The Used Car Sweet Spot

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Buying a new car is always a bad decision – financially. It doesn’t matter which brand or make or model. You will always lose money.

It’s just a question of how much.

All new cars bleed value like the Titanic took on water after it hit the iceberg. Even the least-“leaky” ones, from brands with high resale value – Toyotas and Hondas, for instance.

Both make great cars – reliable, well-built, etc. But that’s not the issue.

Depreciation is.

Even the cars which depreciate less horribly than others – those Toyotas and Hondas – still lose about 20 percent of their value during the first 12 months you own them. If you buy a new car for $35,000 – which is the average price paid for a new car – you can expect to take a $7,000 haircut on the car during that first year.

Not counting the additional money you spent on full coverage insurance (based on the replacement cost of a new car) and property taxes, in states/counties that get into your pocket that way, too.

After six or seven years, that $35,000-when-new car will probably have lost about half its value, $17,500. That’s not a haircut.

It’s a scalping.

If you buy used, you only get trimmed.

Maybe not even that.

There is a sweet spot for used cars – the point at which they’ve depreciated so much they won’t depreciate much more and so are now very affordable – you can probably afford to pay cash – but aren’t anywhere near the end of their days as reliable transportation.

That sweet spot is generally located about 10 years from new – at which point the average new car will have shed about two-thirds of its original retail value. In our example above, the $35,000 when-new-car will have depreciated by about $23,000 – possibly even more.

You should have no trouble picking it up for well under $10k.

But will you have trouble?

Enter the Fear.

The main reason – after New Car Fever – people sign up for debt servitude by purchasing a new car is the reassurance of the new car warranty. That they won’t have trouble with the car – and even if they do, the repairs won’t cost them anything.

So instead, they pay a fortune for the new car. Plus the insurance and taxes on the new car.

That’s guaranteed “trouble.” Not mechanical, necessarily. But financially, certainly.

It is true the used car will have been  . . . used. This does not mean it will need repairs. It may, of course. But not necessarily.

The choice, then, is between the risk of possibly having to pay for a repair – vs. the absolute certainty of a fat car payment every month, for years and years to come. During which time you are absolutely guaranteed to lose money on your “investment.”

And, there’s this to consider:

A well-treated, well-maintained used car of fundamentally sound design can be less prone to trouble than a brand-new but poorly designed car. The used car will have a track record. If it has been reliable and largely trouble-free in the past, then it is a sound bet – based on actual experience – that it will continue to be a sound bet going forward.

Particularly if you have maintenance records for it, or knew the previous owner – and in either case have had the car thoroughly checked out before you buy it.

A new car is intangible in this respect. Unknown. Precisely because it is new. It may prove to be reliable. But it may not be. New cars are sometimes not reliable. You won’t know until after you’ve bought it – and driven it for a few years.

They are warranted, of course. But you still pay – in terms of the hassle of owning an unreliable car. And for the car itself.

A used car can be a better bet, reliability-wise.

Especially if it’s a known “good” make/model. Like the Toyota Camry or Honda Accord mentioned earlier. Earlier examples are safe bets, like going to a familiar restaurant. They were built in the millions – several hundred thousand every year – and most of the ones built during the past ten years are still going strong, with much more to go.

You’ll just pay a lot less to get there.

There are many such “good bets” out there.

The fundamental financial beauty of the used car sweet spot is that once a car gets there, it largely stays there. It won’t lose value at the same rate – or to the same degree – ever again.

It has plateaued.

The car you paid say $8,000 for this year will probably be worth about the same next year – in stark contrast to the new car, which as we’ve already talked about earlier will lose about 20 percent of its original value during the same span of time.

If the used car loses half its value after a few years, you’ve only lost $4,000 – as opposed to the $23,000 in our example above (the brand new car) not including the higher cost of insurance and taxes on the brand-new car.

Personal example:

I’ve been driving a 2002 Nissan Frontier pick-up with the four cylinder engine (avoid the V6!) since 2007 without it needing more than the usual things all cars – new or used – need, such as oil and filter changes, tires and brake work.

I paid $7,200 for it 11 years ago. It’s still worth about $4,000.

Sweet spot!

If you pay cash – as I always do – you also won’t have paid the opportunity cost of having your money tied up for years in monthly car payments – and a rapidly depreciating appliance which is worth less and less the longer you own it.

You’ll be functionally richer with each passing month you didn’t have to make a monthly payment. Put that money in savings and you’ll have money for almost any repair that comes up.

And if it doesn’t come up, you’ll still have the money.

. . .

