When you should buy a new car instead of repairing yours

[MUSIC] Hey folks, Cooley again. Got another one of your emails about high tech cars and modern driving. About buying said cars. This one comes in from Mitch C. in Kohala, Hawaii. He says we have a 2008 Highlander with 110,000 miles on it, needs a major break job, including new calipers on all the wheels. Total estimate about 1100 bucks for the brakes, but they spotted an oil leak that will bring the total to something closer to five grand. Should we repair it or buy a new car? Well, Mitch, I hear you on this one that is a stout repair for sure. But even before we look at that, I wanna break the repair apart. And I'd asked you to go check out why so much of it is the oil leak. I get the break part, that price seems about right, but 3,900 bucks to chase down an oil lead on a Toyota? That sounds steep, I think there might be something else going on in there, or it's deep in the bowels of the engine. So I would definitely start by looking into that. Now we all feel that first inclination, when a car blows up expensively, is to compare the price of the repair To what the car's worth, and say, wait a minute, this doesn't make sense. But that's not the right calculus, the right calculus is actually cost of the repair compared to the functional value and/or replacement value of that car in a way that's going to give you other transportation that is better. We're gonna pencil that out in Mitch's case in just a moment, and you'll get some good tips on how to do it if your car has an expensive repair. But, first. Let's talk about the big picture. Buying the car under duress, like when yours conks out extravagantly is the exact opposite of financial planning. And no one knows that better than our friend and colleague over at CBS News business analyst Jill Schlesinger. So I think I know the answer. But what do you think about buying new cars? Cars are rotten investment unless you're buying a Ferrari But since most of us can't buy Ferrari's here's what you need to know. A car is a depreciating asset, it means it loses value every day that you own it, from the moment you drive it off the lot. That's why pretty much the worst deal in the world is to buy a new car. That said, the best deal in the world is to buy a lightly used car, maybe a one year old, a two year old car And even if you were to finance that car with a loan and compare it with say a lease at the end of that term of the loan, you own the car which is of course getting less valuable over time, you can drive the car into the ground whereas with the lease you then start the clock all over again and you owe nothing. So buying a used car not to use. A used car that's gently used is probably your best bet. But you gotta admit going shopping to just get a new car when their car just died looks pretty good to someone who's busy with work, life, and shopping. Don't shop for a car. Shop for a cheap auto loan, meaning a 0% loan, a 2% loan, a 3% loan. None of these payments per month are usually worth it because they really are hiding a very, very high interest rate. My other concern is when most of us go shopping for either a new or a nice sober used car, we often think while I'm at it why don't I kick it up a couple of notches and get something nicer than I used to have. If a car is a purchase where it is utilitary and you need it to get to your job, then be clear I'm making a utilitarian purchase. If you've got tons of money and you want to buy a fantastic Fancy car, great. But just know that you're basically throwing that money out the window. That you might as well burn it in a bonfire. And I would personally much rather see people take any extra money from their cash flow and use it for their retirement. Use it for their education funding. Use it to pay down old student loans rather than buy a nicer car. Okay, Jill, thank you, good and old BS advice as usual. And if you're not already following her Jill on money podcast, I recommend you do that. A lot of great advice about money in general and occasionally about money spent on cards. Now let's do those rough calculations I promised about cost of repair versus cost of car versus the real comparison. You should make let's pencil out Mitch's car. [MUSIC] His O8 Highlander Limited. I'm thinking is worth about 7 $75,000. As it sits mildly broken with a $5,000 repair it might be worth $920 or so. So spending $5,000 to kind of buy $75,000 doesn't sound real good. What else would you get even if you pooled that five with the $75,000 you'd get from the fire sale of that busted down Highlander. That $12,500 probably isn't gonna get you into a meaningfully better, newer Highlander without issues in any credible sense. It's just not gonna happen. And that's where you go back to your old car. First of all, there's the devil you know factor. A lot of things are very comforting about having a car that you know the trajectory of. You know if it's