Tag Archive for 'auto'

Do cars stop depreciating after 200K miles?

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.

Can you really afford that car? Find true cost to own

Chervolet AveoI wrote before about bargaining techniques you can use to get the lowest price on a new car. I even mentioned how you can get a car for free. The price you pay for a car is certainly an important part of a good car deal however bargain hunting doesn’t stop there. You need to look beyond the sticker price if you truly want to find the best car for your money.

Edmunds, an online market place for car buyers, has come up with a formula to calculate what the car is really costing you during the first five years of ownership. They call it “True Cost to Own” and it includes a few factors that together reflect total cost of car ownership.

The Edmunds Inc. True Cost to Own (TCO) pricing system calculates the additional costs you may not have included when considering your next vehicle purchase. These extra costs include: depreciation, interest on your loan, taxes and fees, insurance premiums, fuel costs, maintenance, and repairs.

Use this online tool to enter your car model and you will be able to see the estimate of the total amount of money you will have lost provided you sell the car after 5 years.

While I don’t trust the numbers to estimate what MY costs will be since it is something highly dependent on individual circumstances, however I find the tool very useful for comparing cars to each other. Edmunds have realized it as well and started a monthly roundup of “low cost” cars. Below are some of last month finalists from the categories that attract me. Go to Edmunds TCO results for the complete list.

Sedan Coupe Wagon
Under $15,000 Chevy Aveo Kia Rio
Under $20,000 Honda Fit Ford Focus Toyota Yaris
Under $25,000 Toyota Prius
Under $30,000 Toyota Camry Hybrid Subaru Legacy Honda Accord

Another thing I noticed while playing with the tool is that the cost to own a used car on average comes lower than a similar new car, which I expected. You spend more money on repairs but you save much more on deprecation, taxes and loan finance charges.

What car do you have? Did you buy it new or used? Are you likely to consider Edmund’s “True Cost to Own” when choosing your next purchase?

SAAB owners — check your odometer

If you happen to own an old SAAB (and by old I mean “really really old” :-) ) that you are the original owner of, check out this promotion from SAAB, you might be getting a free car replacement.

Convinced of the jet-like performance and endurance of its products, Saab Automobile USA is announcing that it will offer a free new Saab to any U.S. customer who covers the distance of one million miles (or more) in a Saab that he or she originally purchased new.

The offer is valid from December 15, 2006 through December 31, 2007 and you will have to verify that the vehicle’s odometer hasn’t been tampered with.

This whole deal sounds like a joke (or a smart PR move) but somehow I am ready to believe that there are a few SAAB’s out there that have (or are close to) that magic number on the odometer.

Feeling adventurous?

Let’s do a brain exercise and calculate what would it take for a SAAB owner to catch up with the limit if they were determined to do so at any cost. For simplicity let’s assume that the car has 200,000 miles and it’s value is insignificant. Lets also assume that a SAAB on a test stand is capable to spin its wheels at 80 mph with fuel efficiency of 60 mpg (any auto mechanics out there that can confirm this?).

800,000 miles at 60 mpg will burn 13,333 gallons. At the current national average gas price of $2.25 it would cost $30,000 to cover the “trip” which leaves us with roughly $8,000 left in our pocket (the offer is for a new 2007 Saab 9-5 Aero MSRP $38,735). Not bad, huh?

There is one problem though. It will take us over a year to “cover 800,000 miles” at 80 mph even if we run the car 24 hours a day 7 days a week. And then, how about those trips to the gas station, oil changes, and most importantly, is it really THAT reliable? Well, sounds like not this time, SAAB. Meanwhile I will stick to my Honda. ;-)

How to get the lowest price on new car

My first ever car happened to be new Toyota Corolla which I purchased at a local dealership. Sure enough as I came there to negotiate the price I became a target of every possible rip-off technique that the dealers are very good at. Well, I was young and green.

My next two cars were 2-3 year old used models which I think is the best deal value-wise. Cars depreciate the most during the first year or so and if you are a frugal shopper you absolutely don’t want to pay that premium.

Unfortunately buying a used car has some specifics that add a lot of overhead to the shopping process and often make the end result unpredictable.

Never trust the dealer

One such thing is that you can never be sure that what the dealer claims about the used car is truth. The better the bargain looks the more chances are that there is something wrong with it.

My last car buying experience is a good example. As soon as I brought the car home I discovered a bump on the side which I didn’t noticed before. Another surprise came later when I found that the car, despite the dealer claims, was in-fact in an accident. I found out about it when I myself damaged the car bumper and saw another layer of paint.

Things like these amplify my desire to go shopping for a new car after I run down my current one. And there might be not long before I will have to do so. :-(

Do your shopping online

Another advantage of buying a new car compared to used is that you can do all the shopping online. Well, sure thing you have to test drive the model you intend to buy, but you don’t have to buy that particular car at the spot. In fact you must not if you want to get the best deal. Instead you should ask the dealer to send you a quote by email and then do all the negotiation online.

Don’t just request a quote from one place. Call to a few dealers of your choice and ask them all to send you a quote. In addition go to Edmunds and use their Get Dealer Pricing service. You will be asked to enter your phone number as well however selecting the Contact Preference as “Email Anytime” should prevent most of the annoying phone calls (yes, I do hate talking to dealers).

Use shopping tricks

Now comes the most interesting part (and I learned this trick just recently). As you start receiving the offers reply every single one with something like this:

Sorry, while I really want to buy this car, I’m afraid your bid takes you out of the running. If you want to make another offer today, I’ll look at it.

This will bring you to the second round of bidding. In case some of the dealers drop out you will know that they have offered the best price. But more likely you will see new better offers coming in. They do want your sale!

At the end simply choose the best price and accept it. Even if it happens to be one of the offers you rejected — nothing prevents you from replying with another email explaining that circumstances changed (e.g. the competitor didn’t have the right color) and you do want that price after all. ;-)

Bonus tip!

To completely avoid having to talk to the sales people you can get a temporary number from a free service like (no longer in service) or and have all incoming calls redirected to a voice mail. You can then listen to the messages at your convenience and return the calls you like. Some of these services will receive faxes as well.

Share your bargains