Car: To Buy or Not to Buy…

Well, the verdict on the car is it’s leaking oil from the head gasket (or something like that, which I’m not very clear about) in addition to needing a new timing belt. To keep it running is going to cost around $1,200 or $1,300.

Rather more than I’d like to spend on a car that’s well over 11 years old.

I have enough money in savings to buy a new vehicle, if I don’t go overboard. However, this just does not feel like the time to go out and drop fifteen or twenty grand on a car. On the other hand, with permanent unemployment a fact of life, no time is the time to go out and drop fifteen or twenty grand on a car.

On the third hand, I know the clunk is not going to run forever, and sooner or later I’m going to have to give up and buy a new car.

The issues are more complex than they seem on the surface:

Money

Before I was laid off, I had a Vanguard short-term corporate bond fund in which I’d saved more than enough for the next car purchase. That piggy-bank was raided when M’hijito and I bought the downtown house, which is now so deeply underwater that it looks like we never will get out from under it. Basically, everything we put into that house is gone, including a large chunk of the car-buying fund.

When GDU canned me, I consigned what remained of that money to my financial managers, who invested it intelligently. So, now that the market has revived a little, there’s just about enough to buy one more modestly priced car.

The Market

The stock market is on its way down. I really would like not to pull around $15,000 out of the market on the down-tick.

Taxes

However, the new accountant tells me that 2012 is the last chance I’ll get to withdraw that money without taking a tax wallop. The dividend tax will kick back in at the beginning of next year, and so if I want to use my savings to buy a car, I need to do it before the end of 2011.

The vehicle won’t run more than another few weeks without major repairs, and so I actually need to do this pretty quick, if I’m going to do it.

Insurance and Registration

I called The Hartford to see what buying a new car will do to my auto insurance bill. Add about $420 a year is what it’ll do.

To register a new car in Arizona costs $370. Although that amount dwindles as the car ages, it doesn’t drop fast enough to make the cost affordable, not for a very long time.

Right now I self-escrow enough from my monthly income to cover the annual insurance bill. However, the amount I set aside is not enough to cover the outrageous cost of new-car registration. The annual registration and emissions fees for an 11-year-old junker are so low I can pay them out of pocket; if I buy a new car, I’ll have to start self-escrowing enough to cover the new tax bill as well as the larger amount for insurance.

($420 + $370)/12 = $65.83 a month

I am just making ends meet on my piddly little scrabbled-together income. The truth is, I’m spending more than I earn almost every month, because every goddamn month some new unexpected expense comes up that causes me to go over budget. And “budget” = every after-tax penny that hits my bank account.

To save $66 a month on gas, I’d have to buy a Prius. The trade-in on the Dog Chariot is not enough to make it possible for me to afford a Prius. Nor am I even faintly interested in repeating my friends’ experience of having to pony up $3,000 for new batteries after five and a half years.

Thus I’m looking at something like a Hyundai Sonata, a Hyundai Elantra (too small for safety in this city, really, and uncomfortably low to the ground for an old lady to be climbing in and out of), or a Hyundai Tucson. The Sonata gets about 24 mpg in town; 35 on the highway. The Tucson, the Elantra, and Toyota’s RAV4 all get similar mileage: about 22/28. My car, in its decrepitude, registered 20 mpg on the last fill-up. IMHO the desired vehicles don’t do that much better than the Dog Chariot…certainly not enough better to save $66 a month on gas.

Honestly, I don’t know where an extra $66 a month is going to come from. Every time I cut expenses—which I just did, by shifting the cost of the DSL to the S-corporation, which pays for it with before-tax funds that cost me money to access otherwise—the cost of living goes up by just about the amount I save. Mostly it’s the cost of blindsiding, actually: the nasty little surprises never seem to stop, and they’re always worst when living costs are highest, during the summer months.

Jeez. I could not believe the $300 the damn Medicare would not cover. Did you realize Medicare does not cover what its bureaucrats regard as “preventive” care? So if you go in for a routine physical, most of the costs, except for some of the blood tests, are not covered? This means that you get to wait until you develop symptoms of, say, cardiac failure or diabetes, before you can have the treatment needed to prevent astronomically expensive medical costs, which of course Medicare will then have to pay. Makes sense, doesn’t it?

Well. Back to trying to make sense of the problem at hand. We have the issue of…

Timing

When I started out buying cars, I realized I couldn’t easily afford to make car payments out of cash flow. So I snowflaked and snowballed and hustled to pay off the loan on the Camry that I purchased a year or two after I divorced, and then I started saving money toward the next car. I actually saved enough in that short-term corporate bond fund to cover more than one car.

