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Buy A Brand New Car

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This is a Devil's Advocate post.

One of the longest held tenets of buying a car is that you shouldn’t buy a brand new car. As I once gracefully put it, “Buy used and let some other sucker pay the new car premium.”

The tenet is true, buying a good used car will save you money over buying a brand new car. There are, however, plenty of reasons why buying new might make more sense.

In this latest installment of the Devil’s Advocate series, where I argue the other side of classic personal finance advice, I’ll look at the reasons why buying a brand new car might not be so bad after all.

Car History

The biggest reason why buying new is better than buying used is that you know the history of the car. You don’t know if the former owner maintained it as well as they claimed to have maintained it. Did they make every oil change as scheduled? (unlikely) Did they get every checkup as scheduled? (unlikely) Even the most well intentioned owner misses checkups and oil changes by a few hundred, or a few thousand, miles.

For manual transmissions, you also don’t know if they were seasoned drivers or learned how to drive stick on that car. Did they completely ignore speed bumps and run right through pot holes? Even the most thorough inspection won’t be able to tell you those things with absolute certainty.

When you pay more for a new car, you are buying that certainty. You are writing that history.

Depreciation

A new car loses value when it drives off the lot but it’s not nearly as many people believe. I’ve heard numbers as high as 50%! Depending on which car you buy, the actual depreciation is much lower. According to Bankrate, a car loses 15% to 20% of its value each year with a steeper drop in the first year for a variety of reasons but much of it has to do with the other costs of buying new. For example, taxes and licensing are costs that the car “loses” immediately.

There are also a variety of promotions a dealer can offer that, should you not take advantage of them, reduce the price of the car. The key is to take advantage of those offers! While you won’t be able to prevent the car losing much of its value, you can cut into the big drop as much as possible with smart decisions.

Scams

It’s usually pretty hard to get scammed by a car dealership as long as you do your homework. When they pull one over on you, your eyes are wide open and they’re telling you exactly what you’re doing and what they’re doing. It’s usually not because they sold you a lemon or hid a defect from you. When you get ripped off by a car dealership on a new car, it’s usually because you overpaid or they upsold you on features or they did some chicanery with your loan. When you get ripped off on a used car sale, it has to do with a hidden defects, improper titles, and other things that prey on your trust. I know I painted with a pretty broad brush but I think those generalizations are fair.

Ownership Period

If you buy a car brand new, take care of it, and drive it a few hundred thousand miles, it won’t matter if you bought it new or used. That’s why a car’s longevity is so important. You may lose 15% to 20% of the car’s value each year but that only matters if you look to sell it. The car’s value is irrelevant if you drive it until its final miles.

As for that new car smell? It’s best not to inhale it too much, it’s just nasty chemicals.

{ 23 comments, please add your thoughts now! }

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23 Responses to “Buy A Brand New Car”

  1. Beth says:

    Good post, but I think you missed one very obvious point: repairs (or rather, lack there of!) If you buy a used car, you can expect to be replacing tires, having the brakes done, etc.

    I guess that’s really more of an issue if you have to finance your car purchase. Used, you have to allow money for making repairs/maintenance while you are paying off the car. New, that’s all taken care of while it’s under warranty.

    Years ago, I needed a car for my first job and it made more financial sense to buy new at the time (due to offers and interest rates). I was able to pay for the car and build up savings in an emergency fund rather than having to pay for surprises. I planned to buy the car and drive it into the ground, so in the long run my purchase makes financial sense. I know several people who have gone through a couple of used cars in the time I’ve had my one car. Go figure!

    • Jim says:

      That’s a good point, buying used puts you further down the maintenance and repair timeline than buying used.

    • govenar says:

      I agree, though I don’t think financing it or not changes the argument.

    • knotReally says:

      i think you are mistaking wear and tear parts with warranty parts. new or used, tires, brakes, etc… will need to be replaced and are not covered by any warranty (this could be partially false though)
      i would love to always buy used for price and not having to worry about having a ‘new car’ but since i run my cars into the ground.. being able to write the history is very important.

  2. cubiclegeoff says:

    Part of the depreciation of a new car is due to people being skeptical if a fairly new car is up for sale, since people would assume it was a dud. But since people rarely get rid of a car in the first year or two, this doesn’t make much of a difference.

    I recently bought a new car because used cars were not that much cheaper, i could get cheaper financing (i wanted to pay cash but financing made more sense), and i would get the full warranty. This made a new car a much better deal than a used.

