CHAPTER 11
What to Buy
I’ve owned two brand-new cars in my life. The first one I had for five months and then somebody crashed into it. The second lasted for five years, and then I crashed it myself. That latter story is a long, embarrassing one, so I’ll skip to the point: What a waste of money! If those had been used cars, the amount of money lost when they were totaled would have been far less. But even if you have better luck (or better driving skills!) than me, a brand-new vehicle loses so much value the moment it’s no longer new that it’s just a terrible deal. I now happily drive a nice used car that I bought after some sucker bought it new, drove it for three years, and then turned it in.
I’m in good company. In the groundbreaking book, The Millionaire Next Door, Thomas Stanley and William Danko point out that people who truly understand how to save money don’t believe in displaying their wealth. Their interviews with self-made millionaires revealed that only 23.5 percent of them own new cars. That’s right: The millionaire next door drives a used car. As Danko and Stanley put it, “You aren’t what you drive.”
In this chapter, learn to SAVE BIG by:
• Buying used instead of new.
• Purchasing a less expensive dark horse vehicle.
• Being smarter than the suckers who get a new car every three years.
Never Buy a New Car
You know that cars go down in value, but did you know that a car’s steepest depreciation occurs between ages zero and three—an average of 45 percent? The depreciation from year three to year six is much more modest, more like 25 percent, according to Consumer Reports. If you were psychic and knew a stock was going to go way down in value for three years and then level off, wouldn’t you wait until year four to buy it? And yet, for some reason, people persist in sinking money into brand-new vehicles.
Dave Ramsey puts it more pithily in his book The Total Money Makeover. “You can’t afford a new car unless you are a millionaire,” he says. To drive the point home, Ramsey then tells people who want to buy a new car that you might as well “open your window on your way to work once a week and throw out a $100 bill.”
Thanks, Dave. Now I’ll pile on. Despite the overwhelming stats on depreciation, millions of people still buy brand-new cars every year. Here are the most frequent new-car rationalizations I hear and my snappy comebacks:
Your argument: You take comfort in knowing that your brand-new car has never been in a wreck.
My comeback: Actually, sometimes new cars are wrecked coming off the delivery truck or during test drives. What’s more, dealers are not required to disclose the damage unless it’s more than a certain percentage of the vehicle’s value. So brand-new cars can be damaged.
Your argument: Used cars don’t have the latest safety features.
My comeback: I’m not suggesting that you buy a used car from the 1980s! I’m talking about buying nearly new vehicles here, which have the latest safety features. For instance, LATCH child car seat connectors have been mandatory since 2001. Electronic stability control is now common and will be in all vehicles by 2012.
Your argument: You crave that fragrant- new car smell.
My comeback: It’s the scent of offgassing plastics. Seriously. I once did a story for Good Morning America on the possible toxicity. If you love new-car smell so much, you can buy it in a bottle.
Your argument: You are grossed out by what my girlfriend Alicia calls “other people dirt.”
My comeback: My two-year-old daughter will grind Cheerios into the seats so fast it will make any new car instantly look used. I used to freak out about “other people dirt” too, but I’ve now been forced to conclude my own dirt is just as bad as—and maybe worse than—other people’s!
Your argument: You want the long new-car warranty.
My comeback: If you buy a certified preowned vehicle you can get a long manufacturer warranty on a used car. And if you do your research right, you’ll choose a car so reliable that you won’t need warranty protection. More in Chapters 13 and 14.
Don’t Lease, But If You Do, Haggle
Leasing is a terrible move. But if you are going to go behind my back and lease a car despite my advice, know this: You should negotiate the price of the car just as if you were buying and then reveal that you want to lease. The lease payment is based on the total price of the car, so the lower that price, the lower your payment.
Always Buy a Used Car
Diane B. of Georgia came to me with a dilemma. Her car had conked out. It was dead, done. The timing was terrible because Diane had just quit her traditional job to start her own business. In the past, Diane had always bought brand-new vehicles and she had always driven a convertible. It was part of her persona, her lifestyle. But now she couldn’t afford a brand-new convertible. What should she do?
I recommended that Diane buy a used convertible. “No way,” she countered, “I don’t want to buy somebody else’s problem.” I told her to think about it because if she were to buy used, she would be able to afford most any convertible on the road. We never discussed it again. But a couple of weeks later, Diane pulled into my driveway in a sleek, silver convertible. Was it used? Shhh! Yes it was. I’m proud to say Diane’s business is now flourishing and she can probably buy any car she chooses, but she’s still driving that beautiful used convertible.
