Tobold's Blog
Tuesday, May 09, 2017
How often do you trade in your car for a new one?

For most car owners their car is either the most expensive item they own, or the second most expensive one after their home. So one could expect people to make rational decisions about such an important investment. But in reality buying a car for most people (especially men) is not a 100% rational act, but a strongly emotional one. That is related to a tendency to see cars as a status symbol and expression of other things; whether you drive a Prius or a Hummer to work says a lot about who you are. As a result many people spend more money on cars during their life than economically justified.

Apart from the choice of model of car, one recurring problem after buying a new car is how long you should drive it before you trade it in for the next model. Apparently the average for that is about 5 years, but consumer reports state that you could save up to $31,000 if you drive your car until it falls apart. How do you make a good decision how long to drive your car before trading it in for a new one?

Mathematically you can describe the problem as a curve which has two main components: One is the value of your car which drops every year. The trick is that the value drops most in the first year your drive it, and less and less every following year. Which means that if you consider this loss of value a "cost" of car ownership year by year, driving your car longer makes sense. If you trade in your 5-year old car for a new one, the next year you will take a huge loss of value; if you had kept your old car, the loss of value would have been a lot less. The second component of the curve is the cost of maintenance and repairs: The older you car gets, the more it costs to maintain and repair it. So if you add the two curves, the two curves cross at some point, which would mathematically be the optimal timing for trading in your new car.

The problem is that the average person doesn't have all the data needed. Even just getting the curve of how much value your car is losing every year is hard to get. You could basically need to get market values of used cars of the same model, assuming the model has been around for long enough, and draw that curve yourself. The second component of the curve is even worse, there is no place where you could easily see how much the annual repair cost for a car is with age, because there is too much variation of the data. Some cars are "lemons" and over the years will cost a fortune for constant repairs, others drive 200,000 miles with just regular maintenance and never a problem.

Apart from the lack of data, the emotional component isn't to be neglected. My current car is in its fifth year. And while the lack of repairs needed up to date would suggest that it would be better for me to drive it a few more years, I can't deny a feeling that it would be nice to have a new car, slightly bigger than the current one. And of course car dealerships stoke that by sending you advertising about how great their new cars are.

How long do you drive a new car before you buy the next model? What are you basing that decision on?

So, even as an informed person you are going to change for the irrational choice ? ;-)
Here is a depreciation-calculator:

Here is a true cost calculator:

There are absolutely all kinds of tools on the internet to calculate the exact cost in both expected maintenance, resale value, and depreciation for practically any vehicle (outside of super luxury cars and racing cars).
I literally drove my last car until it fell apart, because its life ended with an idiot crashing into it and causing more damage than the value of the car. It was towed to the junkyard.

Otherwise, I do the economic solution. In every two years you have to take your car for official inspection in Hungary to prevent unsafe cars roaming on the streets. Before these inspections you have to take it to a mechanic to fix all the things that would make the car fail the inspection (and lose its license plate). If the repair would cost more than 1/2 of the actual market value of the car, I sell it instead of repairing it.

Also, I NEVER buy a new car, I buy 5 years old cars sold by middle age crisis men who feel the urge to buy a new, bigger car.
There is nothing irrational about placing a value on things that make you happy, have extra convenience or enhance comfort. If the ability to get from A to B was the only relevant consideration most people would stick to public transport, bicycles or scooters.

From a cost of ownership point a view, it is cheapest to own a cars that are 2 to 8 years (or 80,000 miles) old. I probably kept my last car going too long, putting up with too much discomfort to eek it out until the maintenance cost to started to exceed what it was worth. It got up to about 12 years and 140k miles and very much on its last legs, but I was putting it off until a new model that I was after came out. I am very much a buy new - drive until it's too much hassle sort of person. The fewer big purchases and decisions I have to make the better.

