True Stupidity: Cars
The Market Ticker - Commentary on The Capital Markets
2017-09-26 07:00 by Karl Denninger
in Consumer , 567 references Ignore this thread
True Stupidity: Cars
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This sort of article pisses me off.

There are financial experts who will tell you that buying a $5,000 used car for cash is the smartest move to make. What they don't tell you is that a cheap car can quickly turn costly, requiring new tires, preventive maintenance and, eventually, repairs. If you're a seasoned do-it-yourselfer, hats off to you. But keeping up an old car isn't for everyone.

Meh.

That's total crap.

First, the reason to buy such a cheap used car for cash is that you do not need to carry expensive comprehensive or collision insurance on it.  This coverage is not cheap; it usually winds up costing close to $1,000 a year even if you have a completely clean long-term driving record, and more if you don't or live in a higher-risk area.

Second, theft is much more prevalent with "nicer" (newer) cars on-balance.  There are exceptions of course -- particularly highly-sought vehicles are often stolen irrespective of age, but you're far more likely to have a comprehensive (theft) claim on a newer car than an older one.  Once you claim on collision or comprehensive you will get banged hard by the insurance company for several years down the line.

The cost of a vehicle is not just the cost of the car.  It also includes all the mandatory costs that accrue just from owning it, including state required insurance.  Liability coverage generally does not vary much with vehicle choice, other than when one ventures into high-performance vehicles where insurance companies look at them as a flag for possible riskier behavior.

But, the more expensive a vehicle is to both procure and obtain replacement components for the more expensive your comprehensive and collision coverage will be.  The reason to buy an older, mostly-depreciated used car is to save the $1,000 or more annually that said coverage would cost you and not to carry it.  Yes, this means you absorb the risk of loss from collisions if you are at fault or cannot recover from the other driver if he is, and it means you absorb the risk of loss from theft, hailstorms and the like.  But those are risks mostly under your control to a material degree -- you can always lock your car, you can keep valuables out of sight, you can not park it in high-risk places, you can drive in a sane manner so as to minimize the risk of collisions and similar.  By not spending the money in the first place you are way ahead of the game, and if and when something expensive goes wrong with said $5,000 car you sell it for whatever value is left in it, buying another one.

Run the per-day cost on these paths and you'll be surprised -- especially if your use of said vehicle is modest in terms of mileage driven per year.  It is quite easy to save half or more of what it costs on a per-day basis to own a vehicle by driving an older depreciated model over a newer one, especially one that is financed and thus mandates both collision and comprehensive insurance coverage.

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