Does it really cost less to buy a vehicle new?

Question

Is it possible to rationally analyze the costs of car ownership to compare purchasing a new car with purchasing a used car?

How would I go about this?

A brand new GMC Denali runs about 50k dollars wait 10 years and 200k miles later its worth 3k dollars

Answer 1

Different people will have different opinions, but we can still look at some math:

Depreciation Regular cars (not collectors, or classics, or supercars) lose value over time, mostly because of i) the sheer number of new cars that are readily available and ii) most people don't do enough maintenance, giving "not new" cars a tainted reputation.

Using this calculator, a $25,000 car kept for 4 years will depreciate between $10,548 and $15,784. For 8 years, the depreciation will reach between $15,933 and $21,225. For this exercise, we are assuming the car will be sold for it's "residual value" (cost new minus depreciation).

Maintenance If the owner does only the absolute minimum maintenance of 4 oil changes per year at $30 each, that's $480 in maintenance for 4 years, $960 for 8 years. That being said, the expected maintenance after 4 years will likely be:

• brakes ($400 for pads and rotors)
• shocks and structs ($1500)
• battery ($100)
• transmission flush ($60)
• brake flush ($15)
• coolant flush ($40)
• spark plugs ($20)
• air filter ($10)
• fuel filter ($15)
• wiper blades ($20)
• tires ($800)

This is assuming nothing actually breaks, for a total of $2980 (DIY cost, triple this figure if you go to a shop).

Insurance: Insurance varies greatly in different jurisdictions, but usually the distinction is made between "public liability" (insurance for damages you cause others, often required by law) and "comprehensive insurance" (insurance for damages you sustain, mostly up to you). On a new car, because of both the expected resale value and the fact most people have a car loan, you absolutely need the comprehensive insurance (often required by the bank you have the car loan with), which can run an extra $100/month on average when compared to "public liability", so $4800 for 4 years, $9600 for 8 years.

On an older vehicle, the resale value often means that the insurance company will "write-off" the vehicle after a minor fender bender, therefore "comprehensive insurance" is not at all recommended for vehicles worth under a certain amount (how much can you afford to pay for a major repair will be where you draw the line).

Bottom line: Buying a new car and keeping it for 4 years will cost you:

• between $10,548 and $15,784 in depreciation
• $480 in oil changes
• $4800 in comprehensive insurance (this is in addition to "public liability")

Total cost of ownership: $15,828 to $21,064 for 4 year, and you need to start over with another car.

For 8 years:

• between $15,933 and $21,225 in depreciation
• $960 in oil changes
• $9600 in comprehensive insurance (this is in addition to "public liability")
• $2980 in expected maintenance at the 4 years mark (DIY)

Total cost of ownership: $29,473 to $34,765 for 8 year, and you need to start over with another car.

Used car: If instead you buy a 10 year old used car that you keep until it dies:

• cost of purchase: according to the same calculator, $2416 - $7182 (you will drive it until it dies, so this money is gone, there is no resale value other than $300 for metal recycling)
• cost of catching up to previous owners' neglected maintenance: $2980 (DIY)
• cost of oil changes: $480 (4 years)

There is no "extra" insurance, the public liability is the same as with a new car, which is not included in the new car calculation either (we're looking at the difference in costs).

Bottom line: $5876 - $10,642 for the first 4 years, assuming the car dies after these 4 years. To keep it going for another 4 years, you'll need to repeat the oil changes and expected maintenance ($480 + $2980) bringing the total to $9,336 - $14,102 for 8 years.

Reliability:

There's a few things to consider:

• new cars are new, meaning they are "untested." A new car has never been started after sitting at -20C the entire night; it's never ridden a speed bump too hard, it's never bumped a curb, it's never been driven too fast for too long, it's never "come in hot" for a corner, it's never been driven in the rain, it's never performed an emergency stop, it's never been driven when it's too hot outside. The first time a new car goes through any of this will be a stress.
• new cars are new (again), meaning they have "unknowns." Car designers do not take tried and true methods, they always try to innovate, meaning there's always the chance of something going wrong with their design. Recalls usually involve cars up to 6 or 8 years old, so this is a reason not to buy cars newer than this.
• new cars have a warranty. This does not mean they will not break, it only means the dealership will fix something when it breaks. The reason for a warranty is 2-fold: 1, it gives buyers confidence in the quality of the product and 2, it covers "statistical breakdowns." New parts are not flawless, a percentage of them have defects. Many get caught before the car gets assembled, but many don't. The warranty is really intended to cover these events.
• old cars are old, meaning they are a known quantity. Thousands of the same make and model have driven millions of miles (combined), so their weak points and flaws are known.
• old cars are old (again), meaning they've been through stuff. Rain, snow, hail, sleet, neighbour's fence, etc. All they've survived are things that won't stop them.

Are newer cars more reliable than older ones, it depends. Personally, an old car that has been properly maintained will have my confidence.

Answer 2

I really like tlhlngan's answer but perhaps there is a different way of looking at it.

First off -- what is a car? I see it as a way to get from point A to point B, with tunes (radio) and with heating/air conditioning. I wash my car maybe once every two years, wither it needs it not. I'm not into the status symbol thing. Period. I know others, many others, who see it as an extension of who they are, as a status symbol. There are folks who see new as a requirement. That's cool, but its going to cost you.

Second thing -- I like to evaluate the cost of car ownership as $$/mile. Its not an absolutely perfect measure but close enough for government work. When you buy a new car you expect it to last XXX,000 miles. Let's assume for a new 2017 model that number is 200,000 miles. You take the cost of buying the car new, divided by 200,000 to equate to a Dollar/mile cost. If you are going to buy a used car, you look at the odometer, and figure out the remaining mileage to the car's death. Now remember cars are getting better in quality, so a ten year old car probably didn't have 185,000 for life time available mileage, it had only 165,000. Some vehicles have much less.. for me a ten year old Jeep wrangler would only get rated to 140,000 or less (and don't ask... we don't have enough time for my answer on why that is...) So you are looking at a ten year old XYZ with 110,000 on the odometer. You figure that car will last to 160,000 miles. Add in maintenance estimated costs between now and the end of life. Take the cost of the used car, plus maintenance, divide by 50,000. Now you have a used car cost/mile.

Now you sort of have two things to compare, a new car (with cost/mile) and a used car (with cost/mile). The only caveat is the one mentioned by tlhlngan and that is insurance. Generally insurance for a new car is much more expensive than a used car.

If you want you can add your insurance money into the mix. How many $$ for your insurance for one year? How many miles will you drive in that time? Add that to your cost/mile report out.

A really good deal is to get the cost of vehicle ownership down to the $0.15/mile range. Unfortunately for most of us, that number is closer to $0.22/Mile (USD)

Note: the cost/mileage thing really helps you add a lease car decision into the mix. You can easily compare buy new, lease new, or buy used.

Now you have an easy to understand metric, one that really includes the depreciation calculations built in.