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  1. I drive an accord 2005 in the northeast. The inner roads can be pot hole ridden. I take good care of my car however lately I think the suspension or whatever that gives you the comfort is not doing a great job. I drove a new car and the drive comfort was so good even though I hit couple of pot holes along the way. The new car definitely helped my back. Last year the shocks on my car were all changed not OEM though. I can make the case for a new accord due to the pot hole ridden areas of New Jersey. What are my options to fix my old car to get the comfort back? I would like to drive the car till its wheels come off. It’s only 230k miles.

  2. Everything in the article makes perfect sense. That being said, however, I have always bought new cars. I like new cars. YeahI know they make no financial sense but neither does a swimming pool, a $200 restaurant meal or $250 shoes. I see people all the time telling me how must they are saving on a used car but then eat at Ruth’s Chris 3 times a month and buy designer clothes I know this is not Eric)
    I like to buy new and puts lots of my own miles. The last car I sold was a 2002 Tahoe with 258k miles and before that a “94 Infiniti J30 that has 270k. My first VW Rabbit clocked 303k miles before a guy bought it and turned it into a track car. I feel I get my money’s worth and never had any regrets.(even when I bought my Fiero)
    Unless you sell that car after the first 2 years you really don’t lose anything. So for me it is not an issue. I buy them, pay cash and make them mine and treat them with love.
    To each his own,right?

    • Hi Alex,

      You (and Brent) got me to thinking… it’s not the cars so much as the peripherals that cost so much. I mean the government-imposed stuff, especially mandatory insurance and property taxes (as in my state). These are both strong inducements not to buy a new car… or motorcycle.

      My truck is old (2002) and so I only get raped for $75 annually in property taxes (based on “book value”) and my payment to the insurance mafia is “only” about $400 annually.

      If I had a new truck, the property tax would be several hundred dollars annually and the insurance would be double what I pay currently, at least.

      Even if I could afford that, I will not pay that.

  3. My experience over the last 10 years is that a new car doesn’t depreciate anywhere near as fast as this article claims.

    • New cars have been spending far more time on the sales lots in the last 10 years and they can’t depreciate until their first retail owner takes possession.

  4. Some further thoughts used vs. new:

    Cons of buying used:
    -You really ARE buying someone else’s problems. Carfax is a bit of a racket and cannot be trusted. Only some insurance companies report wrecks/damage to the databases Carfax uses. Many major companies do not. Also, if fixed by the owner it may not show up. Also, lemons and other horribly unreliable vehicles will not show up on Carfax except under certain very specific circumstances (e.g., depending on local/state laws and whether or not the lemon law was invoked). On the flip side, though, new cars are, on average, far more reliable than they have ever been before. Almost anything will go 100k miles with little to no work beyond regular maintenance. This may change as more complex emissions control equipment and efforts to improve gas mileage overly-complicate these machines, but we are currently enjoying the most reliable cars ever. This is very different than trying to fix one that broke, though, given how expensive the computer systems, sensors, etc. are today that help make them reliable.
    -Repairing a 10 year old car is much more expensive than it used to be. Again, 10 years ago was merely 2008, and cars were already overly complex and computerized by that point. Finding parts to any but the most common models may be difficult and likely expensive. The last time cars were truly simple to work on under a shade tree was probably the early-mid 1990s.
    -Finding what you want is much more difficult. You have to choose from what is available. Therefore you’ve got to have a range of workable options and know quite a bit about a lot of different models to know when you’ve found what will work for you. Then you have to hope it’s in good shape. Then you have to hope you can get a good deal. This requires A LOT of time and effort on the buyer, but can definitely be worth it by saving thousands and thousands of dollars, if you have the time, energy, and knowledge to make it happen. A friend purchased a vehicle for his 16y/o son. Found a ’99 4Runner, 2WD, 4-cyl with only 140k miles on it about 5 hours away. Darn thing looks like it just came off the showroom floor. Couple of older folks had it and kept it in pristine condition. It was a great find on something that will easily go another 150k miles with basic maintenance.