Alternatively, if I was buying a non-ICE vehicle in the current market I would probably be looking at a much shorter lifespan (2 to 5 years?) in anticipation that electric vehicles will show marked improvements in the mid-term. My current car is from 2012 and I am expecting to keep it until the next generation of electrics come out.
Just to add, I hired a brand new entry level car only recently and was shocked at how much more comfortable and niggle-free it was compared to my current mid-spec 5-year old vehicle. I can see the appeal in getting regular replacements.
[insert standard opinions are my own and not my employer disclaimer :( ]
I buy a car and then drive it until it just costs too much to maintain it. Sure, a new car might have a pretty paint job, but since I'm no longer making payments on the older car at this point, why delve into the extra costs?

With a lot of cars, it seems like getting over 70,000 miles is when you start to face big maintenance costs. As you pointed out, Tobold, that can vary wildly depending on who well built the car was in the first place.

I also consider the factor that a new car may be more likely to get stolen or broken into, unless you're up for the additional expense of whatever the latest countermeasures are.

The only exception I can see to not changing cars until the older one is sufficiently worn down is when you need a different car for a different purpose. Is your job putting you on the road a lot more? You need a newer car that can handle it, and possibly one more comfortable for all the driving. Having a child? Moving to a 4-door is probably in your best interest.
Why buy a new car in the first place? If you buy a used car you never need to pay the depreciation cost of the early years.
I lease all our cars.

New car every 3 years, zero worry or cost around the car above the monthly rate, and once you lease more than once from a dealer, they generally take care of you going forward. I never get charged anything for the return (they basically don't check it), I get a below-market rate without the need to haggle, and if I take a car off the lot, I more often then not get one with more feature packages than I pay for.

Between the better safety, always having new tech, generally better mileage, and doing nothing with the car other than an oil change, it's a pretty easy decision considering the cost is about the same unless I'd keep my car until it was ready for the junk heap.
I do the math, at least as much as I can estimate regarding upcoming repairs, and then see if the increased cost of my emotionally-preferred option seems reasonable. For instance, a couple of cars ago I was considering whether to keep driving my current car with 7 yrs, 76,000 miles, buy a new small gas-engine car, or lease a new gas/electric hybrid for 3 years. After running the numbers, it appeared that to do the lease would cost me about $1000 a year more over the 3 years than the other choices. I thought that that was a fair price for the increased pleasure I would get from driving a better built, quiet car, where I wouldn't have to stand in the freezing cold just to refuel every week during the winter.
Right now, I am on to a lease of a different gas/electric car and my wife drives a 6 year-old van, which we paid in cash when it was new, so I hope to keep it until it is at least 10.

I generally buy a new car, a model with proven past reliability, never in its first year of production, and drive it until it dies or, in the case of one car, until somebody crashes into it, leaving a wreck not worth fixing according to the insurance company. My current car, a base model Toyota sedan, will be 14 years old this summer. I've had it slightly longer than MySpace has been around. It came with a cassette deck.

A key part of my decision is that I would rather spend the money on things other than a new car. No matter what your trade-in value and what incentives the dealer is offering, they are there to make money off of you and you're going to walk away, or drive away, with a car that loses a lot of value the moment you drive it off the lot. And, after buying a house, buying a car is likely the most expensive transaction you're going to make, which adds an extra element of thought. I am pretty sure I have bought or refinanced property more times than I have bought a car. Property around here goes up in value.

Which isn't to say I wouldn't like a new car. I actually like cars, enjoy talking about them, and one of the few magazines I remain subscribed to these days is Car & Driver, which I have read regularly since the late 70s.

Of course, I am going to have to buy a new car in the next year or so. My daughter is learning to drive and she has her eye on my old Toyota. Perfect car for her too, safe, well maintained, and somewhat expendable.
I love driving. I drive often for pleasure. I don't care what people think my vehicle says about me. I care about what the vehicle allows me to do. What I want to do changes over the years. In years past I loved accelerating quickly and corning fast, so I had a vehicle that was well suited to that. It made no financial sense to buy a vehicle like that, but it wasn't just a mode of transportation for me, it was a source of enjoyment.

Now I like going off-road and to places that my other vehicles couldn't go. So I purchased a vehicle that could enable me to do what I wanted to do. I had no financially sound reason to buy it since I already had a vehicle. However, I wanted the experiences that a different type of vehicle could bring. Now I can take the top off and the doors off my vehicle and drive up a mountain side and feel like I am in nature. Get out, hike for miles and then drive back down the mountain. I get so much pleasure from that experience that it was worth every penny.

