I found a post on Wise Bread asking for advice about a new car purchase with total operating costs being too high. The writer said that car payment, insurance, gas, etc all total about $600 a month. I left a comment on the blog with some brief thoughts but decided that I should save my ramblings on the subject for my own blog, so here we go. I've made a few mistakes and unwise car buying decisions in the past and my wife and I have developed some strategies that we now use while buying a car.
For one thing, every car we buy is used. I never set out to buy used cars, but it always worked out that way and now I do it deliberately. We all know that a car automatically starts depreciating the moment you drive off the lot, but the majority of depreciation hits within the first two years. Within two years, a lot of reliability data accumulates and it is much easier to decide if a certain model car will be a better choice than others. Cars can vary from year to year and sometimes a car made in one year is better than that same model car made the previous or even the following year.
My wife and I also set a cap on the amount of money we are willing to finance. I know that a lot of "experts" such as Dave Ramsey say that financing is bad and you should just save up and pay cash for cars and houses. Seriously, have any of you EVER managed to save up $100,000 cash to drop on a house? Financing is little more than a tool, and if used wisely can be very useful. Now, if you make $35,000 a year and decide to finance a Hummer, a $300,000 home, a country club membership, and tens of thousands of dollars of 21% interest credit cards, then yes, please by Ramsey's book (I haven't) and take his advice. If you're willing to live by a certain amount of financial restraint, read on. Our last two cars we decided not to finance more than $200 a month and we managed to get very decent cars. We decided that $200 a month was a reasonable amount that we could handle and we refused to budge with the car dealer.
Another thing I would like to establish is that I refuse to think of a car as an asset, depreciating or otherwise. I have no idea where this saying came from, but it has reached the status of conventional wisdom. Even people who can't balance a checkbook can parrot the mantra "A car is a depreciating asset!" I don't think of a car as an asset, I think of a car as an appliance. A car is a $20,000 toaster. I've actually never paid more than a $12,500 sticker price for a car, by the way.
Because we only buy used cars and we set a fairly low payment margin, that forces us to do one more thing: research. We have to decide what we need in a car, then what cars will fit those needs. Then we have to look at model years and reliability data. I will share some car buying and owning stories after this section for those who are willing to keep reading.
I learned how to drive on my dad's 1987 Hyundai Excel. I drove that car for the end of my junior year and all of my senior year of high school. I was going to take it with me when I went in the Navy, but for some reason I became obsessed with Mazda trucks, and I decided that I had to have a Mazda truck. I was in my last couple of weeks of high school and I had quit my Kentucky Fried Chicken job prior to leaving for boot camp. I realized that I couldn't afford a new truck. My mom knew somebody who worked at Red McComb's used cars (Red owns or at least used to own the San Antonio Spurs) and said that I might be able to get a good deal. My dad and I drove up to check out the used car lot and found a 1990 Mazda B2200 pickup on the lot (this was in 1992). Because I didn't have a *real* job, my dad had to get the loan with me as cosigner. My payments were about $180 a month on a 4 year loan. I later refinanced the loan after I had been in the Navy for a couple of years and built up some credit. After boot camp, I went to my "A" school (Navy technical school) at Great Lakes Il, outside of Chicago. I ended up with a monthly insurance payment of $240, which just about killed me as an E-2 with a base pay of $880 a month before taxes. I could afford car payment, insurance, and a tank of gas a week. I had roughly $20 a paycheck left over which went to soap and shaving cream.
Six months before that truck was paid off, I was 21 and for some reason had to prove to myself that I could buy a new car. On a Friday night, I went to the Mazda dealer on the National City Mile of Cars outside San Diego's Naval Station by myself. I wanted to buy a brand new 1995 Mazda Protege. I told the dealer that I wanted to keep my payments close to the $180 a month that my truck was at, and he kept telling me "sure, that's no problem". I was too young and naive to know better. When I sat down to sign the paperwork, the finance manager told me that my payments would be $350 a month. I started yelling because the salesman promised me that my payments would be much lower. The finance manager laughed at me and asked how I expected to get a $15,000 car for that little. I obviously qualified for the financing, but I would not have had anything left over after paying for the car and insurance. However, I was determined to buy a new car so I settled for a 1993 Mazda MX3 that was on the lot. I always said that I couldn't have been screwed into a better car. I drove that MX3 for 10 years until the moon roof seal started to leak. Finally, the gas pump went and as I had another car by this point I just donated the Mazda to Kars 4 Kids. I always said that I couldn't have been screwed into a better car.