    Pros of buying new:
    -Given the chances of getting a lemon are smaller than ever before, and you’re choosing a decent brand and model (e.g., nothing from Chrysler-Fiat), you’re chances of successfully driving trouble-free are decently high.
    -You get to pick the make, model, trim level, features, etc. you want and are willing to pay for.
    -Warranty plus option to get an extended warranty later on if desired.
    -Latest features. Let’s face it, some folks may not care at all about image, but they do care about technology and features. You can retrofit a Bluetooth hands-free phone setup to a 1955 Chevy Bel-Air if you wanted to, but that doesn’t make it a good solution or particularly effective. Lots of things simply cannot be retrofit at all, or not without a lot of trouble and hassle. For some it’s how comfortable the car is on a long trip. For others it’s how easily you can keep the rugrats in the back quiet.
    -Safety. I think this one is a little overblown. A 10-year-old car is not going to be much less safe, in terms of safety features, than a brand new one of the same category, but I’ll grant there is a possibility that certain new models may be safer than the old ones. I don’t mean all the annoying lane-departure and pre-collision warning crap, either. There haven’t been any truly significant advancements to vehicle safety that I am aware of since the development of stability control systems in the 1990s. Pretty much all new cars have that, plus airbags and seatbelts. In some ways, cars are less safe now than before because of design choices and federal mandates. For example, the huge blind spots created by necessarily swoopy aerodynamic bodywork and large A, B, and C pillars (which also help in rollovers) hurt visibility and increase risk of actually causing an accident. Similarly, the humongous rear seat headrests block visibility out the sides and rear. Yet overall, in terms of survivability, current cars are probably slightly safer. Having helped so many friends car shop, those who have kids make a huge deal about this. Even if they are the worst drivers in the world, they’d rather lose visibility in exchange for perceptions of safety in a crash and assume they can make it up by driving more safely (which they never actually do).

    I believe you’re point still holds true about buying used vs. new. I just wanted to try and balance it out a bit.

  5. Great advice, but the world has moved on past it in ways that are just too weird.

    My admirably fruga; millennial son, a hard worker with a “good” tech job, was absolutely unable to find a lender who would qualify him to finance a purchase of a used car… but was repeatedly told that if he wanted to buy a new car, there would be no problem qualifying at all.

    I’m too old to understand this other than it smells like the sort of market inversion caused by targeted government grants..

  6. I know it’s not for most people, but I have bought two rebuilt title cars (one on eBay, one local) and both have been flawless and almost half price. The first was eight years ago (Honda Civic EX coupe) and I still own it with absolutely no problems whatsoever.

    The second was even better. Last year, saw a 2017 Nissan Rogue SL AWD on eBay and “won” the auction at $16,900. This particular car had 7200 miles on it and the seller had several hundred positive feedback reviews and 100% feedback. Won the auction on Sunday night, was up in Detroit the next afternoon and drove the Rogue 1250 miles back to DFW. Not one problem in one year of ownership. The sticker was still in the glovebox. It retailed for $32,300. Half price is a good deal on a (at that time) same model year car.

    I asked the dealer (whose shop fixed the car) what the issue was with the Rogue and why the car sold so cheaply. The car was leased by an insurance company in Connecticut and was hit in the driver’s side. Both door skins (not the entire doors; just the skins) were replaced and painted. That was all. No frame or other body damage. I asked him why the insurance company would “total” a car with minimal damage. He stated the corporate leases usually have a damage waiver gap clause that states if the car is “substantially” damaged and now worth less on the used car market, the insurance policy will give the lease holder the option to total the car and replace it.

    So, if you are flexible and don’t mind driving a practically new car with NO warranty, there are options out there. Now, I do have a rebuilt title vehicle but I don’t care. We will drive this car till the wheels fall off. If something breaks, we will fix it. We have money to spare because we bought it half price. Nissans are pretty reliable and the lack of warranty doesn’t bother me a bit, especially considering the initial cost. Also, there is no problem insuring rebuilt title cars and any damage claims are covered in full; just as they would be with a clean damaged car.

    Just food for thought and I know it’s not everyone’s cup of tea. YMMV

    • Hi NDB,

      Good stuff, I second this motion. Particularly as regards cars totaled on account of deployed air bags. If you buy the thing for cheap – and can do repairs yourself – once repaired, it’s a perfectly sound car.

  7. My 1999 Mazda Protege runs great and has been running great since I bought it used back in 2000. I did pay more for it than if I had bought it a few years later, but it is a fine car and always has been. I take very good care of it and thankfully have an excellent auto repair/maintenance shop with great mechanics taking care of it for me–McLea’s Auto Tire and Repair in Cotati CA. The car has over 200,000 miles on it and keeps on going and going. I love the car and plan to keep on driving it as long as it lasts.

    • I have a 2000 protege (built in 1999), but the chicago environment is eating it. Rust and failing rubber. I haven’t been driving it because of a nasty noise its been making but it should just be the failed rear motor mount. (cracked & torn rubber) Part off fleebay was cheap, just a pain to replace and now that the weather is better I may attempt it. Anyhow the car is just suffering a variety of environmental age issues at this point. But so far nothing I can weld up or seal with a slathering of seam sealer after treating the rust. In CA yours should be fine.

  8. My wife leases. I’ve always bought new, but usually cheap base models. The most recent is a 2015 Mazda 3 sedan, manual transmission – 16k. The vehicle before was a 2003 Kia Rio, 7k, no electric windows, no radio, no A/C, lol. I thought these have been pretty good deals if I can get at least 10yrs out of them. I like driving the Mazda3 except for long long trips (I’m 6’3-6’4). For those we’ll just rent a bigger vehicle.

