Used Cars: A Follow-Up

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Last
September, I
wrote about how to buy a used car
.

When
you can save thousands of after-tax dollars, you should. I have
a particular philosophy of local transportation that some readers
may not share, but those who are doing their best to increase
their net worth do share it.

LAST
GASPS

On
Sunday, as I drove to church, my 1990 Chrysler Town & Country
minivan’s odometer rolled over 230,000 miles. I bought it for
$8,000 when it had 120,000 miles on it. That was in 1996, I think.
I had to make a few repairs, such as CV joints, but on the whole,
I have limited repair costs to about $500 a year. Adding this
money to the initial purchase price, we get about $11,000. A new
Chrysler T&C minivan in 1996 was about $28,000, plus taxes
— call it $30,000. Instead of shelling out that kind of money,
I paid about $8,250 with taxes.

Not
including insurance and gasoline, I have driven that car for about
ten cents per mile. It got about 15 mpg, so with gasoline at $1.30
per gallon on average, my gasoline cost per mile was about nine
cents. That adds up to under 20 cents per mile, total. For purposes
of comparison, the IRS allows 36 cents per mile as a business
deduction.

The
car is finally reaching the limits of my patience. It handles
OK, but the heater is bad, the air conditioner is gone, the lifters
are noisy, and I don’t trust it for anything other than local
diving. It’s great for hauling stuff around on the property, including
my dogs. If it dies, so what? Still, I could probably get $1,200
for it by running an ad in the local newspaper. The fact is, almost
any car that still runs is worth about $1,000. That’s the bottom
end of your used car investment risk.

I
like minivans. I can drive in them comfortably all day long. I
can’t do that in a car with bucket seats. If I were in the market
for a new minivan, I would buy a Toyota Siena. But I don’t buy
new cars. The depreciation is too high.

A
used Chrysler doesn’t command the higher price that a used Toyota
or Honda minivan commands. Yet the quality is close enough for
just driving around, which is all I am interested in paying for.
So, I went shopping for a used Plymouth/Dodge/Chrysler minivan,
which are essentially the same car, especially after years of
normal wear and tear.

Our
local newspaper has a nice feature on its free website. You can
go to "classifieds," look under "transportation,"
click "vans & buses," and get a list of available
vehicles, arranged alphabetically by make and by year: oldest
first. This makes shopping incredibly easy.

I
was looking specifically for a 1993. According to Consumer
Reports, the 1989-92 Chrysler minivans had a major problem
with transmissions. The 1994-97 minivans are listed under "Used
cars to avoid." However, when I checked the specific ratings
on the model, the page said the 1997 model was average.

I
was after a bargain: low price, low risk. That narrowed it down:
a 1993 minivan. I checked the paper. Sure enough, there was a
1993 model for $2,300. That price seemed reasonable to me. I went
to see it. It was clean.

THE
NEXT STEP

We
have used a car repair company for several years. I got permission
from car’s owner to take it to that company for an inspection.
This is only reasonable. The owner agreed.

There
is an old line: "Never ask a barber if you need a haircut."
When you get a used car analysis from a repair shop, you are liable
to get an inflated list of things that are wrong, several of them
high-ticket items. Of course, if the company overdoes it, you
may decide not to buy the car. It’s a trade-off.

The
estimate came in at $1,340. That seemed high to me. I wanted a
second opinion.

I
called a local repair shop. It’s located closer to me in the low,
low rent part of town. I listed the items I had been told needed
to be repaired. They called back in an hour. Their price was $650
— under half.

That
caught my attention. Maybe I was being misled by repair shop #1.
I drove over to the second shop and had them check the car for
the two most expensive suggested repairs, a total of $711. They
checked them both. "No problem," was their answer.

That
made my decision much easier: (1) buy the car; (2)
from now on, always get a second opinion after the first opinion
by the first repair shop.

Will
I still go to the first repair shop? Only if I decide to have
them inspect another used car. That costs $27. If they spot something
wrong, I’ll verify this with the second shop, and then ask for
a competing bid.

The
point is, the free market provides lots of competition. When we
are talking about hundreds of dollars, I’m willing to spend a
couple of hours shopping. If I were Bill Gates, I’d hire someone
to do this for me. Of course, if I were Bill Gates, I would not
be shopping for a decade-old car.

IS
THIS REALLY WORTH MY TIME?

On
a pure cost-benefit analysis of the value of my time, probably
not. My time should be spent writing. But we are creatures of
our youth. I grew up middle class. For me to abandon that mindset
at this late date would probably be close to impossible. In any
case, the middle-class mindset is a good one. It is careful in
budgeting money, though it trades off with budgeting time.

The
middle-class buyer wants his cars and tools to work well, but
he is willing to buy a car or a tool that doesn’t look new or
impressive. In fact, he has a sense of victory when he locates
a bargain.

That
same attitude is beneficial in business, when a lack of a budget
is almost a guarantee of overspending and future bankruptcy. The
middle-class mindset is what we read about in The
Millionaire Next Door
and The
Millionaire Mind
.

The
author tells the story of a very rich executive whose staff planned
to buy him a new Cadillac as a present. They had all done very
well with bonuses and what-not. (This was pre-Enron.) The man
got word of it and told them not to do it. The plan’s organizer
wanted to know why. After all, it was a free car. No, it wasn’t,
the boss said. A man who drives that kind of car has to live in
a neighborhood to go with it. Then his wife has to buy the furniture
to go with the new home. The free car would cost him a fortune.
(Mattel exploited this budgeting pressure with Barbie.)

