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Apr 19

Are New Cars Getting Cheaper?

car-959464_1920

We all know the cost of goods and services tends to rise over time, what we commonly refer to as inflation. Well as you know, I like to challenge conventional thinking and I had a buying experience that adds a bit more nuance to the discussion.

 

Last year I finally decided to purchase a new car.

 

Wasteful, I know, don’t judge.

 

Here in the Happy Philosopher house we end up buying a new vehicle on average about every 7 or 8 years. This is a rough calculation and since we have only purchased three cars total as a family this is a work in progress. We are a two vehicle household, and I think we will average about 15 years per vehicle over the long haul.

 

Now I know this is not the most financially efficient way to buy cars. We could buy used cars to avoid the steep depreciation that happens in the first few years and that’s exactly what we did when finances were tighter (sometimes), but I have found the types of cars I now want buy have pretty high used resale values (and are thus relatively expensive on the used market)…and more importantly I really, really like that first few months of toxic chemicals (new car smell).*
Our last purchase was in 2005 when we took the plunge and purchased a fully loaded pimped out minivan.* It was an epic buy and remains my favorite vehicle I have every owned. There is no greater vehicle than the minivan. It is functional, efficient, comfortable and dare I say even a little sexy. If I was a vehicle I would aspire to be a minivan.

OK, back on topic. Now you may ask why I keep my cars so long. 15 years is pretty atypical. I think the average time person keeps a new car is 6 years or so which is insanely wasteful and ridiculous. If you are going to buy a brand new clown car, at least keep it for many years to lower the average annual cost.

 

 

There are actually several reasons I keep my cars so long.

 

First, I take care of my cars. I keep them clean and well maintained so they tend to look much newer than they are. People are often quite surprised when they find out how old my vehicles are. I’m always amazed at people who buy a luxury SUV for $45,000 and then turn around and treat it like a garbage dump with crumbs, stains and food wrappers everywhere and driving it like a cheap rental. If you are going to buy something take care of it. Getting into a clean car every day sets your mood. Clutter and filth work in insidious ways. When your environment is cluttered and unappealing, your mind becomes cluttered. If you feel depressed when you get into your car try cleaning it; you may be surprised at the difference.

 

Second, I hate the car buying experience. I absolutely hate it with the core of my soul. Dealing with sleazy car dealerships and tactics early in my life has probably caused me to buy many fewer cars than I would have had my experiences been pleasant. This fact has actually saved me money as it keeps me away from dealerships. Thank you sleazy car salespeople; you have saved me much money over my lifetime!

In contrast my latest car buying experience was so pleasant by comparison I’m actually a little worried I may want to go back sooner than I am ready to!

 

Third, I’m really lazy. When I have a well-maintained clean car that runs, why would I need to replace it? So much work and hassle and frankly it takes more mental energy to buy a car than just to keep the one I have.

 

Fourth, I HATE spending money on things that depreciate, and nothing loses so much value so quickly as a new car.  If you are living on a modest income consider stopping your new car buying habit to turn your finances around. For most people, transportation is their highest single expense next to housing. Too many, and too expensive cars are a big part of this.

 

Ultimate Depreciation Machine

Ultimate Depreciation Machine

 

Live with this simple rule: You are allowed to finance exactly ONE car in your lifetime. All others must be purchased with cash. It is much harder to write a check for 25k to buy a heavily depreciating asset than paying $299/month. So far we have followed this rule as my wife and I have financed two cars between us.

Note: We are extremely wimpy and feeble. If you are even moderately badass you never buy a new car or finance a car in your lifetime. Strive to be better than me!

 

So why did I decide to replace my perfectly fine 16 year old car? Good question. The main reason was safety. Modern cars have so many safety features that were simply not available in 1999 that I felt like the upgrade made sense. For people younger than 40 or so, driving is one of the most dangerous activities they can partake in. Actually transportation of any sort is pretty dangerous. For people ages 15-40 the leading causes of death are traffic accidents, poisoning/overdose, homicide and suicide. I didn’t really feel great about putting my family in a 16 year old compact car without side airbags, stability and traction control, etc. especially at higher speeds and in the winter.**

 

Fatalities from automobile accidents have been steadily falling over the years and I think having a newer fleet of cars with better safety features is a big part of that. At this point in my life a new car is a very small percentage of my net worth and I felt it made sense to upgrade. I was also starting to question the reliability of a 16 year old car. I take emergency call and I travel for work from time to time; I need a reliable car for my job. Also I knew it was time when each time I rented a car I would find myself saying things like “wow, this bare bones Chevy Impala is really nice!”  I knew in my heart this statement could not be true (sorry Chevy Impala lovers) so I took the plunge.

 

Initially I looked at similar cars (like the Honda Civic or Toyota Corolla), but I decided with growing kids we needed something a bit bigger and more comfortable, especially for longer trips. I narrowed it down to the Honda Accord and Toyota Camry. Both are outstanding but I ultimately decided on a top of the line Toyota Camry.

