Sunday, April 27, 2008

Auto Buying Essentials

I've long been more than casually interested in a way of living that I call Thrifty rather than Cheap. There is a big difference between between being thrifty and being cheap. A thrifty person might compare generic canned vegetables with brand name ones and decide the quality and taste of Green Giant is worth the extra money. It is all about getting your money's worth, living as well as you can on the money you have. Naturally, big ticket items like homes and cars are the most significant areas to master.

My top advice for both homes and cars which Americans tend to change about every six to ten years is to buy with an eye toward resale. That means rein in your extreme tastes and go with what most people find acceptable if you can. Sometimes you just can't. Choosing mid-range colors, popular layouts or features may significantly enhance resale value lowering your total cost of ownership, the true goal of thrifty buyers.

My top auto buying advice used to be to negotiate only an 'out-the-door' price including (trade), tax, title, and license. Never let sales staff talk monthly payments. That tells you nothing about price or your total cost. Never answer the question, "how much can you pay per month?" Simply reply that you have arranged your own financing already and as far as the dealer is concerned this is a cash deal. But there is an even more significant issue that must be considered first.

According to Consumer Reports, 48% of the five year cost of auto ownership is depreciation, the difference between purchase cost and resale value. By far. this is the single most important factor. So the thrifty auto buyer may not shop for the auto that most nearly matches his or her exact needs at the lowest price, but actually chose a vehicle that fits their basic needs and has the best cost of ownership including depreciation. You may be surprised to find that it could be less expensive to commute to work for five years in a Mazda Miata convertible than an ugly econobox. Insurance costs vary widely by model and account for 12% of ownership costs on average. Repairs, an important issue for me are only 4% of costs in their opinion.

The least expensive car I ever owned cost me $1,250 plus gas to own for four years and 60,000 miles. It wasn't my Dodge Aspen, Nissan Stanza or even my used BMW 325, all great cars. It was my '79 T-top Pontiac TransAm 6.6 liter V8, (Smokey and the Bandit car in gold). I bought it new through the military overseas Exchange (PX) System like my Aspen. I paid $7,500 for it delivered to the port or a top (Five Star) dealer in my home area as with the Aspen. That was not really cheap for a car back in 1979, but less than most US dealers got for one. I ordered only the options I wanted (T-top and radio antenna). I deleted the gaudy bird hood decal ($75 part) with resale in mind. I probably should not have. I put in my own better AM/FM cassette, amp, and speakers saving $350. These days factory radios and speakers are much better and more complex. I also tinted the top and side windows myself. These days complex curves require a professional tinting.

I sold it in one day in the lot at my credit union for book price $6,250. Net cost was under $350 depreciation per year, less than any other new car I ever owned. I lost $1,000 on the Aspen in one year and 12,000 miles when I received orders to Europe. I sold it and my Levi's Gremlin the same way, also in one or two days. Smart credit union managers will let you park your sharp For Sale vehicle in their lot if you promise to bring the buyer inside to arrange financing (do a credit check) and prepare your cashier's check.

Since the T/A was purchased overseas, sales tax didn't come into play until I registered it in a state. Some states are cheaper than others. You might even do as I did and first register it in Texas (my home of record) then transfer the title and registration to Washington state (duty site) to avoid high new car taxes. That was 30 years ago. Check current laws if you have an address or family in other states. Virginia used to tax new cars at only 2% but most states will collect the difference when you register there. Expect to pay 5 to 7% of the purchase price or current value if higher.

My bottom line is this. The best single piece of advice I can give anyone before they buy a car is to consider the most important factor, depreciation, when you select your car. Even if you plan to keep it forever, if it gets totaled in an accident or storm your insurer uses book values to pay you off.

Check the book price of a three year old version of a car you like and note the loss in value. Limit your choice to three of the most popular cars that meets your needs for room, mileage (the second most important factor), etc. and have the least depreciation. Avoid new models and major redesigns. It takes three years to clear the big defects. Check the NTHSA database for defect reports on all your finalists. Popular cars are usually sporty, turn heads, get thumbs up from savvy drivers, and never appear in used car ads unless they need expensive repairs or still owe more than the vehicle is worth.

Hondas hold their value better than any other make but are terribly overpriced. They often have good maintenance histories like Toyotas and Buicks, but that varies with each year and model. I've just noticed a hot used car market for the Acura RSX coupe, a Consumer Top Choice car according to Edmunds.com which is a good place to do your research before talking to a dealer. The one I spotted as the best of three available within 75 miles sold in one day. Another was at a dealership with high miles. The third was a factory turbo with six speed manual (street racer).

Finally, with US fuel costs rising but still far below the world average of nearly $9 per gallon, plan ahead. Don't let a $5,000 rebate on a big SUV stick you with a vehicle you won't be able to feed or give away in a few years. My personal mileage criteria was 43 MPG (like my '83 Nissan) but in 2006 the closest I could get with a non-hybrid was the 5-speed Toyota Corolla at 41 hwy, 37 city (add 12-18% after 2007 to compare EPA estimates see fueleconomy.gov). Expect to actually get 30% worse city mileage. My Corolla cost $12,000 less than a Prius that owners claim got only 47 mpg at best. It would have taken me 10 years of fuel savings to justify the Prius, assuming it had a repair record and parts availability as good as the venerable Corolla. Corolla is the most widely produced single vehicle model in the world and has been for many years. Unfortunately, in April 2008, US Corollas switched to the Matrix power train which is less economical.

Now all US autos without exception are geared far too low for highway driving. My '75 Gremlin (3-speed manual with electric overdrive) did 60 at 1,600 RPM's (the national 55 speed limit was enforced back then). Today all small cars are doing 3,500 RPM's or more at 70. If you can wait until new fuel standards are required in 2009 or 2010 models you will see a jump in fuel economy and likely lower RPM's in top gear. If not, consider replacing the std. tires/wheels with slightly larger diameter aftermarket versions but be careful. Your speedometer will register low and driveway and/or turning fender clearance may not be adequate. You might need the original wheels to keep from voiding your factory warranty. Avoid low profile tires, they improve handling but add miles to your odometer, wear to your engine, and use more fuel. If you spend more time commuting than racing, stick to cheaper high profile, narrower tires inflated slightly above the printed (full load) rating on the side for maximum fuel economy.

In three years I expect many people to be driving cars converted to run on natural gas or propane which should remain much cheaper than oil. By then most electronic fuel controls will accommodate the fuel switch easily but ask your local conversion shop about your finalists before seeing a dealer. Conversions on selected cars today cost about $250 and require a new fuel line and small tank in the trunk with gage like a BBQ gas bottle.

Enjoy your car purchase experience and remember, be thrifty not cheap.

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