Then I got the thousand-dollar-a-day dog, who was given to sitting on the back seat of the Camry, sticking her nose between my head and the driver’s seat window, and shrieking into my ear. By the time I’d get out of the car, my ringing ears literally hurt.

To avoid losing my hearing (and throttling the dog), I decided to get a larger vehicle, which would position her further back from my head. The Camry was only about six years old at the time.

My son needed a functioning vehicle; he was driving a car his dad had gotten him in high school, and it was falling apart. So instead of trading in the Camry, I gave it to M’hijito.

This meant I used a large chunk of the car-buying fund for the Dog Chariot.

Before I did that, the car fund contained enough to buy not one but two cars. At the time I bought the Camry, I figured I could drive it for ten years, carrying me to 2004: age 59. The next car would then run until I was 69; the final car I could afford from that fund would run until I was almost 80. At that point, if I lived that long enough (there’s a good chance I won’t), it would be about time to quit driving. If by some miracle I was still living, the theory went, I would buy a second-hand car to run the two to five years left in my driving career.

When I gave the Camry to my son after six years of ownership, I torpedoed that plan.

What this means today is that if I buy a new car now, in 2011, it will be ready to crap out in 2021. I’ll only be 76 then: I should have another five to ten years of driving time left, assuming my health holds. But by then I won’t have any cash to spend on a new car, because I will have used it up on the car I buy this year.

So, in that light, it’s in my interest to keep the Tankmobile rolling for another five years. Chuck the Wondermechanic says it should run another 50,000 to 60,000 miles; since I put about 10,000 miles a year on a car, that would fill the bill.

Salesmen

I just dread going into a car dealership and getting sheared by some crook. And I know that’s exactly what’s going to happen. In the past, I’ve dealt with those people by proxy: through a car broker. He would apply his savvy and his male voice to extract a fair price from the Toyota sleazes, and I would not have to go through the “I’ll have to talk to my manager” torture.

The broker is retired now.

Costco and the credit union both have auto purchasing services. It’s unclear how much you save off the bottom line, but it looks like a take-it-or-leave it deal. The amount Costco claims is the price is about two grand more than Edmond publishes, so that smells a little funny. You have to go through their dealers, and you have to give up your phone number, which means you get on their phone list, which means you’ll never stop getting soliciting phone calls.

The Earthquake

Japanese vehicles are in short supply, a situation expected to last until the end of 2011 (at least). This means prices of Toyotas, Nissans, and the like—if you can even find one—are through the roof.

Hyundai is manufactured in Korea, although you can be sure that company has been using parts made in Japan. That factor and the increased demand for alternative Asian cars probably also will drive the price of the proposed Sonata, Elantra, or Tucson.

Where the Repair Money Would Come From

The cash to buy a new vehicle would come out of the new-car-buying fund, which presently resides in the stock market.

But the cash to pay for repairs will come out of my bank account, which, assuming I get a decent tax refund next April, holds  just about enough to delay my having to start a monthly drawdown from savings for about 18 months. At least, it did until the dental and medical bills came along. I think we’re down to about 16 months now. Another $1,300 bill will shave a month and a half off that, hastening that particular day of reckoning.

On the other hand, obviously drawing $15,000 out of savings to buy a car now does nothing to keep me from drawing money out savings. It may be better to take the money out of cash flow and let the future take care of itself.

But on that third hand, if I don’t take the money out of the market in 2012, I’ll end up paying dividend taxes on it, which could be around 20 percent. That will not leave enough to cover the cost of another car!

Aaaaaauughhhhhh!

I guess I could take the money out in December (by which time, if we’re lucky, the market may have recovered from its latest swoon), stash it in a CD, and let it sit there until the clunk falls apart like the Minister’s One-Hoss Shay.

I don’t know. Well…yes, I do. It’s four in the morning. I’ve been up since 1:00 a.m., and it’s time to go back to bed.

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frugalscholar June 11, 2011 at 4:54 am

I am going to have Mr FS chime in w/ a car/car buying recommendation.
I think you should see what financing would run. We paid 1.9% interest a while ago.

Also, I question the dividend hit–you are in a low tax bracket–I think you could probably be in a NO tax bracket w/ deductions for biz-related driving etc. Dividends are taxed as regular income, but your regular income is low.

