Drive Time
Keep Your Clunker
Don't get swayed by all the new dealer incentives. Bottom line, keep your car.
By Jessica L. Anderson, Associate Editor, Kiplinger's Personal Finance
June 2009
With incentives on new cars at all-time highs and dealers desperate to move inventory, it is an excellent time to buy a new car. But what if you could eke out another 50,000 miles on your old car and save a lot of cash? James, a reader from Easton, Md., recently wrote to us with just such a conundrum. He was considering trading in his 2003 Chevrolet Silverado pickup, which had 94,000 miles on the odometer, for a new, loaded Dodge Ram, even though the Chevy was paid off and in good condition. He acknowledged that he didn't really need a new truck but worried that the deals wouldn't be nearly as attractive if he waited.
Dollars and Sense.
How do the financials stack up? We asked Vincentric, an automotive-research firm, to compare the cost of several new vehicles with their five-year-old counterparts. We assumed that the used vehicles were paid off and the new vehicles were paid for with a five-year, 6.6% loan and 15% down. Based on total ownership costs over five years -- including insurance, fuel, repairs and depreciation -- the results are firmly in favor of hanging on to your old car.
For example, a new Chevrolet Malibu will cost $33,064 over five years, or $7,343 more than the $25,721 it would cost you to maintain a 2004 model that's paid off. Likewise, a new Honda CR-V has a five-year ownership cost of $33,520, versus $24,597 for the five-year-old model. That's a savings of $8,923 if you keep the old vehicle.
James was tempted by Dodge's employee-pricing promotion, plus $3,000 in rebates and a $1,000 dealer coupon, all together knocking $11,000 off the sticker price. A generous trade-in value on the Silverado and 0% financing over four years (plus assurances that the feds would back the warranty) clinched the deal, and he's now the pleased owner of a new Dodge Ram pickup. But Vincentric's numbers arenŐt encouraging.
The biggest new-vehicle expense is depreciation (in James's case, the Dodge Ram will lose $25,000 in value over five years). Maintenance and repairs are the biggest hits for older vehicles: Repair costs are typically twice as much, and maintenance can cost as much as three times more for five-year-old models.
Factor It All In.
Spooked by worries over the economy and unemployment, more people are taking the value route -- keeping their cars longer and paying for repairs. The average length of vehicle ownership increased to four and a half years in 2008, up from four years in 2002, reports R.L. Polk, an automotive-information firm. And according to Sageworks, a private-company data provider, auto-repair shops' sales rose 2% in 2008.
What's more, a car-loan payment is a set amount, whereas holding on to your old car "provides an element of flexibility," says Philip Reed, of Edmunds.com. "Fixing up your clunker is a variable cost per month, and some repairs will be elective." The maintenance section of Edmunds.com has estimates for all service visits, so you can get an idea of typical expenses. One deal-breaker for your old car, says Reed, is a failed transmission -- which can cost up to $3,000 to rebuild or replace. Other tipping points: The vehicle has been unreliable from the get-go or it looks as if you'll be making multiple repairs every month.
Uncle Sam's incentives might also help persuade you to junk the clunker. You can write off state and local sales taxes and excise taxes on new cars, light trucks, motor homes and motorcycles bought from February 17 through the end of 2009. You claim the deduction on your 2009 tax return regardless of whether you itemize or claim the standard deduction. And as we went to press, Congress was weighing the latest version of the "cash for clunkers" bill, which would give vouchers worth up to $4,500 to buyers who trade in their old cars for new, more fuel-efficient vehicles.
Reader Comments (13)
Posted by: karenc at 06/08/2009 09:35:43 AM
The "Cash for Clunkers" bill will put every charity car donation program in the nation out of business since the amount of the voucher would be much greater than the tax deduction. The solution is to simply allow the charity to issue the voucher in lieu of the tax deduction. The charity would then junk the car in accordance with the bill. This way, everyone wins, the car dealer, car maker, car buyer and the charity.
Posted by: Lou at 06/08/2009 02:45:22 PM
I'm holding on to my "clunker" for now. It is a 1998 Jeep Grand Cherokee with 140,000 miles on it. I plan to buy a new vehicle (new to me, it can be new or used) within the next 6-12 months and am not moved (so far) by the "great" deals. I can wait and see if a "cash for clunkers" giveaway is offered by the federal government.
Posted by: canddmeyer at 06/08/2009 11:39:25 PM
I doubt the Ram will lose $25,000 in 5 years if purchased at employee pricing. If so, my 5 yr old 2009 Ram will be worth $5000 in 5 years. I doubt it, even if Chrysler goes out of business.
Posted by: clunkerjunker at 06/19/2009 12:09:37 PM
Apparently my "junker" doesn't qualify because it is too high of a MPG rating. It's a 1995 Honda Civic that's running, but has body damage from an accident and recently the air compressor went out so we have no air conditioning in Phoenix. It's definitely a clunker, but since I have a habit of buying fuel efficient cars, I'm out of luck. The program requires the car being traded in to have poor gas milage. Once again, giving incentives only to those who did the "bad" thing and not the ones who have done the "good" thing buy buying green.
