The big news around the Heartland on FIRE household recently is that we bought another new car. You heard me right. We pulled the trigger on a new car for my wife just a year after replacing my truck with a new car. That sure sounds like it goes against our quest for Financial Independence (FI). So have we lost our minds? Why did we commit another FI Faux Paux?
According to research by R.L. Polk the average American holds on to a new car for 6 years. If a driver makes their first purchase at 18 and drives until they are 80, then they would own about 10 vehicles in their life. Obviously, some people will be way over this and some may never own a car. Think of the price of a car. It can vary pretty wildly, right?
Here’s a very oversimplified example, but one that gets the point across: Person A buys a new car every 6 years for $30,000. After 10 cars (not accounting for inflation or interest on loans) they will have spent a total of at least $300,000. A person who buys used vehicles at an average price of $18,000 would spend $180,000, while the luxury owner who buys cars at $50,000 a pop, plunks down at least $500,000. Add in interest payments and all these number jump substantially.
As you can see, a person who buys less often or a lower cost than the norm can significantly improve their financial standing over time. But if you are one to lease a new luxury ride every few years, it can be hard to surmount that savings disadvantage.
It’s pretty clear that buying a car is one of the largest expenses a family can have. As demonstrated above, the path to FI can be drastically altered by how vehicle purchases are approached. So, it’s no surprise that buying a new car gets a bad rap in the FI community.
So if buying a car is counter to our goal of reaching FI, then why the heck did we do it, much less do it a year after buying another car?
Why Buy?
Optimizing The Size
My wife’s former car was a GMC Acadia. It was a beast. We purchased it when we were uncertain how many children we were going to have. This was also before we discovered the FI community. This puppy fit in our garage, but you had to squeeze yourself to get around it.
It was a burden to park, and let’s face it, about 75% of the time it was only ferrying my wife to and from work and errands. When you notice trends that are so far out of whack like that, you know it’s time to optimize.
The new ride is a Honda CR-V. It’s quite a bit smaller. It still has a lot of cargo space, which is useful, without crowding out everything else in the garage. We could have gone smaller and gotten a sedan, but we do frequently carry loads of stuff and kids from one place to the other. So, while it’s not perfect, it’s a far cry from where we were.
Fuel Economy
The Acadia managed a whopping 17 miles per gallon (mpg) on a good day.
And it was only FWD. That’s like full-sized pickup truck bad. Fueling her up was like chaining a boat anchor to our wallets.
The new CR-V is AWD and gets an EPA combined 29 mpg. To put that into perspective: my wife has averaged roughly 13,000 miles per year during the time she had the Acadia. Using an average fuel cost of $2.75 per gallon, I figure the annual fuel cost for the Acadia at $2,104. That is 13,000 miles / 17 mpg = 765 gallons x $2.75 = $2,104. In comparison the CR-V fuel cost should be on the order of $1,233 with 448 gallons foretasted. That is a savings of $871 per year! Plus, it feels nice reducing our carbon footprint to the tune of 317 gallons per year.
Lower Maintenance
Part of our motivation to swap vehicles was due to the upcoming maintenance. We figured on having to put on 2 new tires this year, plus possibly a new wheel bearing or control joint. The latter we suspected due to the vehicle’s tendency to shake at speeds of 70 mph or higher. Lastly, I just discovered that the engine had developed an oil leak. Heaven knows what that would end up being!
Obviously, we should not expect similar issues with a new vehicle. Plus Honda’s reliability is legendary and the CR-Vs in particular have a great reputation. I feel like I see a ton of decade or older models driving around.
Improved Safety
Perhaps the biggest reason for the switch is safety. With two kiddos, we have to think about more than ourselves. While the Acadia had a backup camera and decent crash ratings, it can’t touch the new ride.
I bought an Accord last year and fell in love with the Honda Sensing technology. This suite of features includes lane keeping assist, adaptive cruise control, blind spot monitoring, and collision mitigation breaking (CMB).
I can personally attest to the performance of these features as I was struck by a pickup truck last year. I am convinced the CMB made what should have been a severe accident into merely an inconvenient fender bender. On another occasion, the CMB allowed me to narrowly dodge another kamikaze driver.
Why Buy New?
We were mostly set on buying a CR-V and in a perfect world, we hoped we could buy a used model with the safety features we were after for a good discount from the price of a new model. The reality was that similar models with a year or two on them were priced very close to the new model. In fact many 1 year used models were advertised for more than what we purchased the new model for.
We simply want to be done with car purchases for the foreseeable future. Having two new model year vehicles puts future purchases off as far as possible. If I have my way, we hope to be able to hold on to them long enough that they can be our daughters’ first vehicles.
Why Buy With Financing?
