My Last New Car

I bought my last new car back in 1998.  It was a forest green Jeep Cherokee that I bought from a dealer in California.  I brought in a piece of junk, 1992 Ford Explorer with 80,000 miles on it that had lost a transmission while we were going to the airport for Thanksgiving (4:30 in the morning) and then again due to a botched repair job when we were driving home for Christmas a month later (this time at midnight).  Being stuck on the side of a dark California freeway two times was enough.  It had also stranded me once before for some transmission work at 60,000 miles during spring break.  Did I say that 1992 Ford Explorers were pieces of junk?

At the Jeep dealer, we traded in the Explorer for I think $7000, which I thought was a good deal (the Ford dealer, after saying how well Explorers hold their value, offered us $3500).  We bought the Cherokee for about $22,000, which included the extended warranty plan for “free” since the finance manager lowered the interest rate such that the loan payoff was the same.  (Note, they insisted that the interest rate they were charging me was 8%, but they would not give me the tax and license fees, and I figured out later that if I had not bought the “free” warranty, the rate was actually something like 11%!  I wonder what would have happened if I had still refused the warranty.)  Needless to say, they saw me coming, and some car deals will lie, lie, lie.

Anyway, I had a 6 or 7 year loan or something for #50 per month or something.  It was my second new car, and I figured I would buy another one in five or six years or so.  I was “normal.”

That’s when I started listening to the Dave Ramsey show.  I realized how stupid I was paying that car payment.  As Dave says, I got “sick and tired of being sick and tired.”  I made extra payments and paid it off about 4 years early.  That was 10 years ago.  The car now has about 150,000 miles on it and it still going strong.  (I did find that Jeep Cherokees are a lot better built than Ford Explorers were.  Unfortunately, a lot of the reliability has to do with the 6-cylinder inline engine, which they don’t make anymore.  I think they stopped making the Cherokee because people were buying them instead of the Grand Cherokee.  Now they have the moronic Liberty – sad, but I digress.)

In the mean time, we bought a Toyota Camry with 130,000 miles on it for my wife for about $3500.  We drove that car for another 120,000 miles and didn’t have much more than standard maintenance and an occasional $500 repair.  We did lose a wheel bearing at 230,000 miles that cost something like $1100, but come on – 230,000 miles!  We finally sold the car in about 2007 with 250,000 miles for $1500.  So we drove the car for about 8 years, paid a total of maybe $2500 in non-maintenance repairs and $2000 in depreciation.

The Jeep, meanwhile, went from about $22,000 to $5,000 in value and still had about $1500 in repairs.  That’s $18,500 versus $4,500.  And that doesn’t even include the $3000 in interest I probably paid since I took out a loan on the Jeep.  Believe me, the new car smell in the Jeep is not worth $14,000 more.  Actually it was a pain to keep it under 55 for the first 500 miles on California freeways.

We now only buy cars for cash.  We replaced the first Camry with a 2004 Camry with 75,000 miles on it.  It now has about 160,000 miles and we’ve had the same maintenance experience as we had with the first one.  Note we sold the first one, not because it seemed worn out, but just because my wife was tired of it.  We still see it on the road today every so often since we live in a small town.  In another two or three years, when we get tired of this Camry, we’ll probably buy another 4 year-old model.  We may even splurge for a two-year old model since we have a lot more savings now and the difference won’t mean that much.

Not having car payments for the last 12 years or so  has made a big difference in our finances.  We have been able to put money away for retirement and college.  We have not had any credit card debt (or credit cards at all since about 2003).  When we need a new used car, we have the cash to buy it.  We also had to make some repairs on our house ($5500 to rebuild a patio that was built wrong, $3500 for a new air conditioner, and about $7000 for a new roof over the last two years).  We were able to pay for all of these things with cash, and even put in granite countertops in the kitchen without taking out a loan on the 401k or a HELOC because we don’t have car payments.

Think about it – if we maintained two car payments like most families, at maybe $400 per month per car, we would have $9,600 less per year, or about $88,000 less over the ten-year period, taking into account the additional car repairs and cash price for the cars.  That is a lot of money to spend on something that drops in value every year.  I’d rather have a ten-year old car and no mortgage than a shiny two-year old car and a $40,000 HELOC, no college savings, and a big loan on my 401k.

That’s why the Jeep was my last new car until my net worth exceeds $3 million.  No, probably not even then.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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