There comes a time in the life of every vehicle where it is time to make certain, often difficult decisions concerning whether to keep the car and make repairs, or simply replace it. In this article I want to explore this often vastly misunderstood topic, and try to give you the information you need to make the right decision for you. This is important because new(er) cars are expensive! Even a six-year old Honda Accord V6 with 80,000 miles on it will sell for over 13,000$!!!
Ok, the first thing I want to do is go over is all of the things that we WON”T factor into this discussion. For the purposes of this article your vehicle is transportation, and fits your needs. If you’re adding in factors like your love of your car, your simple desire for a new(er) car, need for a totally different category of auto, etc. then you’ll have to account for your factors on your own. I can only be a technical and financial adviser on this topic- you’ll have to do the emotional stuff on your own!
The basic rule for the vast majority of these decisions is the old adage “It’s always cheaper to keep her”. To really understand this you need to realize that the used car market is more expensive than ever. A basic 4 door economy car that runs, passes a safety inspection, and has a functioning A/C will sell for over 2000$. That sets the floor for auto repair approximately at that number. If you can get your car running and in good shape for less than that, it is almost always the best route. Obvious exceptions are cars that are very old (over 20) or have so many miles (300,000+) that there is a significant risk of other, very expensive repairs in the not too distant future. You have to realize that that floor of 2000$ is not for a car that does not or will not need work. Almost every car out there with over 100k miles on the odometer needs some work. Many cars have relatively little needed maintenance in the first 90,000 miles. Therefore, you have to remember that if you’re going to replace your car, you have to leave room in the budget for repairs to the new car- which could be just as much as the repairs on the car you already have!
Basic cost of ownership is another key topic. Every car has an average yearly maintenance cost. This cost is the estimated total of the amount needed to keep that car running and driving for 10 years and 120,000 miles, divided by ten. For most cars this number os around 1500$. The more your car costs, the higher that number will be. Remember if you decide to replace that the person before you got the cheap years- the first 3-5 years and 40-70k miles are the most reliable years in a car’s life. After that the average yearly investment is likely to be more than that average number. Maintaining your older car might actually be cheaper, depending on the make and model of the car, especially since you know the maintenance history of your car! A new-to-you vehicle is a question mark! Here is a link for ownership cost estimates for newer cars from our friends at KBB:http://www.kbb.com/new-cars/total-cost-of-ownership/
Another key factor in favor of keeping your old car is the fact that the majority of depreciation occurs in the first 3 years and 40k miles of the life of your car. The car will lose 30-50% of its new car sale price in this time. Conversely, if you have a 10 year old car with 150k miles on it, it will not much value at all, even if you drive it for another 6 years and 100k miles! The older a car is, the cheaper it is per mile to drive it (mainly because of the lack of depreciation).
Other lesser, but still important factors to consider include insurance costs (can you keep simple liability on your old car?), do you tend to be “hard” on cars, and if you drive very little. If the answer to any of those three is “yes” then there are more savings to be had staying with “ole Fred”.
Don’t fall in the “fuel economy” trap. Unless you drive A LOT, you probably won’t get a large enough savings in fuel economy to offset the increase in expenses. If you commute 25+ miles one way to work, you ca take advantage of improvements in economy but even the difference between a truck (15 mpg city) and a prius (40 mpg city) only works out to about $4.21 per day (1500$ per year) if you drive the “average” of 12,000 miles per year. Once you factor in depreciation it’s almost never worth it to upgrade to get fuel economy (now buying a 2000$ Honda Civic to get a 20 mpg improvement when you drive 20000 a year is a whole different story).
To conclude, it’s usually cheaper to keep the car you have. If you happen to need or want new car because you need a bigger, smaller, faster, lighter, cooler, slower or just plain shinier car, then you should get one. Just remember that it won’t be cheaper! Drive happy!