As I examine my options about replacing my 10 year old Honda Accord with a more fuel efficient alternative, I stumbled upon an interesting fact. I was playing with Kelley Blue Book estimate of my car value by changing the number of odometer miles and observing the changes. What turned out is that after 200,000 miles the car value stops decreasing. Which implies that if I wanted to sell the car now, it wouldn’t have made a difference if I had driven it more than 20K miles a year.
Is it just a bug in the KBB algorithm that calculates the value, or does the value really stops going down? I think what really happen is that at this age the car condition becomes the prevailing factor and the miles don’t mean that much any more since the modern engines are designed to go well past 200K miles and it is often rust or problems with interior (power windows not working?) that lower the car value, and these usually come with age, not miles.
This brings me to an interesting conclusion. If you own a car and put up around 20,000 miles on it, from the financial point of view there is no reason to try to save miles by renting a replacement for those long trips. You are not really gaining much except for the headache in having to deal with the rental. This of course is not the case if you don’t plan to hold on to the car for very long, or don’t put enough miles to reach the threshold.
Cars usually worth peanuts after 200K. So the depreciation of peanuts is so not significant that it’s not even noted by the software engine. Interesting find though.
On a separate note – I was wondering if buying a gas efficient vehicle no is like chasing the stock market. You buy it now, oil goes down in price (and I beleive it will someday) and you will end up with a tiny, not very safe, weak 2-cylinder car… Maybe it would make more sense to stick with the mainstream and get a truck of some sort. Maybe a car purchase should be buy when it’s low… Just a food for thought. ;)
This is exactly my philosophy…although somewhat modified. I drive 70 mi. each way daily for work, so I want a beater that I can put miles on. For the last few years, I’ve kept an eye on the local craigslist for used pre-2000 Saturns. I’ll buy one with 80 or 90k miles on it for less than 2 grand, and drive it for another 40 or 50 miles. Then I’ll sell it for roughly what I bought it. Almost like “free” transportation to me!
I know a blown engine or transmission could happen, so I money set aside for a large repair, but they happen so infrequently on cars of this age that the risk is relatively insignificant with proper maintenance.
What about the small repairs? Easy! I just keep 2 of them. That way if one is in the shop, I have another that I can still use. Trust me, it’s a lot cheaper paying insurance for 2 $2000 cars than 1 $10000 one. I end up paying about $50/month in repairs overall, which is a tiny car payment by any strech of the imagination. And if I didn’t have the $50 one month, I could leave the broken car sit while I saved for the repair.
When a new ‘deal’ comes on craigslist, I buy it, perhaps swap out the tires if my oldest car’s are significantly newer and then sell the oldest one (one with the most miles).
I know it’s not for everyone, and I’m glad! If too many people did this, I’d never find any deals!
It seems to me that this depends almost entirely on the make of car and how well it has been maintained. I can’t think of any American cars less than 20 years old with 200k miles that would be worth more than its weight in scrap metal. And you could start out with the best car in the world, run it 200k miles and neglect it, and again you’ll have scrap.
But take a good car like a Honda, Toyota, BMW, Mercedes, etc., take good care of it, and it will likely be worth a good sum, even with many miles on it.
I bought an ‘89 BMW a few years ago, and even though it has well over 200k miles on it now, I could still sell it for close to or as much as I paid for it.
Interesting line of thought. I currently drive a 1996 Jeep Cherokee with 154000 miles and I have thought about replacing it, but I only drive 5000 miles a year on it (its my work car and doesn’t make long trips). I have always considered going with something in the 10,000 price tier as a replacement, but picking up another car when this one dies that is a $2000 high mileage car offers some benefits. I could buy nearly 4 old faithfuls to one lightly used car, hmmm.
Steve, completely agree with your point. You absolutely have to take a used car through a thorough inspection before you buy it. This small investment will pay you back many times down the road. It is also a good idea to find more about the previous owner.
I bought my Honda when it was 5 years from a lady who kept it at dealer maintenance and had a habit of exchanging cars every 5 years because she was afraid of repairs. Right now I am having hard time justifying selling it because ever since I paid it off 3 years ago the only expense I had was gas and regular maintenance. Hard to beat that!
Alex, I do not consider a car to be an investment. It is an expense by all means. Interestingly though, when I was in Ukraine, my friends were convincing me that cars go up in price in there and it is not uncommon to buy and sell in 3 years for the same price in US$. They were explaining this by devalued US dollar and raising commodity (metals) prices.
Renting a car for long trips is a peace of mind consideration when you have a 200000 vehicle. Your car will make the trip but breakdowns are more likely on it and rentals are cheap. 200 or less and they change the flat tires and provide a replacement when it breaks down.
Steve – You are 100% wrong about your classification of Us versus rest of the world cars and long term reliability. The biggest factor in longevity of cars is how they are maintained. My 1998 Escort is still running strong after 193K miles, getting better gas mileage now than ever. My mother had an Accord that was 10 years old and was in great condition and sold it to a 17 year child of a friend who did not maintain the car. It was junk in a year. There are poor cars out there, but the primary factor in whether a car will serve you well is how you treat it.
As far as what the car is worth – compare a 5 year old US built car with 60K to 80K miles on it versus a similar non-US car. The US car is significantly lower because of the bias expressed in your comments. A well maintained older US car is a significant bargain compared to the inflated value placed on other cars. If you are a real bargain hunter, that is a huge distinction.
Oh, Yan… I do not consider a car an investment as well. I was trying to point out that we can get a lot more of a car for the buck now due to specific economic conditions. As far as countries in a former Soviet bloc – I sometimes get lost at the everyday living logic there ;)
Here’s my favorite website for beater car reviews:
http://www.beaterreview.com/
Joy, to some extent Japanese brands are over hyped. I read somewhere that Buick is the true ‘bargain hunter’s car’ (high reliability at low cost) and I would sure get one if it didn’t look so ugly. ;-)
Your post regarding the 10 year old car hits home with me. I have a 1997 accord which just rolled over 200k miles last month. This month I drove it from Iowa to Orlando, Florida and back, 3500 miles on 104 gallons of gas (33 mpg). Even though it recently cost me $500 to replace timing belt and water pump, it’s a small price to pay for extreme reliability. Can’t imagine why I would get rid of it…or avoid driving it.
Well, I am pretty sure when the blue book pricing of a car 15 years old with over 200K is more than the cost factor of replacing both the engine and the transmission.
The car has zero value.
If I buy a car with 200K miles for $11,000 and have to replace both these components at say $10,000 then I have actually paid $21,000 for that same car, which really at this point had no value.
If either component goes out and I can’t afford to replace either of them, then the car is junk or has no value except for scrap value. I am out the entire original investment of $11,000.00
KBB has lost their minds on valuing high milage cars, since all cars need an engine and a transmission to run on the road period.
When buying any car with this high milage first cost out the two biggest replacement items, the engine and transmission. Add these two items up and if they total more than the KBB listed values of the car then the car has zero value.