”Love That New Car Smell In The Morning!”

Thinking about buying a new car? Before you think that I am going to bash the great American tradition of buying a new car, wait... as this is not my intention. Truthfully I wrote this as food for thought on the subject of new car purchases. Also for the sake of full disclosure, I myself have bought two new vehicles in my lifetime. I do not regret doing so except I am wiser now and would not do so again. I have learned that there are better ways to get close to what I want without sacrificing good fiscal policy. Now originally my post was going to be on the subject of car repossession, but after some careful thought, I felt I really needed to start from the beginning with some insights into new car purchasing.  We are all consumers and I know very few of us who go out of their way to purposely squander our hard earned money. That said, here is a loaded question for your consideration. If an investor came to you and said he had a product that has become one of the most popular investments In the Nation, and that 18 million consumers this year alone have invested in it and there looks to be no end in sight, you would at least be curious. You would want to hear more. So you ask a question." Wow! It must be a pretty good investment, how much money do you think I can make?" He then says with a straight face that this investment guarantees a loss of 15% or more of its value within the first year and that there is almost a 100% chance that you will lose at least half of your money and most likely much more than that. Would you invest? Well surprisingly most of us already have including me, and as I said, in the beginning, it was a loaded question. According to Carfax, a new car will lose 60% of its value within the first five years of ownership! Calling it an investment rather thane just another expenditure seems to be inappropriate. So why do so many us ignore our logical fiscal selves and often excitedly dive right into a new car purchase? Perhaps there are many reasons, ego, status symbol, technology, looks or heck maybe you just got to have the latest gadget on the market. I bought my Prius for that reason.

Only the purchaser themselves knows the real reason why and that's ok. I am not here to judge but only to give out some food for thought so here are some facts. According to JD Powers, more than 50% of consumers in 2017 stated that safety and reliability was the number one reason they purchased a new car. Surprised? I was, maybe I am a shallow individual but that was never on the top of my list. Lol Also surprisingly, price and payment were towards the bottom of the list coming in at number six. According to AAA 2018, the average yearly cost of owning and maintaining a vehicle is approximately $8,500 a year which includes gas, maintenance, insurance, depreciation, loan payments, and interest etc. That seems reasonable, doesn't it? But here is the problem. According to the US Census Bureaus as of September 2018 the real median household income in the US was $ 61, 372 ($ 61, OOO ) and most households own two vehicles or more (2.28 per household according to Experian Automotive) Therefore the average vehicle expenditure per household would actually be $19,380 or approximately 32% of their entire income. This means that after housing it is their largest expenditure. Now we all know that housing costs fluctuate depending on where a family lives but interestingly enough the costs of maintaining a vehicle do not! Frankly, my research really opened my eyes. It also answered a lot of questions like why increased job growth doesn't seem to be creating wealthier households as poverty rates still hang around 12-13%. Don’t misinterpret these facts, as there are a lot of Americans who are doing very well and to quote Robert Kiyosaki, 

"Its not how much money you make but how much money you keep"

This article’s intention was to focus on the ‘keeping money’ part.

So now with a few facts in hand lets see if we can strike a happy middle ground between getting a car you want but not selling the entire farm to do so. Here are some suggestions. Start by saving the 15% or more of immediate depreciation when you drive off the lot, by purchasing a car that is one or more years old. The older you are willing to go, the less of a loss the overall deal will be. Remember that car insurance, as well as tax & licensing fees, are less when purchasing used. So do your homework! Go online and get as much information possible on the vehicle you want and what you should expect the cost to be. If you are able to purchase using cash- do it! This way you will avoid interest, fees, and negotiate a better deal. Cash talks! This really applies if your credit is less than perfect, as interest rates typically will be astronomical if you get in-house financing. If you do need financing, go to your bank or credit union first and get prequalified. You’ll get a much better interest rate and will have a stronger position to negotiate from with the car dealership. 

I am not saying you should “only buy used cars”, but considering how much you can save by using a little discernment, it may convince some to rethink that new car smell. The most compelling argument is simple and a fact. The average American buys 12 cars in his or her lifetime if they saved $7,500 per transaction and invested that money into an average retirement account over say 47 years, their added retirement income (after taxes) would be an additional $400,000! (Calculations were done with the Edward Jones retirement calculator.) Hopefully, this put things in a perspective that you may have not previously considered. I don’t know about you, but I could use an extra $400,000 at retirement!  I have also decided to make this a must-read for my daughters who would greatly benefit if they followed the advice I dished out! But then again to them, I am just Dad.  LOL. Feel free to comment!   

Attila Thiry, CEO | National Credit Resources W | National Credit Resources E | [email protected] PH | 1 (844) 462-5700 or GOAL700

At National Credit Resources we have only ONE GOAL in mind:

“To help our clients have the best experience possible from the start all the way to them ultimately attaining their financial goals!"

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