Today I’m officially announcing TF’s next giveaway. Before I do, here are some brief thoughts about why, when it comes to cars, you should buy used, not new.
A few weeks ago, I contemplated writing an article about why young people should buy used cars, not new cars.
Not long after I made some notes, I read an article on Young and Thrifty that summed up the illogical antithesis of my argument.
I commented on the Y&T post to the effect of “It’s OK to buy a new car if you’ve got money to burn. I’d love a new Cadillac. But an intelligent used car buyer will always save money compared to a new car buyer.” Here’s the reasoning that I gave in my comment:
…[the writer refers] to lifetime cost as though it justifies purchasing new, but it just doesn’t withstand empirical analysis.
What is the value of any car at the end of its life? Scrap. $50 worth of metal. Whether you buy new or used, at the end of its life it’ll be worth a measly WLM King. The difference, when you buy new versus used, is how much of that depreciation you’ll bear. A new, well-equipped car that costs $30k can be bought after 5 years for under $10k… You’ve lost 5 years of its useful life — whatever that may be — after which it’ll be worth $50. But the used buyer just paid $20k less.
The key is that a car is always a depreciating asset, but an intelligent used car buyer will always pay a disproportionately smaller share of a car’s lifetime depreciation (the difference between MSRP and $50). In economics, the new car buyer is the sucker, and the used car buyer is the free rider…
The author wasn’t pleased with my analysis. He said:
Trust me Joe, I went back and forth on the new vs. used debate, and due to the fact that there are simply rising prices on used vehicles and less depreciation than traditionally accepted models, the end result needs to account for new dynamics. This is especially true when discussing the smaller foreign-made vehicles that have proven their value over the years. I’m not referring to luxury cars, or even mid-sized cars, but specifically the Elantras, Civics, Corollas etc. My new car cost me $21K after all taxes and fees were accounted for, and a 2-3 year used model would have been 16-18K easily. I know the depreciating asset theory and all the rest of it, but that conventional wisdom simply doesn’t hold true in ALL cases. If we are talking about Chevy Malibus however, then I would agree with your assessment.
The claim that an Elantra is immune to depreciation just isn’t true. On Kijiji I just found a safety-certified and e-tested used 2010 Hyundai Elantra with 35,000km for $9,499 listed by a dealer from Burlington called JP Motors. And that’s without negotiating. Or going across the border to save another 20% after import expenses. I guess it’s easier to rip on my poor old 2003 Chevy than to admit defeat. It’s OK, ‘Bu, don’t listen to the spendthrifts.
Fixating on a brand — whether it’s Hyundai or Japanese car-makers in general — is one of the most money-stupid things a car buyer can. Well, other than getting a loan for an overpriced car purchase (pro-tip: the dealer accounts for the discounted cost of interest in the negotiated deal and the real cost of interest on a consumer car loan is, at minimum, 5%. That’s why I own CarFinco shares!). You can live in a mythical la-la land where certain magical Asian cars (designed by quality-obsessed TEPCO Engineers) aren’t subject to the laws of economics. Or you can accept the truth, keep an open mind, and save a lot of money by purchasing a used (possibly — GASP – domestic) car.
If you think the laws of economics don’t apply, then I’ve got a glass-walled, 400-square foot Toronto condo to sell you. And if you think Japan is so much better than North America, I highly recommend that you go there and stay forever.
So instead of writing an entire article, I shared a blog comment. This seems lazy, and it is, but I wanted to keep my post short because of the following giveaway announcement.
The TimelessFinance “Beginner’s Guide” Giveaway
“The Beginner’s Guide to Saving & Investing for Canadians” is a great book with a lot of important information. Glenn Cooke offered to give a lucky TimelessFinance reader a copy. So that’s what we’re going to do.
TF’s Dear Readers are an awesome group so I also wanted to add some prizes to thank you all for your loyalty, patience, and patronage.
Here’s a list of all the prizes that will be given to one lucky winner:
- Paper copy of The Beginner’s Guide to Saving & Investing for Canadians which retails for $19.99.
- PUMA Social Headphones (Social Buds + Mic) – this set is brand new, still in the unopened box. They are designed to work with an iPhone, iPad, or iPod. I own none of these. The MSRP is, supposedly, $39.99, but they’re on sale for $24.99 right now. But, hey, they’re made in Asia so you know they’re the best quality ever.
- Genuine 1967 Canadian Centennial half-dollar (80% silver) – at Friday’s silver spot price, this coin is worth $10.10 (ignoring any value it has as a collector’s item). I wanted to buy this coin on EBay to complete a collection (see this week’s BP on Friday for a full explanation), but I accidentally bought two. If you think society is going to collapse, and heavy precious metals will be the only acceptable medium of exchange, then you’d be stupid to not enter this giveaway.
- Chapter’s gift card loaded with $15. Then, when Chapters realizes that it should carry this book in its stores, you can buy a copy for your friend.
That’s a total MSRP of over $80. If I were the manufacturer, I’d suggest a retail price of a million dollars for these wonderful prizes but maybe that’s just me.
The deadline to enter the giveaway, by any method below, is 11:59:00 P.M. EST (Omemee time) on Friday, September 14th, 2012. There are three ways to enter the giveaway!
1) Enter by posting a comment on any of the five TimelessFinance posts this week (September 10th to 14th). You can enter once for each post, which means you can get a total of FIVE entries from commenting, including on today’s post. Any comment is eligible, so long as it’s appropriate in my opinion and approved. I will try to review my Akismet SPAM filter but, if it removes your comment and I don’t notice, it won’t be included in the draw.
2) Follow TimelessFinance on Twitter and tweet the following message:
I just entered the @TimelessFinance “Beginner’s Guide” Giveaway for a free book, an 80% silver coin, headphones, and a Chapters gift card!
That will earn you TWO entries.
3) Join the TimelessFinance group on Facebook AND add me as a friend on Facebook. The adding-me-as-a-friend on Facebook is simply because I need to be able to message you if you win (some people actually use their privacy settings apparently). This will earn you TWO entries.
That means you can get nine entries in the draw. If history is any indicator, the majority of people won’t accrue more than 1 or 2 entries. Go the full nine yards and maximize your chances of winning! Don’t use Twitter? Setup an account, duh.
Other rules of the giveaway:
Anybody can enter, but the giveaway items will only be mailed to a Canadian address and the winner must provide this address to me within 48 hours of notification. The winner will be notified by email to the address provided in their winning comment, a direct message to their winning Twitter handle, or a private message to their winning Facebook account. All entrants acknowledge that if this notification remains unanswered for more than 48 hours, they have forfeited their entry in the giveaway and a new winner may be selected. The giveaway organizer, 1845329 Ontario Inc., reserves the right to forgo formalities and award or disqualify any entry or entrant for any reason, including the exclusion/deletion/reporting-as-spam of comments or the removal/blocking of a user on Twitter or Facebook. The name, comments, Tweets, Twitter activity, or activity on the TimelessFinance Facebook group, of any entrant, are public. The odds of winning depend on the number of entries. No purchase necessary.