We had enough cash on hand to buy the car straight up. Obviously, that approach would represent the lowest cost we could pay for the vehicle. We are very fortunate to be in the position to have this choice. Most aren’t. In the interest of transparency, we are afforded this flexibility primarily due to the well paying jobs my wife and I hold. However, we’ve been furiously saving to have money available later this year to potentially buy in to my company. Dropping all that cash now would jeopardize making our goal. Financing frees us up to hold onto that cash until after that opportunity presents itself. We plan to pay off the remainder of the car loan balance a few months later.
In doing research of the estimated trade in value of the Acadia, we noticed a sizable drop (over $2k) in the value over the next year. With an interest rate of 1.9% we project spending around $200 in interest. Paying $200 to save $2,000 seems like a good deal to me. Additionally, $200 in interest is not that bad bad when you consider the flexibility that keeping that cash on hand offers.
Wrap Up
At the end of the day, we could have spent far less than what we did or held off on a purchase completely (at least for a year or two). However, the benefits of reducing the size of our fleet, increasing the fuel economy, improving reliability, and upgrading safety features were enough to tilt the scales towards buying new.
We feel that on a long term basis the investment will be worth it. The key now is holding on to this car, and mine purchased last year, for as long as we can. If we don’t, then everything I just discussed goes out the window. What do you think? Should we shred our FI Community Membership Cards?
We’re a big fan of the CRV, we’ve owned one for the past 8 years or so. We finally decided to go the opposite direction, however. We’ve got a one year old at the house, and fitting her car seat and our son’s booster seat, was becoming a non-starter. The CRV just didn’t have enough room, With the car seats installed the front passenger would have their knees bumped up against the dash. Without the car seats it would have been doable, but not with. We ended up buying a 2 year old AWD Toyota Sienna with cash (we pay ourselves a car payment and just pay cash when the time comes), which we plan on keeping for the next 8-10 years, like we did the CRV. Now we just have to sell the CRV! It’s still a great vehicle with little to no maintenance issues at 10 years old, so I think you’ll be pretty happy with your decision to get one.
Buying the Sienna probably wasn’t the best decision financially, but sometimes the decisions you make take more into account than just dollars and cents. We also factored in safety, maintenance issues, being able to drive a relatively new car, etc.
Could we have done better? Maybe, but we’re still happy with our decision, as it sounds like you were.
Enjoy the CRV!
Thanks! We had a CRV years ago and traded it in for the Acadia for the same reasons you cite. Our two girls are getting older now and the car seats are now a bit smaller. Also as they get older they seem to need less stuff for trips.
We used to buy new cars, at your age, and if you look at Bluebook values a 2017 Honda CR-V is about $5,000 less than a 2019 model. And you can beat that spread if you both buy a used Honda from a private seller and sell the Acadia yourself, you’d likely save $7,000 off of new. That’s lost savings that pretty much offsets the entire gasoline savings you projected. You also did not factor in insurance increases and sales taxes you will now have to pay. Plus the Acadia maintenance issues have already been subtracted from the trade in value by the dealer so you are paying for those repairs in that price. If he offered you a good trade in then he already knows the oil leak is simple to fix. As far as tires, you can get four of them installed at Walmart for $400 or two for about $200. Probably less if you find them on sale. But for all that, it is a small money deal anyway. A luxury that isn’t enough to really damage your financial future, but I think portraying it as a smart financial move is disingenuous. The smartest financial deal is to drive the Acadia until the wheels fall off, it always is. The safety features on the Acadia are pretty good in the areas that really matter. The jury is still out on whether the Honda’s additional safety features have any statistical benefits. My wife does buy new and she’s still driving a 2006 Nissan Exterra she bought new and she’s a multimillionaire. I buy used and drive them till the wheels fall off . But at your age, except for the buying on payments (we didn’t do that) we also bought new cars, but I don’t think it was smart for us, or for anyone who isn’t a millionaire to buy one.
Fair enough Steve. Most of the 17s we saw listed were within a couple grams of our purchase price. We did not disclose nor did the dealer mention any of the maintenance items I mentioned. I acknowledge this isn’t the best financial move. My intention is to lay out our particular thought process. Your mileage may (will) vary.
I sure don’t think it is a dumb move, because unless you’ve had a bunch of used cars and had good experiences there is a fear factor associated with buying somebody else’s lemon. And when you are accumulating, like you are, you do need to minimize risk. My last used car’s engine blew up and I had to sell it at auction for parts. But as a retired guy with lots of cash it was no problem to write a check and drive away with another used car. But I think you do have to recognize you are paying a premium to some degree, but in an area that you value, and that’s not dumb, its smart! We’ve got three cars between two people, that’s certainly a luxury but it also makes it no problem when one is in the shop. Well written post.
Thanks Steve. I think you hit it on the head. The money side of buying new doesn’t hold up to the discount of drive until it falls apart or buy used. It’s in trying to balance the piece of mind for that unknowable “risk” vs the required premium for new where we found ourself. At the end of the day what’s important is that folks are intentional with this large financial decision. I appreciate the discussion!