I recently read a Wall Street Journal article entitled A Good Time to Trade in That Gently Used Car that stopped me in my tracks. The advice in the article is financially destructive and sounds like an ad for the auto industry. It encourages financial decisions to be made based on how “exciting” your car is rather than upon a sensible financial choice. It simply ignores the reality of the costs involved in buying a new car.
One of my key spending recommendations in Money Smart is to never buy a car new, not unless you’re rolling in dough to the point that money just doesn’t matter. The smart choice is always to buy a used car (2-3 years old minimum) and keep it at least 5 years or more.
A guy named Remar Sutton, the top expert on the subject of car buying, said it best, “Unless you plan to keep a vehicle for a long time, a new car is probably one of the worst investments in the world.” The only significant difference between a new and late model car is money—one heck of a lot of money.
According to SafeCarGuide.com, “New vehicles lose an average of 20% of their value the instant they are driven away from the dealership. When coupled to the average yearly depreciation of 7% to 12%, your first year’s loss is anywhere from 25% to 35%. That translates to a first year $6,000 to $8,000 loss on a $22,500 new vehicle, or a $10,000 to $15,000 loss on a $40,000 one. And that’s for a vehicle only driven the average 13,500 miles. If you drive more than that, your depreciation will be greater (35% to 50% for the first year). Don’t forget to factor in your financing, which will add another $1000 to $3000.”
To say that this is a big loss is quite an understatement. For the average person or family over time it is the difference between retiring sooner—or a lot later, for instance. Then here’s this article trying to sell you the opposite!
Car buying can be treacherous with all the sales gimmicks and misinformation out there, not to mention Wall Street Journal articles. In Money Smart I lay out all the games involved and how to beat them. It’s just one more example of why I started the Money Smart project and why you need to take complete control over your money and see that it’s working for you and not for the benefit of others.