 

I emailed a couple of dealerships in my region (I knew exactly which trim line and features I wanted) and settled on a great price from a low-to-no bullshit dealership. We all wandered over and went for a test drive.

 

Now a strange thing happens when you haven’t purchased a car for 10 years. You notice things that other people who upgrade cars every couple of years don’t. The technology and features that are now standard on cars are unbelievable. This car was so much nicer than my 1999 Civic I felt like I was transported to the future or something. Back-up cameras, keyless everything, voice recognition, blue tooth, navigation, tire pressure monitoring, blind spot warning, real time fuel economy, etc. My old car had none of this. The new car was about 1000lbs heavier but got the same gas mileage. It was massively more powerful, handled better, had much more storage space, was quieter, had leather heated seats, dual climate zones, 10 air bags, a much better sound system and a powerful computer where I was used to seeing a clock , CD player, and a knob for air conditioning.

Look Ma, no 401k!

Look Ma, no 401k!

 

I wrote a check for 27k and was on my way. Wow, expensive! Not like the good old days when I bought the Civic, cars were so cheap back then!

 

Or were they…

 

After I got home I started working on selling the old car and found the folder with the original information. MSRP of the 1999 Civic was $17,945. I estimated the invoice price (closer to what I paid) to be around $16,600. I wondered how this compared to my recent purchase after inflation was taken into account. I found an inflation calculator and decided to convert back to 1999 dollars.

 

In 1999 dollars my new 2015 Star Trek utopia car was $18,978 or about 14% more expensive in inflation adjusted dollars.

 

Whoa.

 

I found this very interesting, because I knew in my heart this car was more than 14% better. The two cars simply did not compare. So I tried to find a couple of other comparisons to level the playing field. I looked at the 2015 Honda Civic LX (The EX just had to many features not on the older Civic. The LX was the best comparison but still had many features not available on the top of the line 1999 Civic!) and the 2015 Toyota Camry LE.

 

The results were a little startling to say the least.

 

The 2015 Civic was about 20% cheaper and the 2015 base Camry about 7.5% cheaper in inflation adjusted dollars. This was in spite of massive improvements in safety, technology, power and efficiency (using weight to gas mileage ratio).

 

Cars are deflating in price.

 

In spite of everyone telling you they are getting more and more expensive they are actually cheaper than they were 16 years ago.

 

This is great news!

 

But then why do they seem more expensive.

 

question-1243504

 

It is because our expectations are inflating. We do not factor this into the equation. Nearly everything we buy is actually becoming more reliable, more efficient, and cheaper. Computers, cars, clothes, electronics, food, etc. but what we demand and expect from them has changed. If you started re-manufacturing the 1999 Honda Civic EX today, no one would buy it for anything close to $18,000 (which would be about $25,600 today). Heck, you probably couldn’t sell one for $10,000 in today’s dollars.

 

But they don’t make things like they used to! My grandmother has a 30 year old dryer that is still going strong. And those antique pieces of furniture last forever!

 

This is survivorship bias. We see what has survived and endured. What we fail to see is all the crappy appliances and furniture that broke and fell apart. All that’s left is the high quality stuff and outliers that have stood the test of time. Trust me, there was plenty of crap produced back then, it is just all quietly sitting in a landfill or floating somewhere in the Pacific Ocean. The great stuff survives the test of time, and we dream of “the good old days” when things were better.

 

The human mind is primed to remember the good and forget the bad. This is why everyone always thinks the past was somehow more prosperous than the present. Politicians trying to get elected feed this bias, and most of us succumb to it.

 

I’ve created this handy chart I threw together to compare the cars. I converted all 2015 prices back to 1999 dollars. The percentages are based on factory invoice pricing. I had to guess invoice price of the 1999 Civic as I could not find the data, but I figured the spread on the Civic between factory invoice and MSRP has not changed much as a percentage over the last 15 years or so.

Car Cost And Feature Comparison

 1999 Honda Civic EX2015 Honda Civic LX2015 Toyota Camry LE2015 Toyota Camry XLE (Loaded)
MSRP (In 1999 Dollars)17,94514,12816,73021,087
Factory Invoice (In 1999 Dollars)16,600 (estimate)13,28515,35818,978
Horse Power127143178178
Gas Milage28/3530/3925/3525/35
BrakesABSABSABSABS
SeatsCloth, Driver Power SeatClothCloth, Driver Power SeatLeather, Power Driver and Passenger, Heated Seats
Weight2513 lbs2811 lbs3240 lbs3340 lbs
Cargo Space11.9 cu. ft.12.5 cu. ft.15.4 cu. ft.15.4 cu. ft.
Traction ControlNoYesYesYes
Stability ControlNoYesYesYes
Airbags2 Front Passenger and DriverFront and SideFront, Rear, SideFront, Rear, Side
Climate ControlBasicBasicBasicDual Climate Zones
Backup CameraNoYesYesYes
Voice RecognitionNoNoYesYes
NavigationNoNoNoYes
Blind Spot WarningNoNoNoYes
Cost DifferenceX-20%-7.5%+14%

Ponder this when you look around at the material things in your life. Most of us have nicer things than anyone 100 years ago could have even dreamed of. Most of the things we throw away or donate today would have been cherished by many in the not too distant past. The problem is we only compare ourselves to what we see today. We see someone with something slightly nicer than us and feel deprived. We get angry and depressed that our smartphone is a bare bones when we see someone with a brand new shiny top of the line iPhone, but we forget that throughout human history the vast majority of people never even had a smartphone.

