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Conventional wisdom among the financially savvy says “buy used cars, pay cash.” Mr. Vine and I have never done this. Why have we often chosen to buy new cars, even though we knew better? To understand, it might help to have a history of the cars we’ve owned together. It isn’t perfect, but it works for us. Our method balances needs and wants against our financial reality and goals. Our approach to car buying continues to evolve. As a result of this evolution, we believe we’ve purchased our last car. Here’s how we got there.
Drive it till it dies: A history
Mr. Vine’s first “grown up” car was a small sedan. It was a lease to purchase. That didn’t make much sense because Mr. Vine was attending university two hours away from his hometown. This is Exhibit A for how our car buying got smarter over the years. We look back on that car fondly as Mr. Vine owned it during the time we met, fell in love, and got married. At 212,000 miles and seven years, she met a sudden end due to a mechanical problem.
Ms. Vine’s first “grown up car” was also a small sedan. We bought this car new for around $12,000. Originally it was on a 5 year loan. With the purchase price so low, we realized that we could pay the loan off early. Mr. Vine’s sedan was paid off at the time, too. We experienced, almost by accident, the magic of not having a car payment. This purchase taught us how important car buying is to a family’s financial state. After seven years and 185,000 miles, she met an untimely end when I collided with a deer (or, the deer hit me!).
We replaced Mr. Vine’s small sedan with a small SUV/crossover. We lucked into finding a manufacturer demo and that was great because it was priced like a used car with less than 1500 miles on the odometer. This was the last car we ever paid interest on. It also turned out to be the only used car we’ve ever bought. If we could find more used cars like this, we’d probably conform to the conventional wisdom. It was financed for 60 months, but paid off almost two years early. Back to no car payment life! After 12 years of faithful service and over 200,000 miles, we traded her in for a newer, more luxurious SUV.
Our replacement for Ms. Vine’s small sedan was another small sedan from a different manufacturer. Offering sporty features and a six-speed manual transmission, she’s currently in service to us with around 120,000 miles on the odometer. Our city living has drastically reduced the mileage we put on cars. This in turn has lengthened their lives. We took advantage of a 0% loan for 36 months. It stung to have a car payment again, but only for a little while. By this time we’d decided that no car should be financed for longer than 3 years. With the 0% loan, it didn’t make sense to pay it off early. We do not plan to replace this car, leaving us just one car.
This brings me to what we affectionately call the last car we’ll ever buy. There are a myriad of reasons we think we’ll be able to never buy a car again. That’s a future post of its own. We replaced our small SUV with a slightly larger SUV that’s still considered a crossover. Again we took a 0% loan for 36 months. We keep the miles so low on this vehicle that we believe it could last twenty years. Its size is perfect for moving around some friends and family. The hauling capacity allows us to take road trips or pick up plants for our patio or new furniture. We are content with its utility. By the time this car will be due for replacement, we’ll be able to retire early. We also believe that the future of auto-ownership and driving is evolving such that personal auto-ownership is becoming obsolete.
Why don’t we buy used?
First, we are car people. Mr. Vine has spent his career working in the automobile industry and I share his enthusiasm. Mr. Vine cares how fresh his vehicle looks driving down the road. I like luxury features like sunroofs and leather upholstery. We both enjoy driving performance and manual transmissions. Together, we have a good understanding of dealer markups and how vehicles are priced. Between Mr. Vine’s industry knowledge and my negotiating skills, we’re above average at sleuthing out good values.
This leads into the second reason: we are picky purchasers. It is hard for us to find a car we’re willing to sink thousands of dollars into. When shopping for our latest car, we spent months searching for a used car that would fit our requirements. We found a couple that were close, but each of these required big sacrifices in things like wear and tear for not a huge monetary savings. Getting a 2-3 year old used car often doesn’t offer sufficient depreciation-based savings to make up for things like 0% interest financing or a bumper to bumper warranty. Every car we’ve purchased has been a unicorn in its own right. Often, our patience, or ability to live without a vehicle, has run out before finding that unicorn on the used market.
As an auto industry professional, Mr. Vine is aware of a vehicle’s manufacturing life cycle. His thorough understanding of automobile production means that he prefers a car at the beginning of a major redesign. To use the Honda Accord as an example, it was in its 9th generation as of 2013. This generation ended with the 2017 model year. In 2018, a 2013 Honda Accord is one generation behind. Similarly, if a purchaser bought a 2017 Honda Accord, it also one generation behind in 2018. What this means is the 5 year old car looks the same as the 1 year old car. Because we expect to keep a car for 10 years or more, buying a car at the beginning of its manufacturing life cycle means the car will keep its fresh look for several years longer.
Other conventional wisdom discourages buying a car early in its lifecycle due to higher incidence of problems. Again, Mr. Vine’s professional experience bears on our willingness to take on this risk. He knows that earlier productions undergo more inspections. In addition to the inspections, production numbers are so large that most mistakes will happen in the first month. All but the very earliest cars to come off a line will be no more likely to have issues than the final ones.
Another issue with used cars is that certain makes and models hold their values well. These cars don’t depreciate much at all. When buying used, it makes more sense to buy a car that depreciates at a higher rate.
Finally, depreciation doesn’t matter much when keeping a car for its entire usable life. Because we’re so picky, we don’t want to buy a vehicle (new or used) every three to five years. It would be a full time job to shop for new cars before we need one. And until just recently, we’ve been such heavy drivers that buying used cars would require us to do that. Sure, we’d avoid taking the depreciation hit, but we’d also sacrifice things like bumper to bumper warranty coverage and usable life.
In short, we’ve worked to mitigate the cost of buying new. I think the very best financial option is not to own a car at all, or at least to get down to one car for a family. We plan to keep our small sedan until it dies, thus getting to one car by attrition. We expect to get to zero cars also by attrition, but much further into the future. We’ll be sure to keep our readers posted on how those goals progress. Buying a car is one of the biggest, and often earliest, financial decisions. It has a big impact and a domino effect. It is important to put a lot of thought into it and to think holistically about how the purchase will affect your finances in the long term.
What is your approach to car buying? Do you follow conventional wisdom? Why or why not?