  9. My previous vehicle was a 1980 E-150 on its third engine, which had lost its right rear wheel while being pulled up I-77 across the state line from Ohio. Before the wheel disappeared into the ravine, it bounced around under the van enough to open a gaping hole in the floor, making it completely impractical to repair. It was towed to the parking lot of a closed auto repair shop in Belpre, Ohio, where I received permission to remove anything I wanted before it went to the crusher. After delivering the truck tractor that had been pulling it, in Columbus, I took a bus back.
    My most recent vehicle purchase, a 2003 E-150 van with 155,519 on the odometer was the only rational choice. It had been ordered by a regular customer of the used vehicle lot where it had not been picked up, as promised. They were very motivated to get it off of their lot full of minivans and SUVs. It was $4900 when the phone conversation started and $4000 at the end. It was $3500 after I had walked over to the lot, across town. After a quick test drive, I paid cash, and drove it back to the other van. After moving as much from the 1980 to the 2003 that I could, I drove it back to Denver to unload it, Gillette (WY) to title and register it, and back to Denver to remodel it to replace the 1980.
    After the new van was ready to go to work, I moved a tractor to Cleveland. After delivering the tractor, I drove the van to Belpre and switched out the tires on the 1980, and filled the tank on the 2003 from those on the 1980. It recently turned over 285K on the odometer with no mechanical concerns in sight.

  10. The old saying “buying a used car means buying someone else’s trouble” is no longer valid, thanks to Carfax. Now you can instantly know a vehicle’s history — maintenance, accidents, other sales, etc.

    • That is not the case where a vehicle was maintained by its first owner who neglected to keep such records on a vehicle they’d bought new.
      It doesn’t matter whether a vehicle is new or used. You are ALWAYS buying someone else’s problems.

  11. Had a relative who was a body/fender man. He drove an old Chevy pickup with a cancerous body, cracked windows, coat hanger for radio antenna, a tailgate with bullet real holes (not the stick-on type) different wheels all around, bolt-on tail lights, an old shovel stuck in the stake pocket and various colors of body parts.
    The interior had a perfect seat, the drivetrain was new and the stereo system magnificent.
    One day I asked why he didn’t fix the rest; after all that was his vocation.
    He laughed and said, “You’re from the country this is Seattle. I drive I-5 every day. That is where my living comes from.”
    Before I could “Yeah but,” he said, “I get the right-of-way wherever I go. No one parks close to me at the grocery store and the cops figure I ain’t worth the effort.”
    He grinned his evil grin and said, “All I have to do is smile and point when I want to change lanes and its like magic, a hole opens up and they let me in. No one gets near me… too high a risk!”

    • The point here is if you don’t feel a need to impress anyone it really does not matter what you drive. As long as it is road worthy, who cares?
      Americans are willing to sacrifice income on payments, insurance and superficial things like the multi-billion dollar car wash industry for image.
      The millennial’s lack of interest in glitzy motorized transportation is not all bad. Practically everything else they do is, however.
      Personally, I have a very close friend who is a used car dealer. I decide what I want, what I am willing to pay and he finds it…Never missed yet!
      In nearly every state there are used car auction sites for dealers only. These have thousands of used vehicles and many are rental car company returns which chosen wisely, can be real deals.
      Americans need to get over the used car dealer syndrome, seek out reputable dealers and go from there.

      • Those who need any vehicle to impress others must be pretty insecure in themselves.
        I’d always be happy to buy any meticulously maintained vehicle after it is traded in on another one to be similarly maintained. I just haven’t been lucky enough to buy rolling trophies.

