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“Well, I don’t know. Is that the best you can do?” Said Tom, a prospective car buyer. “If you don’t drive it on outta here someone else will. They’re selling like hotcakes,” said Delbert, Ace Motors salesman. “We can’t afford these ridiculous payments. I guess the new deck and the kitchen remodeling will have to wait,” said Tom to his wife Joan. “Listen, Delbert, my old car should be worth a lot more than you’re offering me for it on the trade-in. How ‘bout upping your offer,” said Tom. “Well, I’ll have to check with the boss. Be right back,” said Delbert as he left. “Joan, we just have to get out from under these constant car payments. I wish we would have taken better care of our old car,” said Tom. “Sorry, Tom, Joan,” said Delbert when he returned. “The boss says it’ll take maybe $1500 to $2000 just to fix up your old car so we can sell it. Our final price stands,” said Delbert. “Tom, let’s just sign and get this over with. We need the new car and I just don’t see any other way to go right now,” said Joan. “I guess you’re right, honey. We’re stuck once again. Why don’t they build cars to last any more?” asked Tom as he pleaded with Delbert. “We just sell ‘em and fix ‘em Tom. We don’t design ‘em. Now Tom, sign right here. And Joan, you sign here,” instructed Delbert. Sound familiar? Unfortunately that’s just what most people go through every 2 to 4 years, whether they buy a new or a used car. It doesn’t have to be that way, however. We can, to a large degree, control our automotive destiny. Did you ever notice the older couple driving around town in the 1953 DeSoto? Let’s call them Mr. and Mrs. Miller. It’s true that they don’t drive much. However, next time you see them, follow them home (just pretending), and watch what Mr. Miller does after he parks the car in the garage. He probably wipes down the car body with a soft rag, checks the oil, sniffs around for any strange odors and, generally gives “ole Bessy” the once over, If he notices anything out of the ordinary, he’ll have Jakey down at the garage look into it. He and Jakey have been doing business for 30 odd years now. Mr. Miller keeps a maintenance checklist hanging by the garage door and checks it for any upcoming maintenance activities before he joins Mrs. Miller for a snack in the house. Jakey knows about Mr. Miller’s maintenance checklist and together they confer on it often. So what’s Mr. Miller’s secret? Let’s pull it out of the story by the numbers. 1. He doesn’t drive much. 2. He keeps his car in a garage. 3. He keeps the body clean. 4. He regularly checks the oil. 5. He gives his car the “once over” regularly. 6. He takes care of problems as soon as they arise. 7. He has a qualified mechanic whom he has known for many years do his maintenance and repair work. 8. He keeps a maintenance checklist and checks it often. 9. He keeps his mechanic apprised of his maintenance checklist and discusses it with him. 10. He’s obviously proud of his car and has even given it the nickname “ole Bessy.” After all, how could he let a family member like “ole Bessy” run down! You can do what Mr. Miller does and avoid Delbert at Ace Motors. It’s not difficult and it doesn’t take a lot of time. Before we go any further, we would like to show you just how much money you can save by properly caring for your car. By the way, the next section serves as the most outstanding justification for following the advice in this guide. You will save thousands of dollars and come out way ahead of all your neighbors and friends. While they are making their car payments, you will have money in the bank. A YEARLY EVENTEvery year about mid-September it’s the same fanfare: a parade of new cars from out of the manufacturers’ doors or off the drive ramps at the dock. Millions are spent on advertising to appeal to your desires for that new car. There’s a lot of psychology to it, and for the most part, it works very well. So you buy your new car. It runs great, feels great, even smells great. We don’t like to spoil your fun, but there is something you have to be aware of in regard to your new car that you might not be aware of now. It’s called depreciation. It begins to eat away at the value of your car like a cancer as soon as you take possession. In fact, the day after you drive that new mechanical marvel home, it could have already lost up to $1,000 in value. Where did that money go? Well, it’s really in the salesman’s pocket—and you put it there. This might seem almost criminal, but sorry, you can’t press charges