New car buy, lease, or hold

Getting a new vehicle comes with a hefty price tag beyond the sticker price

Some people routinely replace their car for a new one every three or four years. Others try to coax an extra year or two out of aging clunkers, and then there are those of us who curse and whine our way through another year of unexpected repairs and maintenance costs.

Just as with houses, a percentage of all Canadians own their cars outright. A larger percentage either lease their car or finance with the intention they will own the car outright when the loan is paid off.

My own car is a 2008 Acura – TL – type S. It’s black, powerful, sexy, and fast. I have owned it since birth. But I no longer love it like I did when I first bought it. After four winters and more than 90,000 km, I recently got the itch for a replacement car.

So the past couple of weeks I have driven a few new showroom cars, and had dealers give me their best prices for leasing and finance packages. I also asked them to quote me a trade in price for Blackie – my beloved TL.

The TL cost over $40,000 in December of 2007, and now the black book value ranges from as little as $16,500 to $19,500. The best trade in price I have been offered is $18,500.

So my car has lost well over $20,000 in value in three and half years.

However, if you check out, you’ll see no TL owners respect these numbers, and my model and year is routinely listed between $25,000 and $30,000.

The dealers point out I can trade in the car to them “as-is”, and I will get an HST tax credit on my new vehicle of 13% of the trade in price they offer me. “You’ll save around $2,500 if you deal with us!”

The cars I am looking at all sell for around the mid-forties. That’s before you consider any of the options you might want, and which are of course built into the model you get to test drive.

And you are also looking at freight and PDI (as much as $1,800), admin fees (as much as $500), etching fees (puleeze!), taxes and surtaxes, and the list goes on and on.

At this point many people narrow their choice down to the best monthly payment they can negotiate.

It gets complex – the monthly payment depends on whether or not I put my old car down as a full deposit or if I make a partial or no deposit. Even “no deposit” can mean over $5,000 down – the taxes etc. mentioned above PLUS first and last month’s monthly payment as a security deposit.

And all the quotes are in the $600 to $700 per month range.

At this point, I stopped myself in my tracks, and the financially responsible guy buried deep down in me surfaced just in time.

It proved to be a really easy exercise – once I took out the emotion and looked just at the math.

Take the emotion out of car shopping and look at the math

If I get a new car now I can count on spending around $5,000 upfront, and after one year a further $8,000 or so in monthly payments, give or take. So after one year of “owning” a new vehicle, I will be in the hole $13,000.

I then checked how much less my car might be worth one year from now. Looks like it will only go down a further $2,000 to $3,000. (I looked at the black book value of 2007 models today)

So if I keep my older car another year, I will spend that $2,500 loss in value plus whatever repairs I need (new brakes all around for sure, and maybe new tires) Say another $2,500.

I did not need to take the analysis any further. Get rid of the car now, and spend $13,000 over the next year, or hold for (at least) one more year, and only spend another $5,000 or so.

Do I want a new driving experience so much I would spend another $8,000 in after tax dollars over the next year for that pleasure?

Answer – no I don’t.

I called my local mechanic and booked the brake job for Tuesday.

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