WARNING: The following contains unadulterated opinion. It is made even more dangerous by the fact that this happens to be a topic I get really fired-up about.
That's right. If you consider your car or truck an investment, then you ought to make darn certain you don't have ANY other investments like this to your name. Automobiles could easily be the absolute worst "investments" you will ever make. Why? Because a car or truck siphons money from your wallet from the moment you sign the dotted line to purchase or lease it. Such an entity — leather heated seats, chrome wheels, or not — is not an investment, nor is it truly an asset (even when paid for). It is a liability. It takes money from you day after day.
Let me clarify: I'm not talking simply monthly payments here, or even sticker-price-plus-interest. Include the cost dollars for those items, certainly, but then think about how much money you lose to depreciation.
And insurance premiums.
And insurance deductibles.
And yearly tag and registration fees.
And excise and other taxes.
All these monies being poured and poured again into an object that will at best return to you a value thousands less than that which you paid for it to start with.
Sadly, the best you can hope for is to mitigate your losses as much as possible.
No matter what that nice young salesman tells you, there simply isn't a "perfect" car in existence. Not the ones with 5 miles on them, or 50 miles, or 100,050 miles. Cars are astoundingly complicated machines, advanced along lines that would've dropped the jaws of people twenty years ago. Still, they are just machines, and they will all have problems. But they don't all have the same problems, and they don't all have the same frequency of problems. Which leads me to my next topic:
The future is darn hard to predict. But at this point in my life, I can confidently say that I will only purchase one of a few makes of automobiles:
IF I'M BUYING A STANDARD / MID-RANGE VEHICLE:
3. Nissan. (Yes, I skipped #2 for a reason.)
IF I'M BUYING A LUXURY / HIGH-END VEHICLE:
Because I place an extremely high value upon owning only troublefree automobiles (or, at least, the ones most likely to be troublefree), my choices here are pretty limited. Since they haven't yet invented the perfect car, this is merely a game of odds. I'm playing the odds that the brands above will require vastly fewer repairs, hold better resale value, and generally just give me a better ownership experience than those not listed. Personal experience has shown me these odds and led me to these brands. What I see with my own eyes every day tells me those carmakers listed above are simply on a different playing field, quality-wise, than their competitors. (Actually, it's more like a different universe, but I think you get the message.)
So is this a case of "You get what you pay for," or what? Well, yes and no. In some ways, the sticker price is a strong indicator here. In other ways, it's not. You'd think that if you were forking over $55,000 for a brand new luxury vehicle (think Cadillac), you'd be getting a very well-built machine. Wrong. What you'd be getting is a nice-looking chunk of metal, plastic, and glass that's a great driving machine . . . when it's driving. In fact, that Caddie is likely going to be visiting the nearest repair facility at a pretty regular clip, depending on how long you can let the squeaks, rattles, loose trim items, and inop heaters / air conditioners and other electronics build up before you simply have to get them fixed. (These repair visits are in addition to regular maintenance visits.)
On the other hand, I've heard numerous people complain about how expensive Toyotas and Hondas are when compared with similar vehicles. And they're right — Toyotas and Hondas sticker-price for significantly more money than their American-made counterparts (which will also likely be equipped with more optional stuff, and yet sell for a lesser amount of money). But the market bears these prices as they are for a reason. There are reasons why a five-year-old American car (65,000 miles) will likely have lost almost 75% of its value over that time, while a five-year-old, 65,000 mile Honda Accord has lost just a smidge over 50% of its value.
When cars break, their true cost stops being measured in dollars alone. For instance, if you value your money and your time, then Cadillacs are a horrible choice nearly every time. For starters, sign your name on the dotted line and drive a brand-new DeVille off the lot, and you just sliced off 25% off its value. Further, on my personal Quality Scale, these vehicles are just a notch above Disaster. And based on what I've witnessed over the last seven years, most other American cars and carmakers do an admirable job of attempting to attain Cadillac's level of supra-fallibility, glossy though it may be. Most people are surprised when I refer to Cadillacs in this manner. But I know what I see every day.
Junk with a $45,000 sticker price and a prestigious name garnishing the trunk is still junk.