had repairs at a certain pace. What's been fixed what hasn't been, then you want to shop that repair cost? Don't just take the first one you get even though you're kind of in a panic right now, you could save thousands literally in this case. If you were to find another shop that says I can do it a lot cheaper. It's got to be a reputable shop, obviously. But I'll tell you I've been amazed at the variance in independent repair shop costs. This is one of the last areas in modern commerce, where it's a wild west. On the other hand, I'm going to be very honest with myself about red flags and the car that I own. Is it a car I really do plan to own for quite a while going forward. Or does it suffer from things like significant rust? No. Thank you. Mold or mildew. Was it a flood car? And I was never quite sure or not. Yeah, don't put a lot of money into that one. Salvage title. Same thing, that's a dead end for spending money in almost all cases. And is it a lemon? Some cars are just crap, they really can be, it's not often these days, but those are also cars, you know, probably should be put out to pasture Then take a look at the safety cost of keeping your car versus buying another one. This has never been more important than it is in the last decade or so. Your parents didn't have to think about this quite so much. Cars were kind of roughly as safe as the one made years before. Not anymore. You wanna make sure you've got a car that has antilock brakes. Obviously, airbags and pretty much every car does today. Stability control. A lot of cars out there still don't have that automatic emergency braking to prevent forward collisions that's quite new. If you can move from having few of those to having all of those that does tip the scales. Toward buying a new car versus fixing yours. Then I get a lot of folks writing in saying I'm ready to buy a new car because mine's missing a lot of technologies. Things like Android Auto or Car Play, maybe it doesn't have Bluetooth, maybe it doesn't have a rear view camera. You don't buy a new car for these things. And that's coming from a tech guy right? You can add those elegantly in the aftermarket. It's not that difficult. To buy a new car to get these is like buying a new house to get solar panels. Then there are ancillary costs when you do buy or lease a car. Bear these in mind. It's not just the numbers they tell you as you can imagine. Sales price obviously averages 37 Grand in the US Today and you might go nuts and step it up a couple notches sales tax. I think 45 States currently collect this on a car transaction financing costs purchases and [UNKNOWN] cost money. They're not doing this for free higher registration and insurance costs. These may be out there and they hit you every year. And as Jill mentioned depreciation, new cars do this very steeply, close to 50% in the first three years. Plus, depreciation tends to be steeper the nicer a car you buy, and you've got another depreciation you're kicking in when you dumped your old car while it was broken. You got less for it So you've got to depreciation curves that are both going on real steep. Finally a few concerns that may actually tip you toward buying a newer car one of which is empty. If you can get dramatically better mileage by stepping your car forward a number of years maybe it does make more sense in Mitch's case he's driving a 0 8 Highlander that gets about 20 I average on a good day. A 16 Highlander might get 28, that's not life changing economics especially with today's relatively reasonable gas prices. Have your needs changed? Do you need a smaller or bigger car? A fundamentally different vehicle than you're currently sitting on that needs repair. That may be a reason to get something different Do you have an insider deal out there there are all kinds of card transactions within families. This is the time to nudge your father in law at the dinner table next time. When he comes over and say hey you know our cars broken down. Wow! Pretty rough on me maybe he'll offer to sell you his old delta 88 for $1,000 take it put a bag over your head it's great financial planning And finally if you can find a deal from any manufacturer's promotion or maybe a credit union or what have you. That is true low or zero cost financing that can be a big difference. Don't be fooled by a low payment being the same as cheap financing. Bottom line look at all these factors that I think normally tilts you toward repairing the car you have. [MUSIC] In most cases, it makes more sense, even if doesn't feel very sexy, right? On the other hand, follow my list of caveats that could take you toward buying a newer car, but not a new one. I never feel good about that. Let someone else take the hit on that vast depreciation. Then you scoop it up as a better bargain a couple years later. Keep those emails coming. I'm here to answer your questions about high-tech cars and modern driving. It's cooley@theroadshow.com.