  12. I own used vehicles. Bought most with 4 years or less on them with about 30-40,000 miles. The current car is one I bought with 60K miles on it.
    I prefer the 6 cylinder only because it is engineered better than a 4 cylinder. It costs more to run. I have an oil change every 6 months and I bought the 95 in 99. Still running. I get between 16-18 average around town. Currently smokes a little so I put heavy weight oil in it. Has approximately 150,000 miles.
    IF I were looking right now I would look for a car that was leased and has been traded for a new one.
    I would religiously look at several websites to see what owners have run into in the way of repairs.
    Every model has bad and good years. The Nissan Frontier is noted for very poor transmission design in that the coolant line goes through the radiator and it often leaks antifreeze into the engine. I know because I own a 2007 and spent 3500 replacing the transmission. It should now be good for at least 150,000 miles or more. The engine is a good one. Nissan is not my favorite dealer.
    The reason some cars are so expensive is they have remarkably good record of repair reports on them.
    The RAV4 is a decent car which is way over priced right now.
    The Highlander Hybrid and the Camry Hybrid would take some serious looking at. So would a RAV4 hybrid.
    I know a couple that go to Florida to buy. Due to the estate sales, they get a nearly new car for a lot less sometimes. Having a truck is a great advantage if you hit the sales and you can get a lot of tools for almost nothing under the right circumstances.
    The depreciation on the Nissan Leaf might be worth the trouble. Provided it still has battery warranty left and it is used just for round town driving. The 75-mile range is a bad problem as is the lack of support at the dealership wanting to charge 90-120 dollars per hour and at least locally they stink as far as service is concerned.
    Personally I buy the repair manuals whenever possible and I am no mechanic. But knowing what is going on is half the battle. My mechanic charges less than half what a dealership would and gives me better service.
    I am not above a library book before I buy anything car-wise out there.
    If I had it to do over again, I would learn automobile mechanics and electronic repair from a school. I could have saved a fortune over a lifetime.
    Most people get in a car and turn a key. The rest is foreign to them. Even to the point of keeping up fluids. Those people are at the mercy of the horse-trading, stealing, dealerships.

  13. Excellent article Eric: Your point about, “A well-treated, well-maintained used car of fundamentally sound design can be less prone to trouble than a brand-new but poorly designed car.” is certainly true. A good used Camry/Accord is much better purchase than a new Chevy Spark/Ford Fiesta. (But not, probably a Nissan Versa – that is the best new car econobox out there!)

    However, a point to consider would be a young college graduate with their first real job, out on their own. The main function they have is the *must get to work*, so with little to no support structure (moved away from home, etc.) they can’t handle the upsets of putting a car in the shop, or coming up with big $$ for repairs, etc. They have to perform excellently on their first career job. So their transportation costs, while being higher than they could be, are *fixed*. That is huge for a person just starting out, and comforting in its stability. (Again, even if the costs are greater.)

    Yes, the debt can be a little suffocating, but the monthly outlay wont change for the first 4 years. The trick is to not incur any amount of debt that you cannot repay in 4 years. My kids have done it this way, and it has served them well.

    Also, it’s not a bad idea to buy new (but only if there are gonzo rebates and such) and drive it for a looooooonnnnngg time. (i.e. until it is fully depreciated) Eventually, the scenario will come up as to whether to fix it or replace it, b/c you don’t want to “throw good money after bad.”

    • Thanks, Tom!

      And in re the young graduate/first-time job: When I got mine, I was driving a ’74 VW I picked up for $800. It saved me a small fortune (along with skipping health insurance; generally a bad deal for any normally health 20-something). The two combined enabled me to buy my first house; well, to have the necessary down payment. Which would not have been possible with a car payment and (as today) an Obamacare payment!

      • Hello Eric,
        Part of what I failed to mention earlier was peace of mind of warranty w/ a loaner car for my wife while I was overseas for extended periods. (Gone 26 months out 36 for one rotation.)
        However! We were DINC, established, and for all practical purposes in our 30’s when we married and I started buying new.

  14. Here’s the problem, time. Having the time to go hunting for that good ten year old car. If one doesn’t care much about model, color, or options I suppose it’s easier. It is also likely much easier in other climates but in my area ten years is a lot of time where if an owner hasn’t gone beyond the basics to leave a lot that needs doing. It all takes time. The question is dollars or time. Which is more valuable to you? Which do you have more of? It depends on circumstances. And of course the cost of credit plays a role as well.

  15. I partially agree with Eric here, but not entirely.

    Unlike him, I live in the North. Most ten-year-old cars have a significant amount of body rot. Even after two or three winters in the salt you’ll see the effects of the salt when you crawl underneath it.

    I think that buying new CAN be a wise decision, under certain circumstances. Specifically, if you buy the base model vehicle, purchase it when maximum rebates are being offered, pay cash, resolve to maintain it scrupulously and keep it as long as you can.

    I bought a NEW F-150 in 2008 for $13,000 out the door when gas hit $4 and they were practically giving them away. I undercoated it AND never drove it in the winter. It still looks brand new and I can easily drive it another decade. In 97,000 miles I’ve done an alternator (15 minute job) front brakes and a starter motor. That’s it.

    For me, the “sweet spot” with a used car is something for a couple of thousand bucks that you KNOW upfront does need work and you are willing and able to do it yourself.

    Paying a mechanic a shop rate of $90 an hour plus parts mark-up to work on an old 200k roach is a dead-end for people who don’t do their own maintenance.

    Buying that truck new was one of the best decisions I ever made.

    • New vehicles are quickly driving down the values of used vehicles by matching them on lots that are full of last years models.