because it’s all legal. It is not against the law for a fool to part with his money unless he is defrauded. Car dealers don’t have to fraud anyone to remain in business. They’re just happy to take your money. Let’s talk money now. ECONOMICSIt will help to understand a few accounting definitions before we get into the real meat of the subject: • Present worth (P) — the present sum of money for which you promise to make specified future payments. • Future worth (F) — the sum of money at the end of a number of payments from the present date; is equivalent to the present worth with interest. • Interest (i) — an interest rate for a certain period of time, or money paid for the use of borrowed money. • Compound interest — the interest each year based on the total amount owed at the end of the previous year. The total amount includes the original principal plus the accumulated interest that had not been paid when due. • Principal — the original amount of a loan. • Incremental payments (installments) — all such future payments or series of payments that will repay a given principal plus interest. • Annual payment (A) — the end of period payment or receipt in a uniform series, continuing for the number of periods. The entire series is equivalent to P at interest rate. The basic question we want to answer is: Given a certain time period, is it more economically sound to buy a new car, a used car, or keep up the old car? Let’s say our new car costs $12,000. The interest rate is 10% per year (or 10% / 12 = 0.833% per month). The loan will be for 4 years, or 48 months. Also, let’s further suppose we have a car to trade in (or sell privately) that will be worth $4,000. First we want to find out what our annual payment (A) is going to be on the loan. We’ll use the definitions given previously. P = $12,000 - $4,000 = $8,000 (We are not financing the $4,000) = 10% (0.1) n = 4 years A = Unknown To find A: A = P[i(1 + i)2] ÷ [1 + i)n - 1] Then A = $8,000 [0.1(1 + 0.1)4 ÷ [1 + 0.1)4 - 1] = $2,523.76 annual interest. Then the total car payment for 4 years would be 4 x A = 4 x $2,523.76 = $10,095.04 The original price minus the trade-in value was identified as P = $8,000. Therefore, the total of all interest payments is $10,095.04 - $8,000 = $2,095.04. Next, we want to find the total paid-out cost for the new car for 4 years. We will not add gasoline, oil, or license costs, however. Some realistic numbers might be as follows: $10,095 for loan payments (previously determined above) $ 2,800 for insurance ($700 per year is modest) $ 1,000 maintenance (an average over 4 years for a new car) --------- $13,895 total paid-out cost of new car That’s what you will pay for the new car. Now, when you consider you also traded your old car you should add the $4,000 value to the paid-out total. All told; you have $17,895 tied up in a four-year-old used car! By the way of comparison, let’s see where you would be financially if you had kept the old car and had not bought the new car. First, we know we won’t have any car payments. We will have insurance and maintenance as before, however. Again we won’t add gasoline, oil or license costs. $0 for loan payments $1,600 for insurance ($400 per year for a used car is average) $2,000 maintenance (an average over 4 years for a used car) ------- $3,600 total paid-out cost of old car Again, add the $4,000 value of the car, and you have $7,600 tied up in the old car. That’s a savings of $10,295 in 4 years ($17,895 - $7,600). Note that the $4,000 value of the old car was not depreciated over the 4 years for ease of comparison. Actually, the value of the old car after 4 years may be about $1,000 or less. If you were going to use it as a trade-in for a newer car, at the end of 4 years you would have to properly account for it. You can do this by assigning a $1,000 trade-in value for the old car in the example and, say, a $5,000 trade-in value for the new car in the example at the end of 4 years. You will still be way ahead of the game by maintaining the old car. Quite simply, you need to start taking care of your car. There are not too many people who can honestly afford to give up over $10,000 or more, as in our example, every 4 years for a new car. Look at the cold, hard facts when deciding on a change of cars. Don’t let the car manufacturers sway your decision with their clever advertising. They’re good at it, but, you can beat them. Read the rest of this guide and learn how you can keep that car of yours looking and running great. Prev: Introduction Next: The
Philosophy of Car Care |