Seems like I read this every day: "American cars last much longer than they did just fifteen years ago." Please ... don't make me laugh. People may be holding onto their American cars longer, but often that's only because they're so upside-down (owing more on the vehicle than it would be worth in resale) in them they have no choice but to keep driving. In fact, I tell everyone who asks: If you're thinking of buying a used American-made vehicle and keeping it beyond the period it will be covered by a manufacturer's warranty, then you'd better give deadly-serious consideration to purchasing a decent extended warranty. (It ought to be mandatory for used-Cadillac buyers.)
Disturbing Trend: I'm seeing more and more twenty-somethings (usually couples) purchasing used, high-mileage Cadillacs and upper-line Oldsmobiles and Lincolns from busy-corner car lots. These couples are stretching their budgets to afford the car at all, but they're giddy because they think they're getting so much more car for their price-range money. Due to their tight budget, adding an extended warranty to the vehicle is out of the question (or they're in love with the car and its name so much that they don't figure an extended warranty will be necessary) and they forego that protection just when it's an absolute necessity. A few months down the road, when the car is getting towed into the service department with regularity, they're realizing just why it was that they were able to find that fancy car in their price range. Five or more years of payments just started, and already the only thing keeping the car on the road is the couples' stash of credit cards.
In the car-buying world, there are Good Decisions, Bad Decisions, and Disasters. When you buy, you're spending tens of thousands of dollars on one of those three. Once it's yours, it's yours.
So be careful. By the time you know for sure which decision you bought, it will be too late to go back.
Now that some banks are willing to float 96-month loans on vehicles (yes, Virginia, that's 8 years to pay off a vehicle whose manufacturer warrants it against defects for only 3 or 4), there is a whole lot of wiggle room for finance departments to work fringe items into the deal and still get you close to the monthly payment you want. Couple that with the sixty-seven different species of rebates and dealer incentives out there, and you have a recipe for sweet profits (for the dealer) when the deal is signed in the finance office. The customer might walk away happy — they got the payment they wanted — but those payments will go on well past their love for the vehicle
Remember: The longer the term, and the smaller the down payment, the more you're paying for the car. And the longer you'll be upside-down in it.
"Upside-down buyers are rolling an average $3,700 in old debt into their next car," writes Lawrence Ulrich, the "Wheels" columnist for Money magazine. "About 30% of buyers owe more on their cars than they're worth in trade. Token down payments have shrunk to 5%. Nearly 40% of new-car buyers took loans longer than 60 months in the fall of 2003. Almost 32% of buyers opt for a 72-month term."
In financial terms, signing up for loans like these is like asking for a swift kick in the privates. It hurts surprisingly little at first, but toward the end, you're wishing for a bullet to take the pain away.
In my opinion, the single most important factor in making a good car purchase: Buy a good car.
When financing, keep your payment period to no longer than 36 or 48 months.
When financing, keep the vehicle until it's paid off.
Here's a novel idea: Drive your vehicle for at least ten years. (Not tough to do with Hondas and Toyotas.) Once the car is paid for, pop open a nice bottle of champagne, celebrate . . . and keep making the payments to yourself. By the time that ten years is up, you'll have saved a mighty hefty chunk o' change toward your next set of wheels.
Buy used. Let someone else pay that monstrous first year or two of depreciation.
Consumer Reports: With a big purchase, research always comes first. Generally these reviews (especially repair histories) are dead-on.
I have absolutely zero experience with the European carmakers (BMW, Mercedes, Volvo, etc.). They might be good; they might be bad. All I can say is that from the few repairs I've seen done, they're significantly more expensive to repair than their Japanese and American counterparts. But that doesn't mean I wouldn't love to win one of these. Just for funsies, of course.
What I drive:
— 1995 Honda Accord. Until late 2004, this machine had not a single failed-part repair since I purchased it in 1996. (In August 2004 I replaced the starter, as detailed here.) As of March, 2005, it still runs like a champ, starts without fail, and gets fabulous mileage. 126,000 miles and begging for more.
— 1995 Nissan truck. One failed-part repair (wiring) since purchased in 1996. Durable, inexpensive truck. Little power, yucky mileage — but makes up for it with a terrible ride. Did I mention durable and inexpensive?
— 1967 Ford Mustang. Wife's first car; we take it for a spin once a month. They don't make 'em like they used to. There's actually free space under the hood. Over thirty-five years old, and still starts reliably, albeit after a date with the battery charger.
Michael | February 9, 2004 (Updated March 5, 2005)
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