The Problems with Buying a NEW New Car

We’ve all heard the age-old expression, “Abject Poverty ain’t just a river in Egypt,” or something to that effect. Yet on a day-to-day basis, incredibly smart people make choices that hurtle them towards it; purchasing a new vehicle when an older model would suffice is one of those choices.

In Vermont, vehicles are not a luxury. They are a basic necessity. Without personal transportation, a Vermonter would be cold for five months out of the year and unemployable year round. As a result, most Vermont households keep at least one vehicle, and often two, in good working order.

For as long as there have been cars, new vehicles have been the sirens of the automobile industry, attracting a lot of attention with the shimmer of new paint at an elevated cost to the consumer. (Before that, people would buy horses just for the “new horse” smell.)

Buying new cars, though fun, can be a poor decision for those who can’t comfortably afford the expense. With the average new car transaction hovering over $33,000, the out-of-pocket expense is substantial. Add to that the depreciation incurred the minute it is driven off of the lot (10%), and the depreciation over the next year (another 10%), and you’re looking at losing over $6000, which is a lot to lose for a fresh smell (and maybe a boost to the image).

According to Edmunds.com, new vehicles depreciate more within the first two years than they do over the course of the rest of their lives (click to tweet). Therefore, if you buy a two-year-old car, you can squeeze the greatest value at the lowest cost. You can then drive the vehicle for about three years before it will face another drop in selling price.You might think “yeah sure, but I’ll save money on repairs, gas, and a match.com subscription if I buy a new car!”

On repairs: With a $6000 depreciation nut to cover, it is conceivable that most older cars can be largely rebuilt for less money; according to some philosophers, this would technically mean that the car is new again, albeit in an older car’s body. Regardless, so long as the powertrain is still going, it is often a far better financial decision to simply make the smaller repairs and decide if the larger repairs are worth it as they arise.

On fuel efficiency: It is true that newer vehicles can offer better gas mileage, but there’s more to the story here. Remember that sales taxes, auto insurance, and loan payments will all take their toll above and beyond depreciation. Even if you have a full size car that gets 25mpg and switch to a Prius, with gas prices of $3 (the average over the past six years), you will save about $840 annually (based on 12,000 miles per year). $840 may sound like a lot, but it’s a drop in the bucket next to the monthly loan payments you could be paying on a rapidly depreciating new vehicle.

On match.com subscriptions: Who doesn’t hope, at some point in their life, that buying a new car will make them more attractive?  Well, in a simple number crunch, if you take the $6000 that a new car would depreciate and apply it to match.com subscriptions ($42/month – this number I learned from experience), you’ll have 11.8 years of continuous subscription. I’ll go out on a limb here, and say that if you don’t match with someone after the first few years, a new car wasn’t going to do you much good either.

All kidding aside, in the long run, you may need to buy a car that is new to you at some point, but perhaps hold off on the NEW new car until you’ve hit your goals for savings, retirement, and other necessities first.