A
person who shops for bargains when he has the money to buy premium
stuff is like a driver who signals that he’s going to turn even
though he is driving down a deserted highway. Habits save us when
we don’t have time to make careful decisions. When you have a
good habit, it’s wise to honor it. It may be a life-or-death matter,
and you want instincts to take over. It’s like checking a gun
to make sure it’s not loaded if you haven’t had your eyes on it
the entire time. I say this as a man whose great uncle was shot
dead by an unloaded rifle. His son pulled the trigger.

THE
DETROIT CAR SHOW

"Sunday
Morning," my favorite TV show ("As Time Goes By"
is second), did a segment on the Detroit auto show. The show featured
lots of "muscle" cars — cars so low that a man my age
could not get into it, and if he did, his wife would think he
was nuts. (His first wife, anyway.)

There
was a 1,000 horsepower, low-slung monster with 1,000 foot-pounds
of torque. A Ferrari? No. A Porsche? No.
A Cadillac
. I have an award-winning ad campaign in mind: "This
is not your great-grandfather’s Cadillac." I can see it now:
some 70-year-old guy struggling just to get into the driver’s
seat. He turns on the ignition. Vroom. He gets it onto the highway.
Vroom, vroom. He floors it. He blacks out. This makes about as
much sense as J. Howard Marshall marrying Anna Nicole Smith, with
similar effects.

A
non-muscle car was the $325,000
Rolls-Royce
. It has a deep lengthwise hole in the door for
storing an umbrella. This shows "attention to detail,"
the salesman told the interviewer. My wife pays even more attention
to detail. "You have to open the door to access the umbrella,
and if the wind is blowing at you, the rain will get on you while
you’re trying to get it out of the slot and then open it."
If it’s on the floor in the back or tucked behind a seat, you
can open it part way before you open the door, and then try to
get it completely open before you get soaked. OK, this doesn’t
work, either, but it’s about $320,000 cheaper.

Then they showed a new model SUV. Guess which manufacturer
is selling it. Take a wild guess. Make it preposterous. . . .

If you guessed “Ferrari,” you came close. Maserati.
Back when I was a something of a grand prix racing buff (1957—59),
the idea that Maserati would someday target soccer moms would
not have occurred to me. The thought of either Juan Fangio or
Stirling Moss racing at the Targa Florio inside a Maserati SUV
makes me giggle.

Can
you imagine the repair bills on a Maserati SUV?

The
show is nuts. It would make more sense for a Grosse Point matron
to buy one of those anorexic outfits shown at a Paris fashion
show. What alternative uses for a rich man’s money would be superior
to buying one of these cars? Only about 500 immediately come to
mind. Just give me a little more time.

I’m
not quite at the tail end of the automobile food chain. That honor
goes to recent immigrants from Guatemala. But if my spending pattern
were to become widespread, the auto industry would go bust. I
am not quite a free-rider on the industry, paying nothing, but
I am surely a steep discount-rider.

LOSS-LEADERS
IN DETROIT

I
must admit, the following report from Rick
Ackerman’s site
offers an alternative car-buying strategy
for someone who has a General Motors credit card with a pile of
rebate points. This story gives you some indication of the desperation
in Detroit, due to the recession. What you read here comes from
a really dedicated new-car shopper.

"In
December I finally got off the fence. GM sent me a voucher for
an additional $500 over and above the $3,800 I had still had
on my credit card. Further, I noticed that $3,000 rebates were
in effect on new 2002 models that needed to be cleared out.
In addition there was a $1,000 holiday cash bonus.

"When
I got to the first car dealer, on a purely exploratory mission
— one of many I have made over the years to no avail —
I was told I could get a 2002 Grand Am SE with a sticker price
of about $21,000 for $19,500, but since the manager knew I was
on my first stop and might be looking around he threw in another
$1,000 (of $5,000 factory cash to the dealer) if I took delivery
by the Monday following the weekend on which I stopped by. That
brought the price to around $18,500, then take away the $3,000
rebate and you get $15,500, less the $1,000 holiday cash and
we’re down to $14,500. They had to see my voucher to give me
the $500 but that got me down to about $14,000 and then my $3,800
credit card rebate points got me down close to $10,000 —
less than half the original sticker price (which was a package
discount from over $21,500 for the options separately).

"You
still had to add back the sales tax (calculated unfortunately
on the car price without the rebates) some rust proofing and
other protections I chose to have and an extended warranty for
about $1,000 (6 years or 72,000 miles) and the final price was
about $13,000, but however you figure it I cut over $10,000
off the price of this car and I haven’t had a chance to do that
for years.

"I
think next year we will not see these kinds of bargains, but
only time will tell for sure. For now the facts say we have
been having deflation in automobile prices. Oh yes, they offered
me only $500 for a trade-in, so I kept the old car and am still
driving it until the weather gets better and driving the roads
around here isn’t so much like taking a salt water shower. I
guess I am cheap."

This
is a man after my own heart.

CONCLUSION

You
can save a pile of money by refusing to buy a new car, even at
0% interest. The new car’s depreciation is far more than the interest
charge savings.

January
16, 2003

Gary
North is the author of Mises
on Money
. Visit http://www.freebooks.com.
For a free subscription to Gary North’s twice-weekly economics newsletter,
click
here
.

Gary
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