Mr FS just said “The car guys often say you should do the repair.” Maybe you should call the car guys.

cashflowmantra June 11, 2011 at 7:20 am

Wow. Sounds like a tough decision. Since I still have car payments, I usually look at how long a repair might last and how much I would expect to put into the vehicle vs how much the payment to replace me would cost. I had to get a transmission rebuilt on my mini-van when it had 116,000 miles on it. It cost $2000 so I figured I would need the repair to last me for about 4 months since a new replacement mini-van would cost me about $500 per month. That was about 16 months and 40,000 miles ago. The vehicle is paid off so it feels really good. I am hoping that it will last to 200,000 miles or about 2 more years before I have to replace it.

vinny June 11, 2011 at 7:32 am

In my experience, it always pays to buck up and fix the darn thing. Although I would question the immediate need to repair either of those issues – an oil leak or two is expected, as seals shrink over time. Is the car leaving spots, pools, or puddles? Spots I don’t even notice anymore. Oil is cheap.

(BTW head gaskets usually will leak antifreeze, not oil. Unfortunately, you’re at the mercy of mechanics, who might not take the time to explain things completely).

Timing belts are typically a preventative item, despite what your mechanic might say. It’s usually wise to replace them after about 100,000 miles, since a broken timing belt leaves you completely stranded, and can really damage the motor if it breaks at high revolutions. However, there’s no reliable way to measure wear or predict breakage unless you actually look at the thing, and if you’ve disassembled the motor to do that, you might as well replace it.

I have two vehicles. One had its timing belt replaced at about 80,000 miles on spec. The other one, twenty-one years old, has never been replaced. Both run fine. But that’s the beauty of running wrecks into the ground; if you have two, one of them is bound to be working at any given time.

Stephen June 11, 2011 at 7:53 am

Your mechanic says it’s good for another 50,000 – 60,000 miles, so keep driving it. But if the car requires two major(costly) repairs in any given year, then I would say it’s time to replace it.

Julie June 11, 2011 at 8:00 am

Might be worth checking other insurance companies. We’re with Amica. Their rates were literally half of what we were paying previously. Excellent customer service, service- and community-oriented, option to become part of the ownership mutual, and little to no junk mail or offers from their “partners” are more plusses. (Yeah, that was really bad grammar…)

It’s hard to decide when to replace cars. But there does come a point where you just don’t feel safe about driving it anymore (partly due to repair costs.) We bought both our cars online from eBay Motors. We went and looked at them and test drove them. The asking prices were reasonable and we felt like we got excellent deals on very good cars (with complete service records and a carfax). We’re partial to Nissans — they seem to be better engineered than Toyotas.

Good luck…

SherryH June 11, 2011 at 8:43 am

I can’t really speak to the question of buy vs. repair, except to sympathize with the “every time I get a step ahead, something else crops up” routine.

Are you open to the possibility of buying an American vehicle? We’ve been very happy with our 2007 Dodge Caliber, and it gets much better milage than the vehicles you’re considering. My husband just said it got about 32 mpg in town and 36 on the highway when he was driving it. I think it may be getting a little less than that now – but I’m hauling two hulking teenagers around town.

It’s smaller than a van, but bigger inside than most cars, and I can say from experience that you can haul a LOT with one or both seats down. It’s not low to the ground. (Maybe compared to a van, but definitely not something you’d have to crawl in and out of.) So far, it’s been reliable. The only downside we’ve found was that when we had a tow package installed, the wiring cost significantly more than for most cars. Something to do with needing to step down the power so as not to blow out the onboard computer.

I don’t know if it will solve the problem of a dog in your ear, but it might be worth a test drive to find out.

E. Murphy June 11, 2011 at 9:15 am

I’m no rocket scientist, but weighing your info it sounds like repair is the best c hoice. Especially if your mechanic thinks another 50,000 miles are possible. Take that repair money from the car purchasing fund if you have to.

Also, you will probably downsize your living arrangments in a few years and hopefully have a surplus from that.

funny June 11, 2011 at 10:18 am

@ All: Thanks for your responses! I love the idea of calling in to Click & Clack! :-)

By light of day, it’s beginning to feel like getting the car fixed makes a lot more sense than buying a new car at this juncture. Thirteen hundred bucks is a far cry from fifteen or twenty thou’.

Sooner or later, I’m going to have to start ponying up an extra $65 or $70 a month to pay for the privilege of having a new car sit in my garage, exclusive of the cost of gas and maintenance. So I might as well try to make myself get used to that now: if I set aside $65 a month toward a new vehicle, it would add $780 a year to the car purchase fund: over five years, that’s $3900. An extra thirty-nine hundred dollah would help ease the financial damage of having to buy a new car in 2016 (or at least cover the cost of inflation), and by then I’d be accustomed to living on that much less per month.