  16. Eric; Correct me if I am wrong, but the reason a new car loses 20% in value after the first year is two reasons – 1) the profit the dealer makes and, 2) the commission the salesman makes. AM I wrong?

    • Hi Observer,

      Surprisingly, the profit on a car can be very low – if it’s a car especially. The margins are often as little as 3 or so percent. Now, they do make piles of money on trucks and SUVs.

      Regardless, the buyer eats the loss of value!

    • The big hit is because it’s not new.
      Let’s say there are two identical 2018 Ford F150s. One someone bought and drove for say 2,000 miles before trading it to the dealer and one with five miles on the OD brand new, never titled. Let’s further say this low mile trade in truck can be confirmed to be done entirely because the owner’s circumstances changed suddenly and there is nothing the least bit wrong with it. Which one is an F150 buyer going to purchase if they are priced close? There has to be a good size difference otherwise the buyer will take the brand new one every time. But wait, there’s more, the dealer needs to make a profit at that price so the price he bought it at has to be even less.

      That’s why there is a big hit in value, because there is a new one sitting right over there in most cases.

      Now lets say something happens where the new truck isn’t there or it is no longer perceived as being as useful because of some federal government mandate. Then the price of the used truck goes up because either there isn’t anything new to be had or they aren’t the same thing anymore.

      • Your analysis is interesting, but while you say that the buyer will, for the same price always chose the new vehicle would make sense if not for the financing. There is the rub….Many people who should have could credit rating have very poor ones because they once sneezed in public, while some criminals involved in odentity theft get perfect credit score. Most of the time, zero financing is not offered to people with credit rating under 700. And these people must buy in the used market financed through the subprime car loan market where all major national bank are involved though subdiaries. So yoy cannot buy the new car for 30,000$ at zero, but I can sell you the same model, with only 16,000Miles oon it for the same price and financing at 28% per annum….biggest zero interest loan owners are women…biggest used market car owners with subprime loans…men…Is there really a choice here??? Or a national scam, sponsored by feminsit driven DC and Wall Street…I never here women complaining about leveling the field in car ownership!!!

    • There’s also a new model year coming out in less than 12 months that people want more than last years model. So it’s “worth” in the face of the buying public is now less.

      You can thank Alfred P. Sloan for the idea of annual styling changes.

    • Agreed with Eric’s comment regarding dealer profit. Car makers in recent years pass off every little marketing expense to dealers. Dealers pay for brochures, TV ads, and internet marketing for their lot. Dealers have to pay interest on “floor plan” models that they are complelled to take from the manufacturers. If they meet a certain sales quota, they will get a “hold back” on 3% of sales. Dealers have to pay for salesman, service people, and staff to assist customers with registering the cars. I wouldn’t want to be in that business.

  17. To me the sweet spot is $50 a month or less total ownership cost, maintenance included. I always buy used and my last 6 cars/truck purchases were a grand total of $12K and I still have all 6 vehicles on the road (1 well over 300k and 2 at 290k). Granted, I’ve had to put my time and money into these vehicles, but as far as total cost is concerned none of these vehicles are anywhere near new vehicle prices. The big plus is that I’ve learned a great deal by working on my own vehicles which to me is a form of payment in itself.

    • Hi Six,


      I figure if I sold my ’02 Frontier (not that I plan to) for say $3,500 – which it’s no doubt capable of bringing in – my cost-to-drive this truck for the past 11 years has been about $30 per month.

      I also point out to people that I pay much less to insure this “old truck” – and my property taxes on it are only about $60 per year now vs. several hundred annually, if I were to buy a new truck.

  18. Eric, this is an interesting analysis, and it adresses an email I sent to your team a month ago. The problem is that the math is puzzling. I was concerned of paying 50% of original value for a used car. And again you explain that after 6 to 7 years on should expect to pay aroung 50% of the original price for a used car. And that after 10 years one should expect to pay 1/3.
    Yet, in your own example you give an example where you purchased a 5 years old pick-up for less than 1/3 of the original price. There, obviously, is a great deal. But in the current market, they tend to overprice all used car, and if one is not as knowledgeable as you are, one may buy a used lemon for way too much. They killed the used car market…it is largely controled by the mob like participants (amazon-like price distortion techniques), with obscene financing (in some cases up to 64% per annum loans). They implicitly collude over pricing through national industry wide tools like Carfax and similars. The effect is of uniformising overpricing!

    • Eric’s Nissan is a mid-sized pickup. A size vehicle that the US makers abandoned, and the “Chicken Tax” strangled. If you think his residual value is amazing – you ought to look up what old Ford Rangers are selling for.

