22 August 2007 No Comment Print This Post  Email This Post

One of the most expensive things everyone buys every five years are cars, second to a house. There are all sorts of websites out there where you can research cars before a purchase. Sites such as edmunds.com, kbb.com, and MSN autos all give a general picture of car features, initial quality and reliability, but none give a clear picture of the long term financial effects of buying a certain make and model. A test drive doesn’t tell you much about the long term financial impact of the car either. To truly find out which car is best for you in the long run, we must dig deeper. Don’t wait until you already own the car to find out about these things!

Depreciation

Depreciation is certainly one of the monsters that will eat away at your bottom line, especially when you need to upgrade your car. Some cars are incredible deals when they are brand new, often offering low prices and good features, however you may find out that five years down the line the car is only worth 30% of what you paid. The way I estimate depreciation is to look at real numbers rather than the blue book value or what people estimate. For example, if I am considering a brand new 2007 Honda Accord, I would look on Autotrader or eBay Motors and search for 2003 Honda Accords to see how much they are going for. Kelly Blue Book is nice but its just a reference, I like real selling numbers. I would then compare the list prices along with the car’s options to it’s initial selling price. A quick Google search for “2003 Honda Accord MSRP” should find the answer.

You can then get an idea of depreciation and resale values in real terms. I don’t like to look at depreciation as a percentage, like most auto industry media, but rather actual dollar amounts. 10% depreciation a year on a $25,000 Toyota is better than $7% depreciation a year on a $60,000 Lexus in terms of real dollars. The best way to avoid high depreciation is to just buy a used car. I wrote about buying used cars in this article. Buying a used car lets the previous owner take the biggest depreciation hit, which is the first four years of ownership.

Maintenance

Maintenance and repairs are also very important when you decide to buy a certain car. These costs are ongoing and can sometimes put you in a strangle hold if your finances are tight. The funny thing about cars is that the more expensive they are, the harder it is to maintain them and repair them. You would think it’s the other way around, but you’re much better off with a $20 oil change for your $20,000 Honda, then a $1000 oil change (yes it’s true) for your $200,000 Ferrari. From my experience, higher end cars are the ones that hurt you on repairs as well. The more complex a car, the more there is to go wrong. To make matters worse, parts are very expensive. The components to assemble a $50,000 car will cost more than the components required to assemble a $15,000 car. Labor rates are also more expensive on higher end cars because of two reasons. To a certain extent, it does take specialized knowledge to repair a higher end car. The other reason Mercedes or Porsche mechanics charge more than Honda mechanics is simply because they can and there isn’t much you can do about it.

Don’t get me wrong, cheaper cars can be problematic too. I have friends who own low end American cars, only to have their ownership experiences tainted by frequent visits to the shop. Also, don’t just assume a car will behave well mechanically just because of the brand. I owned a Lexus RX300 for a total of three days before I returned it due to a transmission failure. Lexus, which is known mostly for reliability, can put out a bad car every now and then. Lexus RX model owners tend to experience transmission failures around 75,000 to 100,000 miles, which can cost up to $5000 to repair. Edmunds and MSN Autos have some ratings about reliability, but if you want to get the real story on a make and model, you must approach owners themselves. The best way to do this is to join online forums and simply ask. I frequently visit G35Driver.com (infiniti G35 owners), Clublexus.com (lexus owners), MBworld (mercedes owners), and Bimmerforums.com (BMW owners). A Google search for ” X car forum” will reveal some popular forums for the car you are considering. Simply join, introduce yourself and ask for experiences. You can also visit survey sites such as carsurvey.org and epinions and see if there are reviews from owners.

Insurance

Another big thing is insurance, also an ongoing cost that you must pay for. For certain reasons, certain cars cost a lot more to insure than others. Generally, the more expensive the car, the higher the insurance cost. Larger engine cars cost more to insure. Convertibles cost more to insure than coupes. To find out the exact figures, don’t hesitate to get real quotes on certain cars before you start shopping.