If you want to be rich, never buy a brand new car or a car in its first year of redesign. I've been a car fanatic forever, but I've also been a personal finance blogger since 2009. My goal for everyone is to reach financial independence sooner, rather than later.
After owning Moose, my 2000 Land Rover Discovery II for nine years, in 2014 I decided to lease a more fuel efficient car named Rhino, a 2015 Honda Fit. Since I was a kid, I've always loved the sportiness and reliability of Hondas. My parents always drove very used Japanese cars.
Even when I owned an $80,000 Mercedes G500 as an idiot 25 year old back in 2002, my fondness for compact cars never waned.
The older I got, the less I cared about driving a fancy car. All I wanted was to have a reliable automobile that required a minimum amount of maintenance so I could cherish my valuable time. I thought Rhino would be that perfect car, but he's not turning out this way!
New Cars Are Not Necessarily More Reliable
One of the biggest fallacies is the belief that new cars are more reliable than older cars. Based on my experience of owning 10 cars over the past 20 years, I feel that used autos are often more reliable than new cars because they've already gone through the “break in” period.
When I was still looking to save every penny I made before retiring early, I would look to buy cars within a year AFTER they completed their major 50,000 or 100,000 maintenance schedules. By then, the greatest depreciation hit had already been taken, and the big maintenance cost had already been spent.
Instead of feeling nervous about reviewing the mounds of maintenance records when buying a used car, I felt happy that all those maintenance issues had been already taken care. The more maintenance records provided, the more confident I was in buying the car. Besides, I had a trusty cheap auto-mechanic from my days living frugally in Chinatown.
After I bought a new Mercedes Benz G500 in 2002, the car was in the shop at least once a quarter during the first year due to electrical gremlins. Since that car, I swore never to buy new again until I relapsed in 2014. I figured, surely a Honda Fit would be one of the most maintenance free cars ever because of its awards, track record, and popularity. I was wrong.
Related: Check the NHTSA website for the latest recalls
Problems Begin To Mount With My New Car
Check out this image I took from the service man's computer of the various Honda Fit service recalls since I bought the car in September 2014.
Since I bought Rhino, I've had to change my front bumper because of a crash safety test failure issue, do a couple other things I don't understand, and lubricate all my door handles because of some corrosion problems. These were all mandatory recalls based on my lease terms.
I'm glad Honda Corp is being proactive in making the Honda Fit as safe as possible, but they should have built the car right the first time because they've been making motor vehicles since 1959!
All told, Rhino has been in the shop twice for 8 hours, and I've had to rejigger my schedule by another 4 hours to drop him off and pick him up. In fact, I wrote this post at a coffee shop as I waited for them to finish my door handles.
To make the most out of an unexpected situation, I made $10 picking up a passenger along the way to the dealer from home, ate a power lunch with my largest online client downtown, saw another friend for coffee, and pounded out this post. Thank goodness for being able to kill time working online!
Auto dealers actually love recalls because the car manufacturer pays its service department to fix the problem. The gross margin for service and parts is over 50 percent for most auto dealers vs. just 8 percent for new-vehicle sales. If auto dealers can successfully sell you a junker for 0% profit margin, they probably would.
Now The Automobile Won't Start
Just the other day, after two hours at the tennis club, Rhino wouldn't start. Even though none of his lights were on while I exercised, the motor wouldn't catch because the battery somehow died. I had driven him for over 50 miles the weekend before as well.
Luckily for me, I pay $2 a month for roadside assistance. Unlucky for me, I had to wait another hour for them to come out to jump my car. When the guy finally came, of course Rhino's engine could start on its own.
The technician told me to always turn the auto headlights off during the day because even though the lights are off, they drain your battery while your car is off. He also said car manufacturers with this feature don't tell you this so they can make more money on service and battery sales. Not surprised.
A week later, Rhino wouldn't start again so I finally sent him to the dealer to get serviced. They told me there was nothing they could do because he started up just fine. Murphy's Law of course.
I told them that they should keep him overnight for at least two days, give me a free rental car, and then try again. Lo and behold, they couldn't start him up on the third day and found out he has a malfunctioning battery sensor. Rhino will be in the shop for a total of six days because they've got to order the part!
At least I get to do donuts w/ my brand new VW Passat I'm borrowing from Hertz!
The Right Age Of Cars To Buy
I leased a new car $20,500 car because it complied with my 1/10th rule for car buying and I thought it would save me time. If I could do it over again, here's what I'd do:
1) Buy the second year of a new model. Let the car manufacturer figure out all the gremlins after a year's worth of consumer usage. You can also wait until the third year, but the new model may no longer interest you as much as when it first came out.
Further, a new model might be waiting in the wings, making you feel stupid for not just waiting a little while longer to pay a similar price for an updated model. I only recommend buying new if you have the financial means to do so, have no access to a good auto mechanic, or have no automobile knowledge.
2) Buy a second hand car that is five years old with between 50,000 – 70,000 miles. If taken care of properly, a five year old car still feels quite new. It's past the typical warranty period, so it's important the car has done all the maintenance according to schedule. Make sure you get all maintenance documents. Also make sure the big ~50,000 maintenance has been done. This often costs $500 – $1,200 to complete.
As you can see from the chart below, the average five year old car loses a massive 60% of its original value, from $30,000 down to $12,000, depending on mileage and condition. Meanwhile, cars can easily be owned quite economically nowadays for 10+ years or 150,000 miles. I've owned cars with both high age and mileage attributes with no problem. The only reason I got rid of the cars was mainly due to boredom, then maintenance costs, and finally safety issues.
Planning For My Next Vehicle
As I wrote in The Best Mid-Life Crisis Cars To Buy, I'm currently saving up for a sweet new ride at the end of 2017 when Rhino's $235/month lease is up. There's still a good chance I'll be more financially responsible and just buy Rhino for his residual value of $12,600. But my current plan is to buy a five year old super car for up to $60,000. Given mid-life crisis cars are often second cars with few miles, I'm thinking $60,000 could buy up to a $150,000 original sticker price car.
Unless you are an absolute car nut, we can all agree that cars are a big waste of money. From the valuable time it takes to deal with recalls and maintenance problems to the necessary cost of car insurance, it's no wonder why car sharing companies have grown in popularity. General Motors' $500M investment in Lyft makes absolute sense because they see a future where less people will buy cars.
It's just not worth buying a new car in the first year of a redesign, no matter how reputable the company. If you value your time and money, practice some patience and wait at least one year for all the major problems to be discovered and fixed.
Related: Should I Own Two Cars?
Readers, anybody ever buy the first year of a new redesign and regret their purchase? What kind of car maintenance and recall issues have you had? If you're looking for low-cost auto insurance, check out AllState today. They have some of the best rates around and there's no obligation to get a quote.