Posted by: Tars at 06/19/2009 06:46:03 PM
Quote "a new Honda CR-V has a five-year ownership cost of $33,520, versus $24,597 for the five-year-old model. That's a savings of $8,923 if you keep the old vehicle." Huh? How do you come up with $24,597 for five years cost of ownership for the "clunker"? That is at least a five fold overstatement. We owned most of our cars for fifteen years to twenty years or more. We have not spent that much in repair cost for all of our many cars put together. And our cars are in very good shape. Maint, oil, tires and basic insurance are a push. Our oldest car, a 1982 Lincoln Continental, is like new and not a junker. so far there is absolutly no incentive for us to trade it off even if it did qualify for a credit which it does not. Our 85 continental does quality and we are not impressed enough to even consider trading it up. Oh yes we routinely get over 200k out of some our vehicles.
Posted by: Brick at 06/20/2009 06:48:02 PM
would like to know if i'm in the same boat as "clunkerjunker", i'm afraid I am. A '94 Volvo 850 which probably gets too high an average gas mileage to qualify. I am interested in the program as this is a very high mileage vehicle and i'd rather not sell it to anyone. and i'm not one to trade vehicles.
Posted by: Bob at 06/20/2009 08:37:33 PM
Sensible article but I don't consider a five year old car a clunker. I always buy my cars 5 years old and with 50,000 miles or less. They have already lost most of their depreciation value,should be good for another 100,000 miles,have lower insurance costs,and I can afford to pay cash so I don't have any loan interest or monthly payments. While there will be little if any warranty, the dealer will usually put on new tires and if everything works OK with no leaks underneath or signs of a previous accident,it will be good reliable transportation and in the $5,000-$6,000 range. That's less than most new cars depreciate just driving off the lot. When my cars are 15 years old and have 150,000 miles,I usually sell them for around $500. Now that's a clunker.
Posted by: ron powers at 07/14/2009 12:53:31 PM
Just another example of our wonderful government's ability to concoct and pass legislation to help people who can afford to pay a 400 or 500 a month carpayment and zero help for the people who are driveing a "clunker" because they cant. Why not do this for the person who drives a clunker because it is the only ride they can afford. Allow them to upgrade from clunker to used acceptable model
Posted by: dan at 07/16/2009 11:54:44 PM
ill be able to take advantage of te 4500 rebate with my 96 dodge van for a ford 150 which also has a 2500 factory rebate, my van gets 12 the new truck gets 17 . works for me! now i can put more money into my ferrari . thanks Obama!
Posted by: David Zimmerman at 07/24/2009 09:03:39 AM
WHAT! You claim that a paid off Malibu costs $25,721 to maintain for five years! Also a CR-V, $24,597 for five years! That is ~$5,000/year to maintain. This is grossly inaccurate for any car, even for a Hugo or Fiat. You really cooked the books on this article. I run my vehicles to 200,000+ miles and the average yearly maintainance might be $600-$1000 with a few major problems. As far as taking advantage of the 'rebate', the dealers in this area have cut all other rebates so the price of a vehicle is the same or higher now.
Posted by: TQ at 07/26/2009 03:36:00 PM
My 1998 Honda CRV (not a clunker, unfortunately) has about 178,000 miles & has been paid off since 2003. It may cost me on average the past six years $200-$500 yearly to maintain. My car is and always has been dealership maintained so that may help. However, my car has never had any major problems but I have kept up with major maintenance. Therefore I don't know how accuraten the article is as it states the maintenance would cost more than the car! I wish I had a clunker to see what offers were out there!
Posted by: Ken Klucsor at 08/17/2009 02:24:35 AM
...As David Zimmerman says,"WHAT! You claim that a paid-off Malibu costs $25,721 to maintain for five years! Also a CR-V, $24,597 for five years! That is ~$5,000/year to maintain." He is correct and you owe your readers an apology and a corrected article. I've bought used vehicles for the past four decades for myself and my wife. None of our cars have ever cost that much to maintain. For example, my car is a 97 Ford Explorer, and my wife's car is a 97 Nissan Altima. Both cars have about 130,000 miles on them, and both cars will easily last for 200,000 miles. (My previous Ford Explorer lasted for 250,000 miles!) I keep very accurate records, and the total cost for maintaining BOTH cars per year for the past three years is about $1,500. In the future, you owe it to your readers to do more research before publishing...
Posted by: Jessica Anderson at 08/18/2009 01:16:04 PM
Hi, this is the author of the article and in response to a few of the comments, I'd like to clarify the costs I mention. Let me assure you that we don’t print made up information. We take our commitment to our readers seriously and, as such, put a lot of work into researching every article that makes it into print or online. All numbers were provided by Vincentric, an automotive data company that we work with. The numbers have been cited by a few of you as “maintenance” are the overall cost of ownership for a five year period and include depreciation, insurance, repairs and maintenance, fuel, fees, taxes and the opportunity cost, which represents the amount of interest that could have been earned on the out-of-pocket expenses associated with owning and operating a vehicle (down payment, and all the factors above besides depreciation). The interest earnings are calculated using the interest rate associated with a Certificate of Deposit. Year 1 costs are compounded annually for 5 years, Year 2 costs for 4 years, etc. The costs are then assigned to the appropriate year of ownership and totaled to create the overall Opportunity Cost. Hope this helps you.