Wednesday, June 24, 2015

Car Comparisons and Mother Maintenance

One of your most difficult decisions besides choosing a life partner and buying a whether to continue to maintain your current car, or purchase a new one.  You should never throw good money after bad.  If you've owned cars for over 20 years, you've probably run into the problem of spending money to fix your car, only to find out that it needs additional repairs soon after you've taken it to the maintenance shop.  Worse is if you do something as simple as get your oil change and all of a sudden something seems wrong with your car, your baby...what did they do to it!

Whether you've owned your car for 15 years, or you've slaved way working tirelessly making your used car new can be difficult to let go.  Cars much like pets can create an emotional attachment.  After all, you could be spending hours with your car each and everyday.  A car is your instrument of freedom.  Some people name their my Dodge Neon was the Red Dragon.

In my previous article I wrote how far cars have come in safety.  Just look at this crash test that was done by the Insurance Institute for Highway Safety (IIHS) comparing what many would believe is a seemingly safe "Chevy boat" car get crushed by a 2009 Chevy Midsize Malibu.
It is quite amazing how much safer cars have gotten over the years.  I believe these crash tests are making a difference in safety.  With the introduction of the new small overlap crash test, many car companies made changes within a one or two years to correct a serious flaw in design.

However, this blog is about Financial Freedom.  The real question is, should I sell a 15 year old car that is paid for and is starting to have some minor annoyances, or should I bite the bullet and buy a new or used car.

The reason why I bring up safety is because it is a big concern for me.  It wasn't ever really on my mind before.  However, I have four kids now...and sometimes it takes me a while to get wise in my way of doing things.  Not everything is black and white.  Life has a lot of gray areas that certainly do not weigh in financially.

To give an example, let's take a 2000 Honda Accord 4 door with 180k miles on it.  The car has a few problems such as an intermittant a/c unit that is probably a function of some electronics.  Can it be fixed easily without paying $400?  Perhaps a work around exists.  Check out this video:

It worked on this Toyota...will it work on the 2000 Honda Accord?  Well, send a message to Scotty Kilmer and find out.  The waterpump and timing belt will need to be replaced in another 20k miles.  That will cost around $900.  A new exhaust system may be needed over the next 5 years would probably cost around $1000.  New shocks and struts would probably cost around $800-$1000.  A new altenator may be needed as well.  That could cost around $500.

Best case scenario you'll need only $2000 in maintenance cost.  More likely scenario is probably around $3000.  Worst case maybe $5000 if a transmission or engine problems occur. 

According to KBB a 2000 Honda Accord LX with a in value in Good Condition is worth 1K.  Would a dealer offer more for the car?  Maybe if they are looking to push cars.  At 250,000 the car goes down to $866.  So, depreciation isn't really a concern.

Let's say you keep the car for 5 more years and only spend $2,000 in repairs over the 5 years and now your car is worth around $1,000.  No real change in value.  Gas mileage probably will improve slightly if you get a new car.  It may even get worse if you purchase something bigger like a van.  Being a wise financial manager, you probably aren't concerned about 0-60 times.  Therefore the only limiting factor is safety.  IIHS does comprehensive safety tests on a variety of vehicles.  However, many older vehicles such as a 2000 Accord are not shown.  However, equivalent cars are able to show the difference in crash rating.  Look at the 2004 Accord in a side impact test.

It was rated poor in this crash test without an airbag, but Good with an airbag.  The 2000 model doesn't have an airbag.  People will say to me...but Gary, you drive a Smart car.  That's a death trap.  Well, you can look at the crash tests on a 2008 which isn't nearly as safe as my 2015 model that includes additional knee airbags and modifications have been made to the airbags in 2011 and 2012.  The 2016 model which is redesigned will be even safer.  Being small has several advantages in simply crash avoidance.  In the instance of a side impact the car will hit either the front or rear axle unlike what you see in the Honda Accord which takes the full impact into the B pillar.  More importantly, I won't risk the lives of my children.

I did purchase a 2014 Dodge Grand Caravan.  Although for the driver the small overlap did get a poor rating due to hip/thigh and lower leg/foot is leaps safer than my 1996 Dodge Grand Caravan that received a marginal rating on the most basic moderate overlap crash test.  I do not feel that the 2014 Grand Caravan puts my children at risk.

The 2013 Accord coupe got only an acceptable rating on the new very stringent small overlap crash test, but by 2015 it got the coveted good rating.  The 2013 Accord sedan received good rating overall.  The Honda Odyseey has received good ratings since 1999, however limited testing was done until 2005 where head restraints and seats showed marginal ratings.  This was corrected in 2008.  The small overlap crash test for 2014 passed with good ratings and they added front crash prevention safety features for the first time on the Odyseey.  The biggest downfall to all minivans is the bloated price tag.

Bottom line:

If someone would allow you to trade in your 2000 Honda Accord and receive $3500 on that trade, for purchasing a 2013 Honda Accord with less than 20000 miles for $19000 meaning you'd being paying $15,500 and be able to drive that car for another 15 years or about $1000 miles per year.  It would save you the up to $1500 in maintenance costs to extend the life of the vehicle and more importantly...have piece of mind that your vehicle has all of the latest safety features.  You could purchase a new 2015 for around $23k before trade and love your new car from birth until another 15 to 20 years down the road.  One small additional advantage is 27 city/36 hwy mpg verse 25/31.  Probably not a huge consideration to the purchase, but it is about a 10% combined increase in fuel efficiency. 

The morale to the story is, you'll probably end up paying about $2-5k over the next 5 years regardless of whether you keep your old car, or purchase a new model.  Yes, you could save $1-2k over the 5 years by keeping the old car.  The more important question is do you love your car, feel safe driving it and more importantly do you have a honest mechanic that will look after your car if it has troubles?  After all, if someone wouldn't have crashed into my 91 Dodge Monaco I would be still driving that baby today. 

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