Friday, July 11, 2008

The $30k Collection


How to convince your self, spouse or parents that buying a brand new vehicle is the lamest, dumbest thing you can do with your money.


Most people say buying a classic or exotic car or motorcycle is an emotional decision. True. However, if you look at the numbers you can also make a logical argument that it is a rational one.

The average new car costs $30,000. And you are not getting anything fancy for this thick stack of cash. You’re looking at an unfortunately styled Chevy Impala or a well drawn but stripped down Chrysler 300. Both of these tell people that you like to eat vanilla ice cream and Tivo American Idol.

Fancy an SUV? Well for your $30,000 you can get a poorly assembled Xterra or maybe a middle of the road Trailblazer. The former says you don’t live in Colorado but wish you did. The latter screams I like Khakis. Pleated.

You could get a decent coupe for this price, say an RSX Acura or Focus SVT. Nice enough. But you’d be foolish. For a couple of reasons. The first being that no matter how great of a deal you think you got on a new car the dealer got the better of it; through financing or automatically including a clear bra or floor mats as extras. They made too much money off you.

The advertising agencies of car companies work very hard and spend more on media than any other product trying to convince you that you need a new car. Trust me, I used to by a writer and television producer for one of the Big, now littler, 3. We did a good job. We had lots of tricks. I almost believed my own lies. Ignore the ads.

And the other reason a new car is a horrifying proposition is depreciation.

The average new car loses 30% of its value in the first year. I’ve done the math for you. On $30,000 that’s $9,000. Ouch. Doubt my numbers? Buy a new car than bring it back to the dealer in a year and see what he will give you for it.

After three years it only gets worse. The best cars, like a BMW 3-series loses its 30% over 3 years, well above average but still terrible. And besides, you can’t buy a BMW for $30,000. Depending on your research source, we’re told the average cars loses 45% of its value over 3 years. A massive $14,000. So that car you paid $30,000 for three years ago is now worth only $16,000. This is nuts.

Let’s add in your car payments and the figure gets even more obese and obscene. I’ll give you that you have good credit and came up with a $10,000 down payment. Now you have a $20,000 loan over 4 years at 3%. A payment of $442. Now if you divide your $14,000 in depreciation by 36 months you get $388 a month in depreciation. Add that to your payment and you are REALLY paying $830 a month for what? An Impala. Or Xterra. This is dumber than putting icing on a poop cake.

Add in insurance costs and taxes and a new car becomes even more expensive to run. The numbers vary too much to go into in detail but suffice it to say that a single brand new vehicle is always more expensive to insure than an older one. Or several older ones.

And the capper. You only have one lousy car. You have to drive it 24/7/365. No wonder people on average keep a car for only three years. They’re as sick of it as a 5 year old is sick of eating his veggies. And this is not an exciting or interesting car you’re climbing into. It is Grade C average. It is no Porsche or Lotus or Koenigsegg. It was brand new for only one day of its life and after that it is transportation not inspiration. And to me, and I hope you, paying $830 to be average is quite unacceptable.

Look for more installments of the $30k collection coming soon.


michael said...

Brilliant. The article reminds me of Berne :I'm ok your ok"...the facts have always been there...just that nobody bothered to assemble them because the status quo was off their radar.

ps - I own three used cars,and they cost me less than a hundred bucks to insure...(Bay Area, Calif)and contrary to the so called axiom of used cars breaking down...they do not break down as often as the hype would have you believe.

: m

Kevin Gosselin said...

Michael -

Glad to hear someone else out there is living right by owning several older cars. And in the bay area, you get to use them all year round!

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