  19. My personal sweet spot is the 98 Ford one ton extended window van I bought for $9400 thirteen years ago. Has the 7.3 Powerstroke. Had 130K when I bought it. It sold new for mid-$30K’s. So I got it for about a quarter of new price. Clean straight no rust, great mechanical condition. I drove it unntil thie past winter. It now has 245K on it, nearly three times what it had when I got it. What has it cost in repairs? Starter a year ago, rebuilt the turbo last summer, two vaccuum pumps (cheal Cardone reman, so I plonked and got new last time) ball joints, one glow plug relay ($65, half hour). Other than that, its taken tyres, batteries (one set, the first pair were Interstate five year batteries with three years on them. I replaced them after eight MORE years, total near ten. Guess what I bought when they failed? ). serpoentine belt (original one, was replaced last year). I’ve added two quarts trans fluid, oil never needs topped up between changes, I use Delo 400 15-40, and have extended the change ineterval to 25000 miles… yet when the oil does get changed it is still looking good and clean. OH, when the batteries sent south a couple winters back, trying to start it took out one glow plug.. $11 for a new one. I’ve gotten well above 200K miles of service from a vehicle cost me $9400, I’ve driven it HARD, at times towing HUGE heavy trailers, GCW above 26,000, and it still grunts and pulls. I know my total cost for repairs since I got it are well under $1000. NOW the real amusing thing comes along.. whilst parked at a job last October, another car whose driver THOUGHT it was in Park, was not. rolld down the hill and crashed into the front end of mine. Centre hit, everything from bumper up to but not including the windscreeen was trashed. Pushed back as far as the engine, but not into it. Fan and shroud were OK. good job, because Ford no longer have them. The other car’s unsurance company decided to total the van, and paid me $6000 and let me keep it. Three phone calls locally turned up a boneyard that had ALL the front end parts, already painted the exact same colour, but no radiator, and I helped them remove, carefully, every piece to put n=mine back together for $300 put into the backof my tiny truck. I bought a NEW high cap radiator, better than Ford OEM Trailer package one Ford had put into mine.

    So for a total cash outlay on my part of $4400 , plus an easy day’s labour to swap out the bent bits, I will have my van back as prior to the prang. And I think its likely got at least another 200K left, maybe 300K. Thats about 18% of new cost for using it for what most folks would consider its full life expectancy, and it still runs as well as when I got it.

  20. Unlike decades past I am not so sure I even want the new ones. My old folks neighbors have a very low mileage 2010 and a 2015 Ford Escape. The 2010 is V6 and the 2015 is some sort of AWD as needed (by AI computer only) monstrosity and only sold in a 7,000 RPM red line 4 cylinder Eco whatever. The 15 is passenger and cargo cramped, has those expensive gangsta tires and is like driving the space shuttle full of complicated electronics (titanium edition), with too many warnings, lights, symbols and whatnot. And I have no idea where the end of the front clip is. It is out there somewhere but not in my drivers view.
    Give me the old 2010. V6 torque, more room and easier to operate. Did I mention it also gets about 3-4 MPG better mileage in the hills.

    • I’ve got a 2010 Escape with the 2.5 liter 4 cylinder and love it. No LCD display and everything is old fashioned knobs and dials for controls. The motor is naturally aspirated with plenty of power and gets 26mpg on the interstate at 80mph.

      I know what you mean about the space shuttle, my sister has an Explorer with the display in the dash and I absolutely hate driving it. In my opinion it is more dangerous operating the controls through the touchscreen than driving after a few drinks, since you need to take your eyes off the road to change the screen to the correct page for the device or control you need to operate.

  21. Hello Eric,
    Everypoint is valid. However, I have a different point of view. (YMMV)
    We tend to buy and hold our cars to where they have depreciated to nothing. The exception was a 2007 Fit bought new in 2006 that our son took out in Dec with 230, 000 miles on it.
    We maintain our cars impeccably. My son could not have touched a car in that condition for less than $12,000. We buy cars that can be paid off within 30 months and then maintain them to a very high level. (I started as an apprentice aircraft mechanic at the age of 11. I do most of wrenching after the warranty has expired.)
    I have only been stranded once by a car that I bought new and maintained to my standards. I willingly will pay the extra costs for the peace of mind of knowing how well my car has been maintained since day 1.
    (This includes owning 4 turbocharged cars over the last 30+ years (700K. + miles) and never having to replace a turbo.)

  22. I think many people still can’t get past the idea of buying a car with 80-100k of miles on it. Many still think 100k is high mileage and the car is almost done. It was true as recently as the 1980’s but isn’t the case anymore. Most cars should get to 200k with few problems.

    My folks bought a 2005 Ford Freestar minivan off a friend who worked for Ford (engineer). It had 100k miles on it, 8 years old. But it had been babied those 8 years (fully serviced, kept in the garage, kept spotlessly clean, spent the winter in Florida etc). It felt and drove brand new. I got it detailed for my dad birthday, and it even smelled like a new car again.

