How to Save 90+% on Auto Costs: Live Like a Rich Man, Ride Like the Homeless

Changing of the guard: New car (right) and old car (left).

Recently, we witnessed the end of an era - Susan's car, the famed "Green Bean", was retired in favor of a new ride (the "Black Bean"). On this monumental day, it occurred to me that I have not yet broached one of my favorite topics, the incredible, unnecessary cost of owning the wrong type of car.  

Read what I just wrote carefully. I'm not against car ownership in the slightest. In fact, It's cheaper for me to own a car than using public transportation, even in a place like Chicago that has a good system.

If that surprises you, just check out the numbers: 95+% of my driving is commuting to work, a 25-mile round trip. In addition to driving, my options include (a) taking the train or (b) riding my bike. Consider the time and cost of a round trip using each mode of conveyance:

Time (round trip): Car (90m), public transit (120m), biking (130m). 
Cost: Car ($3.50, incl. gas at $3/gal and maintenance), public transit ($5), biking ($0.50, mainly replacing tubes/tires).

Clearly (and sadly), public transit is the worst option. Ignoring the environmental/comfort/etc arguments, there are simply no cost- or time-savings of mass transit compared to driving. Even with $5/gallon gas, the number's still don't work. Biking is the frugality winner, and I do bike on occasion, but I like to save my time and legs for running, so it's an occasional thing*. 

So driving a car isn't too bad, even in a car-unfriendly big city. The numbers don't lie: automotive operational expenses are simply lower than the alternative. For me to switch to mass transit, Chicago would have to penalize driving, either by making my commute more expensive (tolls, higher gas prices, parking) or disincentivize me (e.g., driving takes much longer than riding the train). European and Asian cities are often better at this, but that's a discussion for another day. 

The point, as it relates to the topic at hand, is that, despite what you might assume, it can be cheaper to drive than take the bus. While I generally support the most efficient, practical way to achieve efficient transportation, preferring car travel presupposes one very important thing: the cost of the vehicle itself. The real trap (as far as efficiency) comes in the form of vehicle acquisition costs. Since one of the recurring ideas that's part of my life philosophy is the avoidance of traps, both personal and financial, I want to make an effort to point out just how much the wrong attitude towards car buying can and will cost you. 

A Simple Primer on Car Buying

I do not like car payments. In 2002, with my trusty 1989 Buick Park Avenue (thanks Mom and Dad!) dying, I made the leap and purchased a brand new 2002 Toyota Corolla. For the next 60 months, I paid exactly $287.72 to Toyota's financing department. This was in grad school, and this payment represented quite a chunk of money back then. When the car was paid off, I vowed to never again have a car payment. Almost a decade later, this is still true. I thought I was so smart, driving a small, sturdy car into the dirt.

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A shift in concavity here represents the optimal concomitance of price and longevity. Also - Jaguars depreciate like a motherfucker, don't they?

Then I met Susan, who quickly became my girlfriend and now my fiance. While I was generally the more financially saavy of the two, Susan was light years ahead of me in the car game. She bought a nine-year-old Geo Prizm in 2003, which she drove thirteen largely problem-free years. Seeing the eventual end, we traded up for a "new" 2001 Chevy Prizm.

When replacing Susan's car, our selection was informed by an observation I'd made while monitoring car prices - at some point there's a conclusion of the concavity of the depreciation curve, creating an abrupt set point where a car's value essentially bottoms out. The beginning of that curve is generally predictable (based on historical data), and represents something of a sweet spot for purchases. In the Toyota family, that sweet spot can be depressed even further by seeking out rebadges (Pontiac Vibes, Prizms, etc.). 

While Susan and I share a strategy of driving our cars into the ground, she has employed the additional step of searching out modest used cars. I wondered how much more of an advantage this really gave her, so I decided to compare costs. In fact, I decided to take it one step further and create a three-way comparison against a hypothetical driver who trades in their car every five years  (this is pretty reasonable - in 2012, average new car ownership time reached an all time high of 71.4 months, although this is dropping as the economy improves).  

