Keep, Sell, or Trade - What Makes the Most Sense?

This is a tricky subject, as there are a lot of opinions and a surprising amount of emotions involved in making this decision. Your car is one of your single largest investments (using the term loosely), and most of us must have at least one. If you are a “car guy/gal”, then it can be even more difficult.

My goal in writing this is to share my perspective on the economics of auto ownership. I maintain and fix cars for a living, so of course, I want you to keep your car and let us take great care of it! At the same time though, as a company, we want you to make decisions based on your best interest.

Number one, no one likes to pay a mechanic to maintain or repair their car. Sometimes maintenance, although less expensive than repair, is worse because you don’t even “feel” the difference. At least when something is broken and you fix it, you notice what was done!

 

So here’s the scenario: You have a car and it needs something. We’ll get into some specific number scenarios in a bit, but for now, we’ll be vague. Whatever the number is, you don’t want to spend it, so this idea pops into your head: “If I get a new car, this problem would be solved. I wouldn't have to spend money fixing this car.” Add the fact that most of us LIKE getting new things, and you’re off to shop for cars.     

But wait a minute, it's not always the money! For some people, driving an old car that needs x,y, and z is unnerving. This is the vessel that transports our families from A to B. In many cases our livelihood depends on our vehicles. It NEEDS to be safe and reliable. I agree with this, and in many cases, peace of mind is enough of a reason to buy a new car, especially if you can afford it. When you take money out of the equation, very little beats a brand new car, with a warranty and roadside assistance.

For this article, I am going to focus on the finances, as in many cases, this is what we hear as we are consulting with clients. We’ll start with a newer car scenario and work our way to what I think are the more difficult decisions.

So, you have a 2013 BMW X5 (just like my wife Stephanie). To buy this car new today, you are going to spend ~$70,000, but we’ll call the market value $25,000. We’ve discovered it has a couple of oil leaks and needs a good round of maintenance (fluids, filters, brakes, etc.). All of this adds up to $2,850….WOW, that is a lot of money! Clearly $2,850 is less than $70,000, but what’s next?  Will I have to do this again and again? I could just go buy a new car and not have to worry about it.

 

The key word here is “new”. The only way you are going to get away from maintaining or repairing a car is to buy a brand new one. At $70,000, you could spend $3,000 per year for the next 23.3 years!  Plus, that $70k car is going to lose $45k just in depreciation over ~6 years… In essence, you are “spending” $7,500 per year to drive this maintenance-free car, and we haven’t even gotten into potential finance charges.

So let’s look at a very different scenario: You’re driving a 2006 Mercedes-Benz e350 with 135,000 miles. You take it in because the transmission feels funny. We won’t even worry about what this car costs new. Right now it is worth $8,000 if it doesn’t have a transmission problem.  Your mechanic tells you that it needs a new transmission, plus several other maintenance items to be safe and reliable….to the tune of $8,450. There is no way it makes sense to put $8,450 in a car that’s only worth $8,000! Right? Better yet, let’s say it’s a 2002 VW Jetta that’s worth $2,000 and you find out it needs $4,500 worth of repairs and maintenance to be healthy. How on earth could you justify this?

Well, before we proceed we need to ask a couple of questions:

1. Do you like your car?

2. Does your car suit your needs?

If the answer to either of these is “no”, then it's time to go car shopping. I wouldn’t put this kind of money into a car I didn’t like. If you’re going to need a different car anyway, it would be a waste of resources.  

If your plan is to trade your car in on a nicer used car, be very cautious. We perform a lot of pre-purchase inspections, many of which do not lead to sales. There are great used cars out there, but please have them checked out. It is not uncommon for someone to bring us a “new-to-them” car that needs several hundred dollars of work to be up-to-date on maintenance….sometimes it’s several thousand. Remember, the previous owner traded that car in for a reason. It may have been because a repair facility told them it needed a lot of work!

Back to the $2,000 Volkswagen Jetta (or an awesome VW Cabrio, like the one below). Let’s trade it in. Let’s upgrade to a 2006 Audi A4, which should run around $7,000. Since we’re trading it, the dealer is going to give us $800 for the Jetta. We now owe $6,200 for the Audi. Clearly, this is more than the repair bill would have been on the Jetta, but it is a nicer, newer car. What we didn’t know is that the Audi is going to need a timing belt next year. This is going to cost somewhere around $1,200. After the timing belt, it will need brakes, then shocks, etc, etc. You get the point.

 

If your mechanic is really good and knows your car, they could have sorted out the VW for $4,500 and given you a 3-year/36,000 mile warranty to cover all of the items that needed attention.  Unfortunately, we don’t have X-ray vision or automotive psychic powers. I can’t guarantee that there won’t be something else in a few weeks/months, but if we do our due diligence by having a trained technician inspect and drive the car, the likelihood is very low.

This leads me to my final example – the car that “nickels and dimes you to death”. We’ve all been here before. Thoughts of the movie The Money Pit come to mind. We spend the $4,500 to fix this Volkswagen, then 6 months later it’s another $500, then 3 months later it’s another $350….UGH!! When will it stop!? Well, the truth is that it will never completely stop. The right shop should be able to at least consult with you on what to expect. This is truly a test of your intestinal fortitude. It is hard to take blow-after-blow, but it can pay off, especially if you really love the car.  At a certain point, many of us just throw our hands up and get rid of the monster. In reality, these are the best used cars to buy! Someone has already gone through the financial and emotional pain of repair after repair, taking care of 90% of what the car might need. Say you spent the $8,450 to fix the Mercedes I mentioned earlier, and now you are faced with another $750 for an unexpected water pump failure, so you trade it in. The next person will get the benefit of all of the money you invested in that car. They’ll have new brakes, new fluids, new filters, etc. Wouldn’t you like to buy this used car?  Here’s the secret: You already own it!!  If you trade it in you might get $5,000 for it. You can go through the pain of selling it yourself and maybe net $7,500, but what does that buy? It’s either a down payment on an expensive new car or another used car that potentially has a whole new set of problems.

We know that some older German cars are going to need $2,000-$3,000 of work per year on average. If you are looking at an older “flagship” car like a BMW 750li or a Mercedes-Benz S-class, it will be even more.  Some years it’s only $300 worth of maintenance, others you might have the misfortune of and have to replace a $3,500 control module plus another $1,200 for new brakes. As frustrating as this can be, it is still a lot less than even the depreciation on a new car.

At the end of the day, transportation costs money. Some of us choose to spend more on our cars than others for a host of reasons. Personally, I drive BMWs because I like the way they handle. They are absolutely more expensive to buy and maintain than a lot of other cars out there, but I like what I like. I don’t have unlimited funds, so I choose to hold on to older cars, maintain them to the highest level, and fix them when needed. This strategy is what led me to start Reggie’s Motorworks. I like being able not just to take care of my own cars, but share this passion with you.

 

I hope you find this blog post helpful when you are deciding what to do with an aging car. We are all very different people with unique priorities and strategies in life. This is just my take on the numbers.  If you have a different perspective to share or want some consultation on a specific situation, feel free to comment below or reach out through social media.

Oh and thank you to Stephanie for letting me recycle her amazing images! You can check out more of her work at stewartimagery.com

Have a great weekend!

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