is already a bargain, and it's getting better by the month.
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