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Buy A Brand New Car

Posted By Jim On 07/05/2011 @ 7:06 am In Devil's Advocate | 23 Comments

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 [3], “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 [4], 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 [5]? It’s best not to inhale it too much, it’s just nasty chemicals.


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[2] Email: mailto:?subject=http://www.bargaineering.com/articles/buy-brand-car.html

[3] gracefully put it: http://www.bargaineering.com/articles/dont-buy-an-old-car.html

[4] Bankrate: http://www.bankrate.com/brm/news/auto/20011226a.asp

[5] new car smell: http://pubs.acs.org/cen/whatstuff/stuff/8020stuff.html

Thank you for reading!