Is a used car cheaper than a new car to own? For those of us scrounging to pay for tuition there is a better (and easier) question to ask. And that is, what is my cost per use for this car?
Consider Cost Per Use Instead
Folks paying tuition don’t get to pick any car they want to won. Instead, we buy the safest cars possible and determine the correct one by comparing cost per use (in this case cost per miles).
Instead We Consider Cost Per Use on Large Purchases
Here is an example. Our car cost $45,000 new. A long time ago. We paid net (after sale of the old car) $8000 for it second hand with 70,000 miles on it. Same features as the original owner had but with more miles on it, some character and a bit of a vintage feel. Let’s use the cost per use method to see if we paid a fair price for the vehicle.
Before we get into the numbers I realize some of you hate this sort of conversation. You find it is tedious and you never trust the numbers you end up with. Send me a note or post a comment and I will run the numbers for you. And don’t worry about getting the match exactly right, just remember to keep cost per use in mind when facing a major purchase decision.
On to the numbers!
The original owner paid $45,000 for 75,000 miles of use or 60 cents for each mile driven, not counting fuel, tires, service and parts. Assume we keep the car another $75,000 miles and get the 75K, 100K and 125K maintenance work which will cost in total about $4000. Our combined cost for the car is $12,000, again ignoring consumables. Our cost will be 16 cents per mile or only 25% of the cost of the car if it was purchased new. I declare this to be a good deal as we can get four of them for the same cost as the car was new.
Is A Used Car Cheaper To Own Than a New Car?
This doesn’t mean all used cars are cheaper than all new cars.
Today on Autotrader.com a 2013 Jeep Wrangler with 45K miles is selling for $25,900 despite having a poor side impact safety rating and marginal front impact rating. At the same time a new Subaru Forester, is selling for $26,100. Not as cool looking but stellar safety ratings.
If both cars are driven for 100K miles the Wrangler will need both the 75K, the expensive 100K services and a more expensive 125K service, and new tires for about $5000 in parts and labor. The Subaru will only need the $1500 75K service.
Let’s compare the cost per use of each vehicle in the handy table.
|Wrangler (21 MPG)||Forester (32 MPG)|
|Up front cost||$25900||$21600|
|Gas for 100K miles @ $3 a gallon||$14285||$9375|
|45 cents||32 cents|
The Forester, despite being newer, safer, and more reliable and more gas efficient, at first glance appears to be about the same price as the used and cooler looking Wrangler. But the cost per mile reveals the Wrangler is 40% more for each mile driven. A brand new Forester is much cheaper then the used Wrangler.
The astute reader at this point will wonder – wait a minute – wouldn’t a used Subaru save us even more? I am glad you asked because today on Autotrader.com a 2013 Forester is $16,488.
Let’s compare cost per use of all three vehicles.
|Wrangler (21 MPG)||New Forester (32 MPG)||Used 2013 Forester (27 MPG)|
|Up front cost||$25900||$21600||$16488|
|Gas for 100K miles @ $3 a gallon||$14285||$9375||$11,111|
|45 cents||32 cents||33 cents|
Oooooh! So sorry! The new car is still the most economical. The less gas efficient 2013 Forester combined with that 100K services hit really put the new vehicle in the lead.
We have found it helpful to think cost per use to get the most out of something so extra funds can be redirected towards tuition and hope you will too.
So the three cars I chose for this example were pretty close. Ideally, you are looking for comparisons that are really easy so that it is fairly obvious by adding up some numbers. But you get the idea. If you find a car that is safe and reliable but makes you go “meh” it is likely to be the correct car. That is why there are so many of them on the road as lots of other folks have come to the same conclusion.
If you are thinking a particular car you are looking into is so cool, move on. Get your excitement out of some fancy new shoes instead.