  3. I’ve been more particular about going new in recent years, after my own experiences with older, used cars. No matter what anyone tells you, or what an expert finds under the hood, there is just no way of knowing how the previous owner treated (or mistreated depending on the circumstances) the car. At least with a new car, you can be assured that you are the first owner and that the only use had been for brief test drives up to that point. Funny thing about the timing of this post too, as I wrote about the story of my 1st used cars this morning in Fact of Life (And Business): You Get What You Pay For

    Personally, I hate the use of the depreciation angle when discussing cars. Yes, technically it is an asset to the owner, and when it comes time to sell and calculate how much profit you want to make it is important to know. On the other hand, if people would think of it less in terms of an asset an more in terms of a resource, they might realize more “value” in it rather than it simply being a poor investment that loses half it’s value almost immediately.

    • Chris says:

      First of all, great post Jim. Was excited to read this as we are planning to buy a car in the next months (maybe years if they can hold on). Great points all around!

      Really like the idea of treating a car as a resource. I don’t list them in my net worth spreadsheets or mint.com b/c I don’t view them as assets either. Resource makes so much more sense (I’m with you Eric), well said!

      • Jim says:

        I list a car in our net worth because it offsets the other changes (a reduction in cash if we pay cash, an increase in liabilities if we get a loan), but I don’t think of it as an “asset” in the sense that it has value.

  4. Echo says:

    I’m not a fan of used cars either. I agree with the comment above about buying a 1-2 year old car. How many people are selling these cars, and why?

    My mom wrote about her experience with used cars and why she prefers to buy new as well: http://www.boomerandecho.com/my-brand-new-car/

    • Andy says:

      Often they’re cars coming off a short lease or out of fleet service. As long as the car is in good shape and has had a good inspection by an independent mechanic you trust, it can be a good deal.

      • Jane says:

        Actually I’d rather not have a fleet vehicle, unless it is being driven by one person, there is no reason a driver of a fleet vehcile would drive a car with any concern about how it will work years from now.

  5. mannymacho says:

    Sometimes the company you work for has some negotiated incentives with dealers to get new cars for employees below invoice. With this incentive, plus the fact that 2-3 year old used cars (foreign makes) were selling for practically the same as new, it made more sense for me financially to buy new.

  6. Martha says:

    Has anyone tried out the Costco car program? I wonder how much of a discount you can get through their group purchasing techniques.

  7. gina says:

    I bought my Honda Fit 4 years ago, and am now finding comparable new ones for the same price!

    Happy to have bought new.

  8. Mark says:

    I’ve never tried the Costco buying deal but we did use a similar service from our insurance company two years ago. We live in a smaller town, and we would have had to drive two hours to a bigger town to take advantage of the buying service.

    Nonetheless, we got the bid through the buying service, then took it with us to our local dealer. It gave us a ceiling for our negotiations, and the local dealer came with $100 of that price.

  9. holly says:

    I just recently bought a new car instead of used mostly for the peace of mind. I know that my new car is covered if anything happens beacause of the warranty. I also plan on keeping it until I run it into the ground, so the depreciation on the car doesn’t matter very much at all. And since I want to keep it as long as I can, then the newer the better.

    Another thing is that people who buy used cars may think they are getting a good deal on it, but it is a lot easier for a dealership to be sneaky with financing and the actual condition of the car. If its a brand new car, there isn’t any wiggle room to make things up or scam you.

  10. Shirley says:

    New car prices are lowered in Sept/Oct to make room for the next year model.

    • Andy says:

      Depends on the make/model, their production cycle and inventory. Some are as early as August, some as late as November or December.

  11. Andy says:

    I’ve put over 100K on the used car (2 years old) I purchased 6 years ago. The couple hundred bucks I have to put into it for repairs beats the several thousand I’d be spending on payments.

    For my wife, OTOH, we bought new because she puts a lot of miles on and needed a car with a solid warranty (not to mention the fact that when we were shopping, nothing – new or used – met the requirements other than the car we purchased).

    My plan now is this: we get her a new car every 4-5 years, and I get her hand-me-down to drive the wheels off of. I’d prefer no payments, but having one payment is better than two.

  12. JamesV says:

    We always purchase cars that are rated best by well known agencies, online car reports, etc. I do about 3 months of research first. Then find the best used car and offer the dealer the best price I can afford, and try to get the lowest miles on a car i find. For now, I will only buy used. I can’t imagine spending $15,000-$25,000+ on a new car. Plus, we should only be buying cars with cash, right!?

  13. Mr K says:

    I put 5000 mile on my vehicle a month for work so It’s important for me to have a warranty. The web allows me to shop around and get the best deal on new vehicles typically 10k off sticker.

  14. Ajaya says:

    If you are buying a Japanese car that’s a keeper, buying new always makes sense. Factor in the ultra low depreciation on the cars plus the fclose to zero percent financing from factory.


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