Just the Facts Ma'am (Another in the Car Math Series)

Well, I went and did it. After 14 years and 189,000 miles I replaced my beloved 1996 Honda Prelude. Buying a new vehicle is a major financial decision. Children and houses are both major expenses but they are also investments. Except in very rare circumstances buying a car is a pure expense. As the years pass its value will decline as it continuously consumes gas, oil, insurance, and tax money. A couple of years ago one of our customers purchased a Saturn Sky with every possible performance option. He keeps the car in a garage and seldom drives it. Since it is fast, rare, and Saturn is out of business, if he continues to keep it unused in his garage, it will probably be worth a great deal of money in ten years. That is not the way most of us buy and use cars.

This is a hard saying. I understand not everyone will hear it. I have paid cash for every car I have ever owned. I suggest you do likewise. Going into debt to purchase a depreciating asset is simply a bad idea. It is much better to pay yourself car payments until you are ready to buy a new car than it is to send your car payments to the finance arm of automobile manufacturer. Yes, I have driven some pretty old and worn out cars, but debt is slavery. Debt is used primarily by corporations and government in an attempt to force compliant behavior in citizens and employees. The interest you pay on debt, private or public, represents your labor, labor for which you are receiving no benefit. Please think about that before you buy another car.

I guess the next question is when to buy another car. When I was young and poor my rule of thumb seemed to be that when the cost of repairs to the car would exceed the value of the repaired car it was time to move on. More recently, my behavior seems to indicate that when maintenance costs over the course of one year approach $200 a month it is time to buy a new car. The way I buy and use a car $200 a month is pretty much a new car. Larry Burkett of Crown Financial Ministries would frequently observe that it is almost always cheaper to repair an existing car than buy a new car, but when is enough, enough?

$200 a month X 12 months in a year X 10 years = $24,000.

Until 1988 when I bought our first new car for my wife, all of our cars were used cars. Since then I have bought new cars and then used them for a very long time. There is no question that late model used cars represent the greatest potential value to the consumer. In fact, I have been told that Dave Ramsey of Financial Peace Ministries recommends that one should ALWAYS buy late model low mileage used cars. However, there is just something about a new car. Understand that the difference in cost between a suitable used car and the new model, like a vacation, is an expenditure of discretionary income. If a new car makes you happy and you can afford it, why not?

Now, as Sergeant Friday of Dragnet fame, would say, “Just the facts, Ma’am.” The following information is not presented as expert instructions in the art of buying a car. It is just my actions and the results. I hope that you find a better way to buy a car and share it in this blog.

For over two years, I have been thinking about buying an Acura TSX. The Honda Civic is just too small for my large arthritic body. The Honda Accord is much larger than anything I need or want. Actually, the TSX is larger than what I need, but it is the Honda product that falls between the Civic and the Accord. That the TSX is a luxurious sports sedan is just icing on the cake. As you can see, my experience with the 1996 Prelude, hands down the best car I ever owned, has turned me into a highly prejudiced Honda fanatic.

First I did my research. The Internet has greatly improved the consumer’s access to information. Carmax has a wonderful website. I can see every car they have at every dealership in America at one time. They offer a “no haggle” price. What you see on the Internet is the price you will pay, period. In order to calculate the trade in value of my Honda I used the calculator on the Kelly Blue Book website. Kelly is the industry standard for calculating used car value.

Using these tools I was able to bracket a price range for my purchase. I added Maryland sales tax to the advertised price of two low mileage 2009 Acura TSXs then subtracted the fair value of my trade in. I did not include title and tags, as this price (about $60) is so small as to be irrelevant in these calculations. Here are the results:

$29,097 for a 2009 TSX with Technology Package (12,000 miles)

$26,359 for a 2009 TSX base model (12,000 miles)

The Technology Package contains a GPS system and a number of electronic gee-gaws I did not wish to purchase. It adds about $3,000 to the cost of the car.

Then I went to the Edmunds website. They provide reviews and pricing information on all new and used cars. From Edmunds I learned the following:

$29,310 was the Manufacturer’s Suggested Retail Price (MSRP) for a 2010 TSX base model.

$27,359 was the Invoice Price for a 2010 TSX base model.

Acura has a 3% hold back calculated on the MSRP. This means the dealer receives an addition $879 when the car is sold.

Therefore, I knew the starting point for the dealer was $26,480 not counting any secret incentives the manufacturer was offering their dealerships at that given point in time. There are always some secret incentives for something or the other. I could see that the amount of money I was willing to spend put me in the new car ballpark if the dealer was not too greedy.

I wrote all these facts in an orderly form in my day planner so that I would have them at hand during any negotiations that might take place. When the salesman asked the ultimate question they will always ask, “What price would it take to get you to buy today?” I said, “$27,000 drive away,” (meaning I give you my Honda and you give me a 2010 TSX, and I write a check for $27,000 end of story). I thought that was a reasonable price for both dealer and customer. I expected the assistant sales manager to turn me down then call me up in a day or two. However, he wanted to talk. We talked. After I was presented with a bewildering array of irrelevant numbers, the bottom line, the only number that interested me, was $27,833. This number was in the price range I was willing to pay for a used car, so we shook hands and today a dark red 2010 Acura TSX sits under my carport.

I had planned to use an Internet buying service this time, but I was given an acceptable offer using the traditional method. Edmunds and others offer a service that takes your requirements and solicits bids from dealerships in your area. At least one of my coworkers had good success using this method. Another man I work with has developed his own Internet method. He keeps asking multiple dealers for bids by email. Of course they don’t give him any price and encourage him to come visit their dealership. He has found that if he persists sooner or later one of the dealers will blink and make him a good offer, since they can not know what the other dealers might be doing.

I can think of one appropriate scripture for the car buying process. Both dealer and customer should keep it in mind.

Matthew 7:12 (NIV)

So in everything, do to others what you would have them do to you, for this sums up the Law and the Prophets.