by Gary North
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.
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.
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
Copyright © 2003 LewRockwell.com