Three New Car Purchases to Steer Away From

by Joe Plemon on September 6, 2010

Nothing like a new car. Right? After all…it is – new! It drives like new, it has the new car smell and you are the very original owner. But there are times when a new car is exactly what you don’t need. Here are three:

1. For high mileage driving

I realize that a nice, comfortable vehicle is needed when one spends much of each day in it. However, purchasing a new vehicle just to rack up miles on doesn’t make sense because you are, in effect, destroying it.

For example, a new Honda Accord LX-S Coupe (a vehicle I chose at random) would, according to KBB, cost $22,177. Driving it 100,000 miles in three years will lower its value (private party sale) to $9,445, a loss in value of $0.127 per mile.

On the other hand, the same vehicle, at three years old and with 30,000 miles already on it, would cost $13,620 miles and sell for $6,625 three years later after you have put 100,000 miles it. Your cost per mile for this choice is only $0.07… a 45% savings.

For this scenario comparison, you would be saving $158 a month. Yes, I realize that you will have slightly more maintenance expenses when you buy used, but your savings should be at least $140 a month when factoring in maintenance.

As may be expected, the cost (and savings) for a premium vehicle is more. The same comparison for a Cadillac Escalade EXT instead of the Honda Accord reveals a savings of $297 a month (before allowing for additional maintenance expenses) when buying used instead of new.

You get the point. If you are going to destroy a vehicle with high mileage driving, you will be dollars ahead with a used vehicle instead of a new one. One more thought here: if you are going to drive a vehicle high miles, consider trying for 200,000 miles as I explain in this post: Change Your Mindset and Save a Fortune: 200,000 Miles is the New 100,000 Miles.

2. For a construction related work vehicle.

Whether you are in the heating/cooling business, home remodeling business or farming business, the key word here is “work". Buying a new truck to throw tools into, carry compressors in or just park near a construction site is an invitation for dings, scratches and other abuse. A functional “pre-scratched" truck will serve you just as well without the new price tag.

3. For any vehicle you can’t pay cash for.

But", you say, “I will always have car payments. Everyone does."
Wrong. Everyone doesn’t and you don’t have to. I realize it isn’t easy to break long term habits, but you can do it. How? By continuing to drive your car after it is paid for and making those payments to yourself…payments that can grow even greater when you practice hypermiling (learn all about hypermiling by reading “What is hypermiling?“) As you build that savings account and consider paying cash for your next car, you will discover something: you are much more selective about buying a car when you pay for it with saved money than you are with borrowed money. Why? Because signing loan papers is not nearly as traumatic as withdrawing that hard earned money from your account. You will find yourself stretching more life from your cars, paying less when you buy and loving the fact that you never have car payments.

Summary

A vehicle is probably the biggest depreciating asset most of us will ever own. Without realizing it, many people jeopardize their family’s finances by placing a disproportionate amount of their income into these assets. Buying new vehicles for high mileage driving, for construction related work or any time you can’t pay cash are three examples of new car purchases to steer away from.

Creative Commons License photo credit: Steve Snodgrass

{ 10 comments… read them below or add one }

Everyday Tips September 6, 2010 at 7:39 am

We have bought a lot of new cars over the years because we got the GM employee discount. However, now that our discount is gone, I doubt I will ever buy new again. (Well, maybe if I am old and retired, and have a lot of money!)

We are currently in the market for another car, and I have been researching like crazy. Not sure if I will ever make the decision…

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joeplemon September 6, 2010 at 10:03 am

@Everyday,
Haha. I might buy a new car too if I am old and retired and have a lot of money. Wait. I am already old and retired. Hmmm. Come to think of it, my used paid for cars will do.

Hope all goes well with your upcoming car purchase. Are you going to pay cash?

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Craig Ford September 7, 2010 at 5:50 am

I’m all with you on paying cash for cars. Payments are so expensive. I’d rather use my cash to work for myself rather than for someone else.

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joeplemon September 7, 2010 at 8:07 am

Craig,
You say that payments are expensive. Where are those “easy payments” we hear about? 🙂

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Mandy June September 7, 2010 at 3:53 pm

Totally agree with the cash part. For most of us, a car is just a vehicle to get you from point a to point b. Sure it’d be nice to have super awesome luxury vehicle but if it’s not realistic don’t get too caught up in that lifestyle idea. Skimp on a cheaper car and then save up for your dream car.

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FinCar September 7, 2010 at 9:38 pm

And I think another one goes to buying a new car just for the sense of pleasurable driving and not for mere value of traveling needs. making acquisitions that are not essentially needed just takes an expense that rocks your financial stability.

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Financial Samurai September 8, 2010 at 9:01 am

I’m always amazed with America’s love affair with cars. 1/10th rule all the way!

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joeplemon September 8, 2010 at 9:20 am

@Many Jane,
Great definition of the purpose of a car: to get you from point A to point B. However, with many of us, it is some sort of badge of who we are. (I am a Mercedes or I am a Yugo).

@ Sam,
Me too. But I need clarification on what the 1/10th rule is.

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joeplemon September 9, 2010 at 7:40 am

paavels,
Yes, I normally drive a car for 150,000 miles, but I am planning to drive my current Cadillac 200,000. Yes, repair costs do go up, but today’s vehicles last much longer than the ones built 20 or 30 or 40 years ago. In my post Change Your Mindset and Save a Fortune: 200,000 Miles is the New 100,000 Miles, I figured driving 200,000 miles is still a huge money saver even if you have to replace both engine and transmission. I recommend that you read that post and the comments. I am not alone.

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sonya August 8, 2013 at 5:28 pm

I have a 2006 hhr that has been good up til now. 105000 miles. Off warrenty. Have done regular oil changes, etc… no problems. I realize this isn’t a caddy. Had the next oil change scheduled for Monday. Yesterday engine noise. No engine lights coming on ever. Checked oil – none, not a drop. Chevy dealer says it is not unheard of for engines to burn 1qt. per 500-750 miles. Got a second opinion from trusted mechanic, he has never heard of that. Thinks we are gonna get screwed. What now?! New engine with install $4-5000? Used engine? Then what go wrong? HELP

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