Financial Friday

Should you keep that clunker?

I bought my first car after returning from boot camp in 1999, a 1989 Camaro IROC-Z.  It had a V-8 and about 100,000 miles on it.  I sold it a couple months ago after putting another 100,000 miles on it.  I didn’t sell it because of age, miles, or price.  I sold it because I have a brand new company truck that I drive all the time and it was just sitting.  I let it sit for almost a year before selling it. 

So when should you sell your car?  Most people sell cars because they buy a new one on pure emotion.  Most of the time it’s, “we need something bigger for the family,” or “I need something safer,” or my favorite is “I need better gas mileage.”  Most people say these things and then buy a brand new car with a payment as high as a mortgage. 

If you truly need something bigger for the family, then trade straight across.  Don’t buy a brand new mini-van that won’t be worth half in six months, buy a used one for the same price your current vehicle will sell for.

Needing something safer is a trick the car companies and the government are using to get you to spend money you don’t have.  Neither has your interest at heart.  Yes, cars have been getting safer, and they get safer every year.  Remember that old car your parents drove you around in?  Somehow you survived.  Anything newer then what you have will be safer. 

You need better gas mileage is a farce.  The only way that helps you is if you trade straight across.  If you spend any more money you are losing.  I’ll do a quick run down for you using my old Camaro.  It got 15 miles per gallon, and I drove the average of 12,000 per year, or 1,000 per month.  We’ll go with $5 per gallon gas.  So monthly I’m burning about 66 gallons of fuel with a cost of $333.  So I buy a new car that gets 25 miles to gallon, still drive that same 1,000 miles with gas at $5 per gallon.  Then I’m burning 25 gallons of gas costing me $200.  The simple math says, “I can afford a $133 car payment.”  But when you get a new car there is higher insurance and maintenance, plus what happens if you total your old car and it’s paid for.  Nothing!  If you total a car with payments you still have the payments and have to fight your insurance company for the money, but they won’t give you enough money to cover the entire care, so you will still owe the finance company.  Lets say you paid cash for a new car, how long would it take to make up that cost at $133 per month (that’s $1,596 a year).  Buying a new car for gas mileage doesn’t seem so smart now?

But really, when should you get rid of that clunker.  I have three examples and my own experience to help you.  Consumer Affairs says it’s time to get rid of that car when the cost of repair is the same as the vehicle.  Clark Howard says you should dump the clunker when the cost of repairs is half the value of the vehicle.  Dave Ramsey says when the cost of repairs and what the vehicle is currently worth broken is equal to what the vehicle is worth fixed, dump it.

And let’s face facts.  The time you think the most about getting rid of that vehicle is when it breaks.  Every time my Camaro needed work my wife would want to dump it, but the reality is that it cost me about $500 a year to keep it on the road in repairs and our new SUV had a $500 per month payment (paid off in 2008!).

My thoughts on dumping that vehicle are you should look at getting another one when it pisses you off, or it’s no longer fun to drive.  When you start hating the vehicle, start looking for another one.  But (there is always a but), you need to get one you can afford.  That means either paying cash for something new or selling the car you have and buying something for the same price.

That Camaro was one of the most fun cars I’ve ever had.  It cost me $4,000 to buy and I sold it 13 years later for $2,000.  It still runs and now someone else is enjoying the drive.

Stay Safe,

Ben 

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