My brother is right!

or, new car dealers will disagree

This is an old article, but given inflation and the rising costs of maintenance and fuel, it's even more valuable as advice. Just adjust the costs and savings for 2007. Every year I get the itch to "trade up" for cool stuff like heads-up-talking-GPS, satellite radio, heated seats, defrosting mirrors, self-locking seat belts, North Star security, and other essentials. And every year my brother Frank scratches my itch by reminding me how much I'm saving. Exactly what financial expert Jonathan Pond advises.


SPENDING IT; Adding Up The Savings Of Buying A Used Car
By HUBERT B. HERRING

THERE'S nothing like a new car -- the smell, the pristine string of zeroes on the odometer, the warm and cozy feeling bestowed by a warranty. Plus, of course, all the latest bells and whistles -- whether safety items like dual air bags and antilock brakes, or cup holders and CD players.

But what's the price of these pleasures? Everyone surely realizes that a new car -- all things considered -- costs more to keep in the driveway than a used one. But roughly how much more do you pay if you buy a new car every few years rather than, say, a three-year-old model?

Jonathan Pond, a financial author, makes a strong case that Americans pay too high a price for their "love affair" with the automobile. "Frequent trading of cars takes a toll on your finances over the years," he wrote in a recent study. Comparing the cost of trading every three years (whether leasing or buying) and keeping a car for 10 years, he concluded that hanging on to cars can add roughly $385,000 to your savings over 40 years, enough to let you retire five years earlier.

Those who follow his advice may face derision for driving a clunker, he says, but "we may someday be sitting on our rocking chairs on our front porches, happily retired and waving goodbye to our neighbors as they drive off to work in their late-model cars."

On the other hand, Tobias Guggenheimer, a Dobbs Ferry, N.Y., architect who recently leased a new Toyota Corolla wagon, said, "I figured in the long run I'd come out the same" with a new car or a used car. "I'd spend a couple of hundred dollars a month either way, whether it went to the dealer or for repairs."

NOT everyone will be comfortable with Mr. Pond's 10-year holding period. Neighbors' stares are one thing, but you might feel uneasy taking a long family trip with that old a car. That's when those little engine parts you didn't even know existed tend to give out -- on, say, the ramp to the George Washington Bridge.

So for drivers who want a decent, reliable car (with a bit of shine left) and do not want to forgo all the gadgets that auto makers have come up with in the last decade, it may be more realistic to compare the cost of buying a new car and a three-year-old car and driving each for three years.

The big difference, of course, is depreciation. Figures vary widely for what the average new car will be worth after three years. Many variables come into play -- a car's condition, mileage and make, whether you're selling to a dealer or privately, your location. And of course, if you have a car you like and have cared for, it's probably worth more to you than you could ever get for it.

For the sake of argument, let's pick an average -- one that assumes moderate mileage and minimal wear and tear. Mr. Pond puts the value of a three-year-old car at just half the purchase price, Consumer Reports estimates an optimistic two-thirds, and others put it somewhere between. So 58 percent would seem a reasonable midpoint.

By that formula, a new $20,000 car -- today's average price -- would be worth $11,600 in three years, which means you would be out $8,400 as that costly investment picks up nicks and scratches.

By contrast, say you buy a three-year-old car for $11,000 (the average for a used car these days). After three years, assuming 40 percent depreciation, it would be worth $6,600 -- or $4,400 less than you paid.

Other extra costs for buying new include additional sales tax on that $9,000 price difference, which at 7 percent would be $630, and higher insurance rates, a difference that Mr. Pond puts at $200 a year for a new car, compared with a three-year-old one. Also, unless you can write a bigger check, you'll have extra financing costs for that $9,000. At 8 percent interest, you'll pay $1,150 in financing costs on a $9,000 loan over three years. (If you can finance a car through a home-equity loan, the interest would be deductible, lowering the real cost.) The main benefit of buying new, of course, is the warranty, so repairs should cost nothing in the first three years, while Mr. Pond estimates that repairs for the second three years will cost a total of 6 percent of the original purchase price, or $1,080. (Maintenance is assumed to be the same.)

So, adding it up, it will cost you about $5,300 more over three years to buy new. Add to that the interest you could have earned investing that amount -- probably at least $1,000 over three years -- and you get $6,300, or $175 a month.

All this goes for leasing, too, which is just another way of buying the first few years of a car's life -- a method that certainly is simple and saves money up front, but that leaves you without that cream puff of a used car a few years later.

When most people ponder their big, killer expenses, they probably put home ownership in a class by itself. But buying a new car every few years can put nearly as big a dent in your budget. Having two new cars could be costlier than many homes.

Yes, when you buy a house, you write checks to every lawyer in sight. But after that jolt, look at it month by month. Say you have a $150,000, 30-year, 8 percent mortgage, plus $2,500 in property taxes. After tax deductions -- and subtracting the amount that goes toward principal, which you can consider savings -- the house, maintenance aside, costs perhaps $9,500 a year. But the total cost of driving a new midsize car is around $7,000 for the first year, dropping steadily.

That $175 monthly difference between a new car and a three-year-old model may not seem like much, but look at it this way. Adjusted for the mortgage-tax deduction, that $175 could add as much as $280 to your monthly house payment, meaning that you could could carry a mortgage on a house worth $38,000 more. Or you could pay off your existing mortgage several years early.

All these calculations, of course, must be accompanied by a sheaf of qualifiers, with the main one being that it's always a gamble buying a used car. And it can be a time-consuming nuisance, too -- poring over ads, trekking far and wide to take test drives.

The lure of the new and reliable proved decisive for Mr. Guggenheimer. With only one car for his family, he said, "I had to be able to count on it." Buying new, he said, "you get a car's best years, with less down time."

A big factor was the ease of a good lease deal -- "I just walked right out with it," he said, with no down payment.

If you want to gamble on a used car, you can eliminate some of the hassle by going through a dealer. That can buy you a certain amount of protection in the form of a brief warranty and lemon laws, but you'll pay a premium. Even in a private sale you can avoid most nasty surprises by having a car checked by a mechanic.

Keep in mind that depreciation varies widely, with some popular sport utility vehicles like Ford Explorers now retaining perhaps 85 percent of their value after three years, while some big cars like Lincoln Continentals would be likely to lose more than half their value. But that's no guarantee of resale value three years hence. Who knows where fickle drivers will turn their fancy by then? So it all comes down to whether, for you, that $175 a month balances out the pleasure, and simplicity, of walking into a showroom and choosing your dream machine. For time is money, and tracking down an acceptable used car can chew up a lot of time. And if you're holding out for a certain color, forget it.