The Case for Buying a New Car

Most money-saving experts support buying a used car instead of a new one as a way to save. Since buying a car is the second-biggest purchase we make, the potential savings are huge.

I’ve been thinking a lot about cars lately because of some personal circumstances. One of our until-now reliable cars decided it wasn’t going to start up, so we had it towed to the mechanic where it sits today, more than a week later. As luck would have it, our other car was involved in an accident the very next day. There were no injuries and the car is still driveable, but it leaves us in a tough spot. How much should we spend repairing these cars, considering they are 11 and 8 years old, respectively? Should we instead look at buying a new car?

I also discovered this excellent article over at the NY Times. The author talks about why it sometimes makes sense to spend a little extra to get something we really want. He decided to save up and buy a bike that was more expensive than he could afford at the time. He’s seen others go through three or four bikes in the time he’s had his. He argues that in some cases it makes sense to buy good things and own them a long time.

Buying a good thing (new car) comes with several benefits, the most important of which is reliability. That’s at the top of everyone’s list when car shopping. After all, the point of owning a car is to get us from place to place reliably, right? (Unless you’re a rock star, in which case you also need to arrive fashionably.)

With used cars, you have no idea whether the previous owner followed the recommended maintenance schedule. By buying new, you know the maintenance history because you’ll be doing it yourself. The best way to make your car reliable is to follow the maintenance schedule to a T. Sure, you could take a used car to a mechanic and have it checked out. But even if it’s clean, you don’t know what kind of use and abuse it was subjected to.

New cars come with a warranty, while most used cars are sold as-is. Used car salesmen are allowed to tell you lies about the car’s condition and history. I assume most are honest, but this is a pretty big risk to take to save a few grand.

Another important consideration is safety. Safety standards continue to improve, and with new cars you’re likely to benefit from the latest developments. Some of my favorites are electronic stability control, knee airbags and the blind spot indicators on rear-view mirrors. These features are found on many cars costing less than $20,000, which would have been unthinkable five or ten years ago.

Then there’s that new car smell. Who doesn’t like that?

Lots of people like to buy new cars, drive them four or five years, then trade them in towards a new car. They constantly make car payments instead of holding on to the car for a few more years, payment-free. These people have no business buying new cars.

If you’re going to buy a new car, plan to keep it at least ten years. Why ten? Depreciation is the largest cost of driving a new car. Not gas, not insurance or maintenance. Depreciation is the loss in a car’s value over time. It’s a ticking clock that erodes the value of your car, and starts the minute you drive off the lot. The hit you’ll take from depreciation is greatest in the first three to four years you own the car. In order to recoup these costs, you need to spread them out over time by driving that car at least a decade.

Buy a reliable new car, follow the maintenance schedule and keep it a long time. Your wallet will thank you.

Do you buy new or used? Why?

Photo by thefinancialphysician.com

5 thoughts on “The Case for Buying a New Car

    • Good thinking! I wanted to buy a Civic when we were car shopping 2 years ago, but they were all beyond my budget. You pay a little more upfront, but they are usually more reliable in the long run.

  1. The biggest price depreciation comes the minute you drive a new car off the lot, which is why I think it’s most prudent to buy the car you want, but one that’s six months to a couple of years old at most and covered by a manufacturer’s Used Certified program. Most are lease turn-ins. I’ve done it twice now and have been happy both times—you can negotiate the price down to what you’d pay in a private-party transaction, plus, in most cases, you get the warranty extended to what it would’ve been had you bought it new.

    • You have to look at where the warranty comes from. Any warranty that is from the dealership is garbage. The dealer could easily go out of business, taking your money with them. Dealer warranties are almost 100% profit for the dealer. You want one from the manufacturer itself, which are normally more generous in the coverage they offer.

      But your point about buying a newer used car is well taken. You let someone else take the big depreciation hit, and you walk off with an almost new car.

      • I agree dealer warranties are totally bogus and usually worth $0—I meant Used Certified (capitalization intentional) from the manufacturer, e.g., Toyota, Honda.

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