According to Kelly Blue Book the average new car now costs over $40,000. KBB (kbb.com) calculated the average transaction price for a light vehicle in the U.S. to $40,857 as of January 2021. $40,000 is a jaw-dropping amount of money, even for a brand new car. To be fair this number is for transaction price, so it most-likely include taxes and title and license fees, but even still no smart person should pay $40,000 for a new car. Here are 6 tips for buying a car.
Smart people should never buy a new car
Everyone knows that cars depreciate as soon as they’re driven off the lot, but how much they depreciate depends on the car. More expensive cars depreciate the most in an absolute value sense, but they also depreciate the most as a percentage of original value. A luxury car will lose half its value in three years, but a cheaper economy car will hold its value. For example between 2018 and 2021 the BMW 3 series sedan has depreciated by about 45% whereas the Toyota Corolla has only lost about 10% of its value in that same time. Source: Consumer Reports
Smart people don’t buy cars expecting to sell them later
Smart people know that cars are not assets. Assets are things that appreciate in value over time. Cars do the opposite, making them a liability. They way to get the most value out of your car is to drive them until the wheels fall off. This literally happened to me in high school. We bought a junker, and I drove it until a wheel actually fell off. We put a new (rebuilt) engine in it then drove it for 10 more years until the transmission failed at over 200,000 miles.
The cost to own a car is an exponentially decreasing curve, meaning it costs much more to own at the beginning of its life than near the end. People often make the mistake of thinking it’s the other way around because of maintenance costs, but the cost to maintain a newer car is almost always more because newer cars are more complex. The point where this truth fails is when you finally blow the engine or transmission.
Smart people buy cars based on reliability
Whenever you see someone review a new car, they discuss things like how it looks, how it handles, how difficult the Bluetooth is to connect to. They’ll spend pages on how the rims or the seats look, but always fail to mention whether or not it’ll suffer engine failure in 5 years. Chryslers are nice looking cars that handle pretty well. They also happen to be one of the most unreliable brands available.
Reliability is the most important aspect of a car. No one wants their car to suddenly stop working. It’s a safety hazard, it’s annoying, and it’s expensive. When spending possibly tens of thousands of dollars on a car, why would you care about how it looks over how reliable it is? But that’s literally every car reviewer ever. I’ve never read a review that mentioned reliability. I think Consumer Reports is the only place that actually takes data on car reliability.
Smart people never buy the remodel year car
Never buy a car on the remodel year. Every few years a car company will re-design their car. This is important to keep it new and fresh. But “new and fresh” is for suckers. What smart people want is “old and reliable”. Car companies often use the phrase “Re-engineered from the ground up”. You don’t want that. Anyone who’s ever worked with engineers knows that “re-engineered from the ground up” means “we’ve made a lot of new mistakes that we aren’t yet aware of”. Instead what you want is “Iterated and improved upon for many years”. It sounds less flashy, but there’s a reason the remodel year of every car ever is the year with the most issues and recalls. A good example of this is the 2011 – 2014 generation of the Hyundai Sonata (the car I drive). The 2011 model is the remodel year and it has 14 recalls for safety problems. The 2014 model is the last year of this generation. It only has 6 safety recalls. Buy the model right before the remodel year.
Another problem with buying a new car is that you don’t know the reliability. You can follow trends and make educated guesses based on the reliability of past models, but that doesn’t always work. Just look at the Honda Odyssey minivan. It has been a staple of safety and reliability for decades. My parent’s 2002 Odyssey still runs like a champ. Then one year the Odyssey just didn’t live up to the hype. An advantage of buying a used car is that you have time to see if it is a dud or not. Even if the price were the same, I would buy a used car for exactly this reason.
“Re-engineered from the ground up” means “we’ve made a lot of new mistakes that we aren’t yet aware of”
Smart people take their time when buying a car
Cars are a need and obviously time is not a luxury that everyone has when they absolutely need to buy a car. But smart car buyers are ones who do their research before they have an immediate need. If you know your car is on its last legs spend that time researching newer cars so that when yours finally bites the dust you can immediately make the purchase.
I’d recommend against buying from a dealer, but if you do go the dealer route, smart people never buy the car the first time at the dealer. Smart people leave and go to another dealer and look at the same car. Dealerships are in the business of selling cars and they want your business. The key is to make them need you more than you need them. Let them sweat a little and then came back. You’re sure to get a better deal a day or two later.
The one thing that all of these points have in common is that smart people do their research.
Buying a car is a huge decision. $40,000 may be a foolish amount of money to spend, but even a cheap used car will set you back $10,000. Smart people don’t just flippantly make $10,000 decisions, they gather all of the data they can find and weigh it to make the best decision they can. Sites like https://www.consumerreports.org, https://www.edmunds.com/, or http://www.dashboard-light.com/ give valuable information that can make buying a car much easier.
For example dashboard-light has an index of the quality of car makers and models. We can see from this graph that Toyota has a quality rating of 83 (out of 100) and Dodge has a 36. By this scale Toyota is 2.3 times as good as Dodge yet for some reason people still buy Dodges. I’m not saying never buy something that isn’t a Toyota. Maybe you’re really into the Dodge Challenger, but never buy a car without doing your research first.
Dashboard-light is a free resource that everyone should use, but Consumer Reports costs money. Should you pay for a consumer reports subscription? CR costs $39/year. It’s bad to have subscriptions on auto-renew when you don’t use them, but it’s definitely not a bad idea to sign up for it if you are planning to buy a car in the next few months. Paying $39 in order to help you make the best decision when spending $20,000 is a very good use of your money.
Follow these tips to be a smart car buyer
- Never buy a new car
- Don’t buy cars expecting to sell them later
- Buy a car based on reliability
- Never buy the remodel year
- Take your time when buying a car
- Do your research when buying a car
In part 2 we’ll apply these tips to actual cars in order to see whether specific cars would be smart purchases. We will look at a series of different makes, models, and years, and identify some good cars and some that don’t make the cut. I may even break a few of my own rules, and show you when it might be a good idea to do so as well. All in all, we will just discuss actual cars and how to apply what we’ve learned to car shopping.
What do you think? How do you go about buying a car? Let us know in the comments below!