    Its now at about 150k and is doing ok. Granted its no longer maintained very well (dad has never maintained cars very well) or kept in the garage regularly anymore, but its still ok. As long as the transmission holds out (it’s getting a little flaky), they should have no trouble getting another 20k out of it. Not bad for a $4500 purchase. Frankly its stupid for my folks to buy new since they neglect their cars.

    • And the backup camera is in the tailgate on pickups, so when you take the tailgate off to install a slide in camper, or even let the tailgate down to haul a long load, the camera no longer works.

  23. In my state, vehicle registration fees are calculated as $0.40 / per 100 lbs vehicle weight plus 1% of purchase price. If you buy a new, big and heavy SUV you’re paying hundreds of dollars to register the car every year.

    If you buy a car older than 12 years, registration is just $50 per year. It used to be $50 for the remaining life of the car, but the legislature got wise and realized a lot of people are driving 12+ year old cars, so now it’s $50 per year. Still way cheaper, though.

    • In CA I pay about $120/year for a 2006 corolla. When I bought the car from my ex-wife, I had her call it a gift, and I gave her cash some time later. So I avoided the nearly 10% sales tax on a $10,000 purchase. On a new car, say $35,000 as Eric said was the average, that’s $3,818 (by the dmv calculator) for tax and registration up front, not to mention the $400-500 a year registration fee in the first few years.

      My dad taught me the economics of cars over 50 years ago. The best education I ever got.

      • Hi ET,

        Yup. It’s crazy (financially) to bleed money to the them (the government) this way. Avoiding a new car is one of the few ways remaining to us to keep their hands out of our pockets.

  24. I couldn’t afford the plates and insurance on a brand new car right now if somebody GAVE it to me!

    My “sweet spot” is a 1987-1995 Chevy/GMC pickup with a 5.7 TBI. It’s just getting harder to find one that’s not rode hard and put up wet.

  25. I am trying to convince my wife of this. We’ve only bought used cars with cash and whenever i do a major job like timing belt replacement as preventative maintenance. She starts getting worried and says she wish we had a new car. People just don’t look at the numbers. I may have done $800 total in repairs over the last 3 years but it beats a guaranteed $500 payment every month. Plus people want new and shiny.

  26. My neighbor drives a first gen frontier as well. Good to see them and first gen Xterra’s still on the road humming along.

  27. good advice Eric. However, one newer issue is the cost of things like computers, touch screens, etc… if you buy used with this stuff, prices are through the roof for replacements.
    My sweet spot is a little different. I buy about $40-50K cars/trucks for the past 10-15 years.
    I buy new, and buy the extended factory warranty to about 60-75K miles, bumper to bumper. a small deductible is OK.
    Then I bring it back approx. 3-5 years to trade and the little trick is, the dealer ‘wants’ to have that vehicle on his lot. Pretty attractive to a dealer to have a high end truck with 45K mi. on it, when nice trucks are 50+ now. He makes a few grand and sells me a new one. bonus for both of us.
    Now if I brought the same used truck back to him with 75K on it, he doesn’t want it on his lot, and offers me wholesale price for it. Now I take a bath.
    Works for me pretty well.

    • But Chris the whole time you’re making monthly payments. And when you trade, you get back on the payments carousel and start over.

      I fail to see how this is a financial sweet spot unless you’re quite wealthy already and just don’t care. Or you really enjoy new luxury cars/trucks and are willing to pay for the privilege. Which is fine. But it’s not the sweet spot Eric is talking about.

      • Correct Mike C. It’s just my sweet spot, as the sweet spot will be different for different people. The way I figured it many moons ago, even when I had no money, was I had to pay about $500/month to drive no-matter-what.
        It didn’t seem to matter if I bought a $5K, $10K or $20K car (which I did), at the end of the day, buy minus sell minus costs always ended up at $500/month.
        I think I learned ‘my method’ 25 years ago when I drove 50,000 miles a year. I got a new car every year. The math worked out and I drove new every year.
        And $500/month is just a figure to start with. It could be $300 or $800 depending on your situation.
        One thing for sure though, no one wants to drive 50,000 mile a year in a little car, as you are living in the thing, so yes, I always had larger more expensive cars/trucks.
        Again, just me.

  28. I just wanna know where to get the 5 sluts and the Pontiac Convertible in the photo above. It’s a shame that a used woman can’t be as reliable as a used car, then again, a new woman is even more costly than a new car.
    Money talks, but as Neil Diamond reminds us, “it can’t sing and dance and it can’t walk”, thank goodness!


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