Check the Insurance Rate and Save
It may sound strange to bring up insurance, when you haven’ t even purchased your car yet, but checking the insurance rate early is a way to SAVE BIG. Joe M. of Arizona bought a muscle car back in his younger days without checking. The insurance ended up costing him $14,000 a year! To prevent this from happening to you, call your insurance agent with your short list and ask how much it would cost to insure the various vehicles on it. Insurance premiums can vary dramatically based on a car’s safety rating and whether that vehicle seems to attract risky drivers.
The point is, buying used is not a bummer. It’s a benefit. It opens up a whole new range of vehicles to you. For instance, which would you rather drive, a Lexus or a Taurus? Gosh, I’m going to go out on a limb and guess that the vast majority of you said a Lexus. Well, guess what? You can drive a Lexus for the same price as a Taurus. (It’s just that it will be slightly used.)
I am going to take a quick break from writing and tool around on a car-buying website. Aha! Look at the price comparison I found between a Taurus and a Lexus:
Which Would You Rather Have?| 2009 Ford Taurus Ltd. sedan, brand-new | $ 24,999 |
| 2006 Lexus GS300 sedan with 38,046 miles | $ 24,999 |
Amazing. You can get a three-year-old Lexus with low mileage for the same price as a brand-new Taurus. That’s the story of vehicle depreciation. Dramatic, isn’t it? Of course, if you
really want to SAVE BIG, it’s the
Taurus that you will buy used. Watch this:
New versus Used Taurus| 2009 Ford Taurus Ltd. sedan, brand-new | $ 24,999 |
| 2008 Ford Taurus Ltd. sedan with 40,085 miles | 14,990 |
| BIG SAVINGS = | $ 10,009 |
$10,000 is a huge savings and this used Taurus is only one year old. Buy a three-year-old Taurus and you would see the price drop even more. Buying a nice used car is a perfectly painless way to SAVE BIG and it can be done at any price point.
Let’s go back to that Lexus we had our eye on. Maybe it’s a little over-the-top to use a Lexus as our comparison car, but remember, I’m the savings author who lets you have fun! Why not drive a more prestigious car, if you can get it for the same price? We’re pinching dollars here, not pennies.
Even if you spring for the used Lexus, you will SAVE BIG compared to buying new. Watch this:
New versus Used Lexus| 2009 Lexus GS350 (replaced GS300), brand-new | $56,278 |
| 2006 Lexus GS300 with 38,046 miles | 24,999 |
| BIG SAVINGS = | $31,279 |
A $31,279 savings is spectacular. Just remember, the math works with all sorts of vehicles if you compare used to new. Used trucks are cheaper than new trucks. Used American cars cost less than new American cars. And so on. The moral of the story is simple: Let somebody else be the chump, buy the brand-new car, and lose thousands on it.
Shhh, Nobody Has to Know
If you are still clinging to cars as status symbols, then do this: Buy the first model year of a redesigned body style. That way, nobody will even know your vehicle isn’ t new! On average, car manufacturers build the same body style for four to five years before changing it.
Save Even More: Dark Horse Vehicles
I think I’ve proved my point that buying used is a great way to SAVE BIG. Now, you can save even more by picking and choosing wisely among used cars. You should try not to buy the most popular makes and models, because they are in demand so they can command a higher price.
Auto website
Edmunds.com suggests shopping for what it calls dark horse cars. These are vehicles that are similar to the most popular models but are less well known. For example, Edmunds says the Nissan Altima is similar in features and quality to the Toyota Camry, but less expensive because it doesn’t have the famous name. Edmunds says dark horses can be as much as 20 percent cheaper.
Let’s test that premise. Back I go to a car-buying website for today’s prices. Okay, I found two used vehicles—one famous, one dark horse—with nearly identical mileage. Let’s compare the prices:
Famous Name versus Dark Horse| Used 2008 Toyota Camry with 9,789 miles | $ 31,809 |
| Used 2008 Nissan Altima with 9,851 miles | 24,995 |
| BIG SAVINGS = | $ 6,814 |
As promised, you are able to save 21 percent if you buy the dark horse Nissan instead of the famous Toyota.
To help cement your understanding of dark horse vehicles, here are a few other dark horse pairings, courtesy of
Edmunds.com:
| Famous Name Vehicle | Dark Horse Alternate |
|---|
| BMW 5 Series | Cadillac CTS |
| Chevrolet Silverado | Dodge Ram |
| Chevrolet Tahoe | Buick Enclave |
| Dodge Caravan | Kia Sedona |
| Honda Civic | Mazda 3 |
| Honda Fit | Suzuki SX4 |
| Honda Odyssey | Ford Flex |
| Lexus GS | Hyundai Genesis |
| Toyota Camry | Chevy Malibu |
| Toyota Prius | Honda Insight |
BIG TIPS
• Never buy a new car.
• Always buy a used car.
• Consider purchasing a dark horse make and model to save even more.