 

Gratitude and tempering the inflation of our expectations is what makes us rich in the long run.

 


*Although the minivan was joyous and awesome we purchased it when our net worth was still less than zero (student loans) and it cost us over 60% of annual salary at the time. Financially this was pretty dumb and I don’t recommend it to anyone aspiring to freedom. Remember to buy your freedom first.

**One does not need to buy a new car every three years living in constant fear of not having the latest and greatest safety features. Plenty of inexpensive but newer used cars are just as safe.

***A few things that do seem to be increasing faster than inflation are military, medical and education costs. These also happen to be the markets which the government massively subsidizes and regulates. Causation and correlation are two different things, but it does make one think. If I had to guess I would say massive disruption in the education and medical markets are coming to a theater near you in the not so distant future. Don’t hold your breath on military spending.

Photos: Pixabay

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  1. Kay

    I had a friend just purchase a new car.

    He was buying old beat up cars and fixing them up for years. He would keep them on the road until they were about to get junked. I was surprised when I saw him in a shiny new ride.

    He just graduated college and told me why he went new.

    When he accounts for his new higher hourly wage it would be ridiculous for him to have to constantly worry about taking time off to fix up his car or get it to the shop. The amount of money the constant repairs cost him in time would just eat away at the money he could be making at his 9 to 5.

    I guess that’s a much smarter decision then it would have been in the 90s!

    1. TheHappyPhilosopher

      This is an underappreciated aspect of buying new. In general cars are becoming more reliable and there is a cost in terms of time and worry that goes along with owning older cars near the end of their useful life span. I think the sweet spot is probably patiently waiting for a good deal on a well maintained 5 year old car and selling about year 10.

      That being said I have had minimal problems with my cars years 10-15, just expected replacements like struts, timing chains, brakes, etc. Maybe I have just been lucky!

      Thanks for the comment.

  2. Kate

    I really like this post. I inherited my grandparents’ car in 1997 when my grandmother passed away, and it was nothing but problems, which probably explains my preference for buying new. I bought a 2000 Saturn new and it started having issues right after the warranty expired, in year 3. I kept it for a total of 9 years and then bought a 2008 Sentra. Similar to your experience, my Sentra cost less than the Saturn but it was in actual dollars — the Saturn was almost $18k and the Sentra was just under $16k! Accounting for inflation the gap would be much wider.

    The argument over new vs. used is a little crazy to me. The real determination is the cost. I’d much rather pay $16k for a new car and drive it for 15 years, than pay the same amount for used and only drive it half as long. It just needs to be reliable and gas efficient, not fancy. I also don’t care for the car buying experience, regardless of new or used.

    Your last sentence is the post says it all. Thanks for such a well written post!

    1. TheHappyPhilosopher

      Thank you Kate.

      People tend to get pretty worked up over the new vs. used car debate (although not like the buy-a-house vs rent debate which borders on psychotic at times). As long as the numbers are run and people are making an informed decision based on logic rather than emotion and consumerism all is good. I think the strategy of buying a historically reliable 3-5 year old car and replacing around years 10-12 is probably the best balance, especially with cars becoming constantly more reliable and safer over time, although then I would have to buy more cars which is a process I hate.

      I think my strategy of buying new and keeping forever is mainly motivated by laziness, although cost plays a minor roll 😉

  3. Our Next Life

    I love this post, though I’ll argue with one thing: appliances seem to be the one thing that is universally junk now. Especially fridges and dishwashers — all garbage, from low-end to high-end. The manufacturers will blame energy efficiency standards, but it’s obviously shoddier overseas manufacturing that’s to blame (not because people overseas make shoddy products, but because of all the cost-cutting). But cars — I think the current batch will last forever!

    I’ll back you up and say that we bought both of our cars new, and I financed the first one (though wouldn’t do that again — I was young and broke), a 2004 Honda Civic. But the most recent one we bought, a 2012 Subaru Outback, I don’t regret buying new at all. Similar to your situation, we found that used late model versions with as much as 60K miles on them were only like $2-3K cheaper than brand new. Then I also did the email negotiation with several dealers (recommend this approach highly!) and got the price of the car that’s now ours down to less than $1000 more than the used ones. Gosh, made that an easy choice! We wrote a check at the dealer, and felt a little like we were getting away with something as we drove off the lot. But we’ll keep our Subaru for a long, long time, so I know it will be worth it in the long run.

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