Here's the small print if your interested: I've compared the plans over the last fifteen years using our actual car costs and expenses. For the sake of a straightforward comparison, let's imagine our hypothetical new car buyer also has an eye for the base model Toyota Corolla, as Susan and I do. Let's ignore the things that are roughly equivalent, like routine maintenance and registration expenses (used cars will have more of the former, but less pricey title- and tag and fees). I'm ignoring inflation in car prices (which would only affect the new car buyer), but am including a 5% new car tax (which is only half of what it costs here in Chicago!). Trade-in values were calculated by determining the fair market value (per Kelley Blue Book) of a private party sale (which is far more than trading it in at a dealer). For repairs, I've included our actual expenditures and (perhaps generously) assumed no repairs on the new car buyer. I've also ignored the increased insurance costs of insuring a new car, not to mention the cost of anything above liability insurance. To really level things out, I'm subtracting the current KBB values of our vehicles, just to level out any lingering differences in the final value of our vehicles (in reality, stretching older vehicles further would reduce costs even more). In short, these calculations are very, very friendly towards minimizing/underestimating the expense involved in the new car strategy - in the real world, new car ownership would be more expensive. 

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The Regular (Bad) Way

John Q Driver. Buys a new car every five years. For our example, let's assume a sensible, modest car like the Toyota Corolla (current MSRP: $17K). Finances purchase at low-single digit on a 60-month plan. Sells old car on private market for exactly KBB average value. Owns three cars over a fifteen year period.

The Noah (Better) Way

Buys a new car, planning to drive it into the dust. In this case, my actual 2002 Toyota Corolla. Finances purchase at low-single digit on a 60-month plan. One car over this period.

The Susan (Best) Way

Buys a nine-year-old Geo Prizm (AKA a rebadged Toyota Corolla... see a pattern here?) for $3K, cash. Drives it until this year, when it was replaced with a 2001 Chevy Prizm which we paid $1500 for, cash. Sold original Prizm to a friend for $800.

 




Holy fucking shit. By voluntarily driving a reliable beater, you're saving nearly $200 each month compared to someone who's driving a newish car. And these are friggin' Toyota Corollas we're talking about - suffice to say, you're not exactly impressing anyone driving one of these things. And while we're on the topic of car ownership, let's be real: most of us venture into the vast expanse of so-called mid- and upscale markets, making our actul numbers even worse.  

Other Reasons to Drive a Garbage Car

Driving a beater imbues you with a sense of fearlessness. Every car in Chicago that regularly parks on the street quickly accumulates a series of scratches and dings. Those with new cars actually attach these things called Bumper Buddies to their fenders to prevent routine scratches. My car, on the other hand, is covered with battle scars; I'll happily add another while squeezing into the space that's a little too tight for Mr. New Car. 

Insurance above the state minimum is a non-issue. Why would anyone pay an extra $500 a year on a policy with a  $500 deductible to replace or repair a $1500 car?

Maintenance is cheap, a total non-issue. We don't go to the dealer for anything (I assume everyone in the free world knows that one already). In my experience, auto repairs are both  less frequent and cheaper then you'd think.

Wrapping Up

Based on sheer dollar amount, driving a nice vehicle is the worst investment the average consumer can (and often does) make**. If you've ever peered down from the second story of your BMW SUV and chuckled at a guy driving a car held together with duct tape, don't sweat it - he's probably laughing at you also. 

On the other hand, if you've seen the light but are afraid of making the switch because you already own a nice car and don't want to take a bath on a trade-in, don't fall into the sunk-cost fallacy on this one. Just do your own math - you'll quickly make back any short-term losses through ongoing savings achieved by dumping the new car monster immediately.  

If you haven't already pledged to buy an old car by now, I'll try to reach you one final way: Contrary to most personal finance folks, I'm not a big fan of advocating for cutting out small purchases. Screw all that noise about never going out for lunch or buying coffee from Starbucks. Just fix the car thing. Who wants to constantly control fifty little urges when you can do one big thing and get the same result? By doing the car thing smart, you can get all the toys, coffees, meals out, drinks at bars, et al. that you could handle. Compare the pleasure of living your daily life as you choose to the enjoyment you get from driving an import that was made this decade and ask yourself which you'd rather have more. 

*Biking is a great way to get exercise; if you're not active, I highly recommend it. 
**With the possible exception of private school.

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