So I make my decisions based on emotion (enjoyment). That said, I never buy outside of my means. In addition, if I didn't love driving and just cared about transportation then I would make different decisions. To me buying a vehicle is not a one-size fits all mentality. I could be a special snowflake though, I literally drive for 12 hours straight just to be on new roads and see new places.
I bought a Honda Element in 2003 and it is on it's last legs. Pretty good car and I have only put one new set of tires on it, fixed a few engine mounts, and changed the oil regularly and it run great the first 7 years and has gotten me around town for the last 7. I think my new strategy now would be to but a car that is 1-3 years old. You give up the joy of driving it while it is brand new, but you take about 7 grand off the price usually. I replace cars once they yearly maintenance cost is more than a years worth of car payments, is is rapidly heading in that direction Without doing analytics this strategy seems the way to go.
I don't own a car. Only ever owned one and that one I was given.
I changed cars quite frequently when I was younger but I had my last car for twelve years and expect to get a similar lifespan out of this one. I am not really a car person and it is as much a matter of laziness as anything else that I put off changing for so long but there comes a point when maintenance costs start to mount up and it costs as much to keep a car as to change it.

Current car is 12 years old now, has just over 100k miles. I expect it to easily make it another 8 years and 100K miles before I seriously consider replacing it. The only feature I kind of wish it had that I could get in a more modern vehicle is a stereo that does blue tooth, but I could just upgrade the stereo for a few hundred dollars if I actually cared that much.

I think the car was about $17k when new, and we've only paid for a few sub $300 dollar repairs and tires. Barring the engine or transmission exploding I don't see any reason that it wouldn't last that long at least. I owned a 1990 model of the same car when it was more that 20 years old and everything still worked just fine on it.
I sell the car when repairing costs aren't worth it anymore. At this point I go for a semi-used car and I'm happy with it. Unless I find a very good offer such as "trade your old crap for this new model", in which case I buy a new one (happened one time only).
I went with the economic option - I don't have a car ar all. The cost of having one is not worth it in my case. The commute to work would be barely shorter, but now I spend it reading/playing games in a bus instead of having to focus on driving. I would also need to pay for parking space which is a very scarce commodity in the area I work in. Add it to gas and repairs and it becomes quite a bit of cash each month, not counting the cost of the car itself. Compared to the 20$ I pay monthly for my public transport card it's just not worth it.
I drive until the car is dead. I like not having a car payment all the time. The only new car I ever bought was my 1st one when I was 21, and that was becuz I needed a cosigner and the finance company would only allow a co-signer on a new car, and I got a little 4-door Geo Prizm sedan. I got married and had 2 kids while I had that car and to fit 2 car seats plus a person in the back... didn't work, so I traded it in for a used Chevy Malibu.

I had that car until it was completely dead. Threw a bearing on a rod, so it made awful groaning noises and the mechanics all said it was a ticking time bomb until the rod got thrown. I simply sold that one to a junkyard and bought a 16-year old car from my sister for $365 that she was getting rid of. That car actually lasted me 4 years (over 230K miles on it too) until this spring, actually.

I replaced it with an 8-yr old Nissan Xterra that I bought from my manager for a good price. I'll have a car payment for the next 3 years, but it's not a large one, so that's fine.

And my current wife's car that she brought into the marriage 9 years ago is now 12 years old and still running fine, so...... yeah.

For me a car gets me from point a to point b. Nothing more. I try to keep the cost as low as I can.
My current car is 9 years old and I feel like I can easily squeeze another 9 years out of. My previous car is a hand-me-down from my family (it was also my first car) which I eventually exchanged because it started breaking down during long trips. It was also 25 years old and I depended on it for work, so I just took the plunge.

I could probably get a new car right now if I wanted to, hell I could pay in cash even. But I consider it an enormous waste of money. In case you were wondering, I'm 37 years old so not quite at the "middle-age crisis" stage yet.
I don't know if it applies to other countries but here, there are significant VAT rebates for companies who buy a new car up to 4 years, so they are encouraged to buy new and sell it after 4 years. And it shows: as far as I recall, 75-80% of new cars is bought by companies rather than private owners. Sure, the depreciation at the start is quite big even compared to the rebate but eventually it gets better.