Over the years I tried to buy new cars, but I always stopped myself. I once tried to trade the Mazda in on a Saturn, but decided I'd learned my lesson about being "car broke" and I walked away. At another point I wanted to buy a Subaru, but again I decided to keep the Mazda, which was paid off by that point. The Subaru dealer was trying to push me into a 5 year lease with a 12,000 mile a year limit and the deal just didn't make any sense to me so I got up and left.
When my wife and I first bought our house, I was still driving the Mazda and she had a '91 Ford Escort. I didn't find it possible to own a house with subcompacts. A trip to BJ's was hardly possible, and forget going to Home Depot for anything without renting or borrowing a truck. In 2002, my in-laws loaned us their 1995 Ford Windstar when we took a trip to Texas to see my parents and we decided that we wanted a Windstar. We bought a 1999 model from the same dealership that tried to push the Subaru lease on me. After we got home, my wife was browsing through the dealer's website and found that same car for $2000 less than we paid. I printed out the page and ran outside to compare the VIN, and sure enough it was the same car. When we went back to complain about false advertising, we were told that a "3rd" party manages the website and the price that car was listed for was wrong and the dealer is not responsible blah, blah, screw you suckers, blah, blah.
The next year, my in-laws gave us that 1995 Windstar. The 1999 was developing some reliability issues. The power steering was starting to go, one of the vent windows was stuck open, and my wife just plain didn't like that car while she loved the '95 which is a luxury model and used to belong to her grandparents. When the head gasket in the '95 van blew, we decided that we wanted to keep that one so we should get rid of the '99 before it started to cost us money. I have NEVER been able to sell a car. One January morning I was driving to church in a snowstorm and the van was slipping all over the place. I decided that maybe we should look for a 4 wheel drive. This was 2004 and my wife was pregnant with Joshua, our first born (who just turned 3) and I was starting to think about the safety of our children. There are only 3-5 times a year when you might need four wheel drive in New Jersey, but you're darn thankful to have it. One Friday night, I was looking for used 4WD cars and we came across a 2001 Kia Sportage for $7995. I researched the model and found that out of all the years the 4 cylinder Sportage sold, 2001 was the best year. We went to the dealer the next morning and bought the car. It was all very easy and during the time we owned the Sportage I enjoyed it for the most part. I called it my "toy SUV".
Last year we started talking about getting a 4WD that will hold more passengers. We thought about the Dodge Durango, but I couldn't find any used models that we could finance for $200 a month or less. We took a long term approach on this car purchase and I spent months watching the used car sites for a used 4WD that will hold us, two car seats, and at least one more passenger. One day I came across the Suzuki XL-7, and my research showed that yes, it has 3 row seating. We went to check one out. There was one XL-7 listed on a used car site, but we passed a Suzuki dealer on our way and decided to see what they had. We ended up buying a 2001 Suzuki Grand Vitara XL-7 Limited, which is what I'm driving now. This car has leather seats, fake wood paneling, and 4 wheel drive. It also seats up to 7, although there is no real storage space when we have the back row up. Our payments are just at $200 a month.
To summarize and finalize the Gadget Geek Dad's car buying advice:
- A car is not an asset, a car is not an extension of your personality. A car is an appliance, a tool.
- Carefully analyze what you want in a car and how much you are willing to pay before you go shopping. If you need an econo-sedan, buy one. If you need an F-250, buy it.
- Shop for financing. When we bought the Suzuki, the dealer could not arrange the payments that I wanted, but my credit union could. Like the car, financing is a tool.
- Don't be afraid to buy used. A two year old car should have tons of reviews and reliability data freely available online.
- Don't be afraid to get up and walk out. Don't be afraid to hurt the dealer's feelings. Worry about your own finances. You be the judge of whether this is a good deal or not. Sometimes the dealer needs to sell the car and by trying to walk out, he'll offer a better deal.