So, where are the geniuses who can critique my approach to this perennial question.
Trying to come up with a rational way to determine when it is better to dump an old car and get a newer (used) car.
For my 1982 Mercedes 300D, it was a matter of obsolescence. I just could not find parts anymore. But now it’s my 2002 Jeep Grand Cherokee, which has racked up several thousand dollars in repairs over the past year.
Screening by Google turns up a few sites, almost all of which say something like "ditch your old car when the costs of repairing it (either urgent repair or repairs foreseen for a given period such as a year) exceed its value (as determined by, e.g., Kelley Blue Book).
I don’t think that is accurate at all.
I would say that the costs associated with a newer car include: Depreciation, opportunity cost lost to down payment, fees and interest on loan, real maintenance costs, and some cost accounting for the fact that although a vehicle is newer there is a certain risk that it could require big-ticket repairs, just like the old one. I guess one way of assigning a value to that risk would be by basing it on the cost of an after-market warranty.
It seems to me that, financially, the point that it makes sense to trade is when the actual or predicted annual costs of repair of the old one exceed the sum of the costs of the newer one (depreciation probably being the biggest factor).
This is a hard question to answer. Rust is the biggest enemy of a vehicle and a rusted frame is impossible to repair. I think personal finances are an important consideration. For instance, suppose a person is in a difficult financial situation, but sees the light at the end of the tunnel. If the person would settle for just another year’s use or for 20,000 miles, maybe a patch job is worth it. For example, suppose the engine blows in a 15 to 20 year old car. Perhaps a used engine would suffice. Suppose a door gets damaged in an accident on an old car. Maybe the most economical repair is a door from the salvage yard. If the car is transportation, why spend money on paintwork–just live with a door that doesn’t match.
There is no hard and fast rule. Old cars are a risk but they can be a calculated one. If you intend to run your current car into the ground, resale won’t matter and any major repair sends it to the boneyard. Major would mean transmission or engine rebuilds on a car worth the same as the repair. The risk is a $2500 tranny job on a $5000 car that blows an engine 2 months later.
You should also consider the PIA factor of arranging rides during repairs, tow-ins, being stranded, anticipated long trips, parts availability ect. If you or your significant other own another ride that can fill in the gaps, repair downtime becomes easier.
Like @Tridaq says, if you don’t car what it looks like and structural rust is a one-way ticket to the boneyard! If you want some resale, wait until a bunch of stuff breaks that you don’t want to spend money on, like the AC, power windows, radio or heater. Sell it as a beater and get something newer.
When does it make sense? When you believe it does based on your own measuring stick. This is different for everyone. You have a sound method described above. The one thing I might add is the cost of alternate transportation when your daily driver is in for repairs. You did not say what the big ticket repairs are. But given the age of your Jeep, they might be considered unplanned maintenance and they won’t recur during the next 5 to 10 years.
I’m going through this evaluation now with our 2003 Silhouette with 158,000 miles. Mrs JT doesn’t want to make repairs because it is so old, yet she doesn’t want to get a replacement vehicle. I got rough costs for the things that need repairs and I will discuss it with her. If she refuses a couple of them, it could result in a significant safety issue and I won’t have that in her car. It’s hard to imagine that she won’t let me buy her a new van or SUV, but that’s her way.
My critique of your post is thus: people aren’t rational.
There are an estimated 250 million cars on U.S. roads. Every single one was purchased for a different combination of reasons. All 250M of them.
It makes sense when the current vehicle does not meet your current requirements. It makes sense if it gets damaged beyond reasonable repair, i.e bad traffic accident.
The issue on cost of repairs exceeds the value of the vehicle is not a valid criteria in my opinion. Its really a question of ROI, return on investment. The best way to explain this would be to use an example. If the car is in real good shape, but has a low residual value because it is not a popular model so it has a trade in value of $900. The engine runs good and burns very little oil. The transmission is a manual and shifts smoothly.
Now this vehicle needs a new clutch, cost $900. A new vehicle would cost $18k and you could expect to get 180k of pretty trouble free miles based on you current car. I.e your current car has 180k and has been very reliable. That works out to about $.10/mile amortized purchase price.
If the current car, with a new clutch can be reasonably expected to last 9000 miles after the repair, that would also be an amortized cost of $.10/mile. Anything over 9000 miles means the new clutch has a higher ROI than a new car. If you don’t think the car would make it at least another 9000 miles without major repairs, then its time to get rid of it.
There are other factors that should also be considered. If an unreliable car could result in a loss of income, then it may be time to get a new one just to avoid risk. If you absolutely hate your current car, there is something to be said for preserving your mental well being and how that can affect your attitude when dealing with other people by getting a new car. Happiness has value, even if you can’t put a price tag on it. Just be sure you can afford it.
While others try to make it a math issue, it is really more of life enhancement issue. When I drove 40K a year, I had a fully depreciated older car for my work car. Didn’t mind the once in a while tow and discomfort since it was just part of daily life. After retirement, I’m tired of problems and want problem free cars with warranties. Like my cousin says “I don’t mind problems when I’m workin’ but not when I’m playin’”. Do you like it? Is it comfortable? Does it look good? Would you be afraid to take it on a 1000 mile trip tomorrow? Does the repair shop know you by name? If not dump it. When I took my car in for tire balancing, the guy at the desk didn’t know my name anymore. It was a good feeling.
If I had a 2002 Grand Cherokee I would get rid of it asa soon as possible. At that age, a vehicle that was not a sterling example of reliability to start with, will have many more expensive repairs soon.
If you had a very simple car like a Corolla, at 12 years the repairs would not break the bank and be fewer as well. My sister has a good 2001 Corolla with only 65,000 miles on it. I recommended she keep it another 4-5 years, since it is utterly reliable.
Other posters have given good advice; A grand Cherokee will cost you an arm and a leg if you hang on to it.For most peope the decison is sentmental or the car breaks down and it is not worth fixing. Both decisons are “sub-optimal”.
P.S. I’ve never incurrred $2000 in repairs in any one year on any car.
if you ve done all those repairs, which you don t list, it just may be that you have a reliable car again and would possibly be getting rid of a car that you could drive for 10 more yrs with no payments
“P.S. I’ve never incurrred $2000 in repairs in any one year on any car.”
Huh, there but by the grace of Yahweh go I. My diesel engine alone was $2500, then a month later it was a transmission for somewhere around $850 or so. Heaven knows what else I had that year like an injector pump, etc. I don’t think I hit $5000 but I know it was more than $3000 and close to $4000. Still I’m a loyal guy and I hung on thinking the worst was over.
I will sell a vehicle when the “honeymoon” is over so-to-speak because I have no emotional or financial attachment to my vehicles. I no longer buy brand new vehicles…just vehicles that are new to me. If they behave themselves and get me to point A and B with a minimum of problems…I will keep them. If not, I run an ad and start looking for that perfect vehicle (which of course…will never be found). I’m a realist so I will settle for the best vehicle that I can find in a reasonable amount of time. the same mountainbike is dead-on in his assessment. Way to go mountainbike.
I think the thing with me is that I hate looking for cars, especially used cars. Just can’t stand the hassle. So once I have one I like to keep it or just go in and pick up a replacement with minimum hassle from the dealer. I just don’t like all the research and want to bring things to their conclusion quickly.