That's the reason why 4-year old used car market is quite buyer-friendly compared to newer cars; lot of company cars go straight there. The car companies offer various leasing opportunities that allow them to offer newer used cars but significantly less people are taking it.

Personally, I am in the used car camp: The depreciation is just that much lower and I don't have to be afraid of selling it after a few years. Sure, they're smaller (today's Polo dwarfs early Golfs) but it's always possible to move a class up, buy a Golf instead of Polo or Avensis instead of Auris. Newer cars have better electronics but how much would you use after first 2 weeks and can an used car offer that? (I'd say the only things I miss on my 2003 Civic is BT and automatic AC... I'd probably use automatic headlights too but can't really think of other new features. If you're on older cars, there are more things I wouldn't want to go without, such as ABS but most of them are common on anything newer than 30 years I think.)

Despite that, I use cars until they become too expensive to maintain... or develop a mysterious problem nobody can diagnose as happened to one of them. On the other hand, I'm on my 2nd motorbike and sold the first one after less than 2 years of owning. But the reason was I'm so tall I can't comfortably fit on anything less than European (Japanese are smaller) 800 or bigger and I was afraid to start on such a heavy and powerful beast. ;-) I did buy both of them used (6+ years of age, as I did with the cars) so I don't get hit by the depreciation. Another reason is the new ones go for up to over 20 000 EUR and are quite easy to steal...

So... I think you're right, you can save a lot of money by not spending it on car(s). I'm not worried about selling a very old one, there's always people who have little money but spare time who are really happy to buy an old car that asks for a lot of maintenance.
I usually buy a new car every three years. It's a luxury I can afford, not a status symbol. I don't care what people think of me and I'm not out to impress anyone - I just like driving a new car.

The monthly cost of depreciation on my vehicles tends to be about $225-275 on cars I buy in the $36k +/- 10% range. I usually drive about 9,500 miles a year, so depreciation would be more if I drove more frequently. Insurance on a new car also runs about $30 more a month than if I drove an older car.

When you do a total cost analysis, buying a five year old car isn't much cheaper than buying new. I never have to perform maintenance besides oil changes, my annual safety inspections are free, and any necessary repairs are always covered by warranty. A five year old car certainly has lower loan payments; however, every time you buy new tires, battery, alternator, radiator, brake pads/rotors, etc. you are essentially making up the difference in what you would have paid for a new car - not to mention the cost in time and inconvenience of maintaining an older car.
We have bought only two new cars during my adult lifetime. One lasted 14 years, and the other 15. My wife and I made the decision very early in the car buying process that we'd prefer a used car over a new one (we've had 4 used cars throughout our time together, two of which we inherited from parents when we were in college), and that we want to get at least 10 years out of a car before we get rid of it.

While 10 years is arbitrary, that number did hold true for the cars from the late 80s. The two GM vehicles we owned then lasted effectively 10 years before the regular repair bills became too high to consider keeping. Right now, the cars we own are both used: one we've owned for 7 years (it is 17 years old), and one we've owned for 1 year (it is 9 years old). The older of the two is basic transportation and that's all we need, while the other is a base model of a nicer car which has all the earmarks of a car that will last about 15-20 years.

As for why keep the cars that long, the cost of a car payment is too high to really consider as an additional expense if you're under a salary crunch.
I buy only used cars with around 50k miles on them and drive them to about 100-150k. As a car guy I enjoy nicer vehicles and niche models so it helps me afford cars I could never buy new. Thanks to Americans hating maintenance costs with a passion it allows me to buy cars for often less than half the price it was new. For example my latest car is a 2011 BMW 335i that had 65k miles on it, paid $18.5k for it out the door and the sticker price on the car was $55k.
This usually helps me with selling as well because by the time I sell clean ones are usually hard to find. For example I sold my 2003 Mitsubishi Lancer Evo with 120k miles for $11k after buying it for $16k with 48k miles. Not a bad loss for driving it for 5 years and racking up all that mileage.
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