@ vinny: it’s probably not the head gasket…that’s just the manly-sounding term that came to my mind at two in the morning. I think it had something to do with the pistons (????). I don’t know. But I do know Chuck can be trusted. These guys have been fixing my cars for years. Chuck’s is the kind of shop that gets more business than they can handle BECAUSE of their word-of-mouth reputation for honesty and fair dealing.

@ Julie: I have checked with insurers in the past by way of seeking better rates. When you reach AARP age, the Hartford policy through AARP is about as good a deal as you can get. One salesman, when I told him I had AARP insurance, just flat said “I can’t match that, and neither can anyone else.”

@ SherryH: The barking passenger passed to her furry fathers a couple of years ago. About American cars: ouch! I’ve been burned so badly by American lemons in the past that I just don’t even consider them a possibility. However, I know that in recent years their quality has improved, whilst Toyota’s has declined. I considered the Chevy Equinox, a crossover in the same class with the RAV4 and the Tucson. The price is a little high, compared to the other cars, and the mileage is the same.

Susie June 11, 2011 at 11:06 am

While it sounds like you are leaning toward repair, I wanted to offer up one more thought – you don’t have to choose between repair and NEW car. You can purchase a very recently new car (usually called a CPO for Certified Pre-Owned) where the dealer will warranty the vehicle very similarly to a new car.

While buying a used car (especially private party) can be dicey, the recent economic changes work in your favor – when the economy was booming and people didn’t watch their bottom line and credit was given out like samples at Costco, a lot of people leased cars and only drove them for two or three years before returning them and getting another. Now those cars on sitting on lots and no one is buying them.

You have to be careful, pick a good one and read all the fine print, but I replaced a 15-year-old Toyota with a 3 year old that has less than 10,000 miles on it, a full 3 year warranty and I paid a fraction of what a brand new one would cost, since the I let the original owner/dealer pay the depreciation on the originating lease.

My safety and gas mileage are improved. And the thing I really like is the FIXED expense for cars – sure on the 15-year old beater I didn’t have a car payment, but I never knew what each month would bring repair wise, and that was maddening to budget for. I know what the new payment is, and with no major repairs looming, I’m in a better place.

valleycat1 June 11, 2011 at 4:16 pm

My reco is to go with the repair – much cheaper than a replacement vehicle, especially if that gives you another 50k miles. When you are ready to replace, I’m with Susie. We’ve used Consumer Reports’ April auto guide issue successfully in the past- they have extensive info on reliability and pricing, etc. on use cars as well as new, including short lists of the best, in very user-friendly terms.

Much as I’ve hated to do it, I often will take a male (DH, brother in law, or friend) with me if anticipating possible major repairs – even though I probably know as much as most of them do regarding the same. Or invoke a possibly nonexistent male as who I want to check with before okaying the repair. Even these days men more readily establish a rapport with the mechanics & get better answers – even those I’ve used frequently.

My mom once was told she desperately needed to replace the air filter at a ridiculous price – because it was full of holes.

Serenity June 11, 2011 at 7:34 pm

I’m going through the same exact thing right now. I’m under-employed, in plenty of debt, yet my 2000 Chevy is leaking fluids and screeching from bad struts. And the A/C doesn’t work. I can either sink more funds into it or buy a new-er car.

I’m thinking of it this way – if I can afford to set aside the amount of a car payment for the next few months, I can afford the car payment. If I can’t, I need to take some more time to save up for it. I want to have a comfortable down payment (as well as enough for those pesky Illinois registration costs!) so saving will be a necessity anyway.

The piece of advice everyone has given me is to NOT buy a NEW car – ever! They lose a ton of value within the first year or so, plus you can get certified pre-owned from reliable dealerships fairly easily. Of course, I have no illusions that I’ll have to replace that car again within the next 10 years (hopefully I’ll be better off then!) so it’s kind of a compromise. Buy cheaper now and buy less cheaper later.

fern June 12, 2011 at 11:04 am

what about a ford fiesta?? gets 40 mpg.

funny June 12, 2011 at 12:40 pm

@ fern: Well, it was a Ford product that taught me what F.O.R.D. stands for: “Fix or Repair Daily.”

In fact, my car was in the repair shop about every second or third day…fortunately, we lived within walking distance of the dealership. I will never own another Ford product again, as long as I live. If, during my lifetime, Ford becomes the last auto manufacturer on earth, I will get a horse.

Evan June 13, 2011 at 11:52 am

I freaking love the look of the Tuscon.

I think someone said it above, but why does it have to be a 15K or 20K purchase? Why not find those autos with a 0 – 2% interest rate? You know you have the money but you can slowly dole it out

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