Should you fix that old car or buy a new one?
by Stephen Cole Smith, Automotive Column, Orlando Sentinel
How do you know when it's time to move on? With people, it's tough. And with your car, it isn't much easier.
Accountants might disagree: They'd suggest that it's time to part with the vehicle you're driving when it ceases being an asset and becomes a liability. True, but it can be challenging to know when that happens. Asset on Monday, liability on Tuesday?
Sometimes it is that easy. A friend owned an older Mercedes-Benz diesel sedan. One day it stopped running. He was late for a meeting and ignored a light on the dashboard that was trying to alert him to a problem with the cooling system. The engine was fried and would cost $4,500 to repair. The car was worth $5,000.
It had gone from asset to liability in 30 seconds. The unpleasant decision was easy to make: On the outside, the car looked fine, but he had totaled it as surely as if he had crashed into a wall. His Mercedes was sold for parts. The good news: He'll never ignore a warning light again.
Usually, though, it isn't that definitive. Over a year, you may spend $4,500 fixing your $5,000 car, but when it doesn't happen all at once, it can be hard to know when you've reached the point of diminishing returns. Will another $200 fix it for good? Another $500?
The first thing to do is determine a value for your vehicle. You can check Web sites such as Kelly Blue Book (kbb.com) and Edmunds.com, and follow the steps there to determine what your car or truck is worth. You can also check AutoTrader.com, and check asking prices for vehicles like yours. If you know what your vehicle is worth, it's easier to determine how much you might be willing to spend to keep it running.
Then, you have to decide how attached you are. Do you have an emotional connection that can justify spending more on your car than it's worth? It's nothing to be ashamed of if you do — several times I've spent more on a car than I should because I really liked it — just so long as you know you are going above and beyond whatever solid business case you can make for keeping a vehicle that most others might have abandoned.
Next, place a value on reliability. Are there other cars in the family available to drive if yours isn't running? Is mass transit an option? If not, and you must have a vehicle that starts every time you turn the key, then it maybe it's mandatory that you move on to a newer vehicle.
And finally, know what you owe. As the value of new vehicles plummets, thanks to all the incentives being placed on them, the value of your model may drop, too. A study released last week listed dozens of vehicles that actually cost less now than they did a year ago, meaning that if you bought that model then, and have been making payments on it since, you could still owe more than a brand-new one costs now.
In the car business, owing more than your car is worth is called being "upside down," and if that's the case, your only choice may be to hang onto the vehicle until you've finally paid it down to the point where it won't cost you cash to just get rid of it.
"In 15 years in the business," a dealer told me, "I've never, ever seen so many people upside-down on their cars."
So here is your checklist for deciding whether or not it's time to trade:
•What is my vehicle worth?
•What, if anything, do I owe on it?
•How attached am I to it?
•How important to me is day-in, day-out reliability?
•How much am I willing to spend to maintain a car to a satisfactory level?
•If I make the repairs needed, will it actually enhance the value of the car?
Only you know whether the numbers add up in your car's favor, or suggest that it's time to move on.
No hard feelings, OK? We'll always have Paris.
Sentinel Automotive Editor Steven Cole Smith can be reached at scsmith@orlandosentinel.com, at 407-420-5699, or through his blog at Enginehead.com.
Accountants might disagree: They'd suggest that it's time to part with the vehicle you're driving when it ceases being an asset and becomes a liability. True, but it can be challenging to know when that happens. Asset on Monday, liability on Tuesday?
Sometimes it is that easy. A friend owned an older Mercedes-Benz diesel sedan. One day it stopped running. He was late for a meeting and ignored a light on the dashboard that was trying to alert him to a problem with the cooling system. The engine was fried and would cost $4,500 to repair. The car was worth $5,000.
It had gone from asset to liability in 30 seconds. The unpleasant decision was easy to make: On the outside, the car looked fine, but he had totaled it as surely as if he had crashed into a wall. His Mercedes was sold for parts. The good news: He'll never ignore a warning light again.
Usually, though, it isn't that definitive. Over a year, you may spend $4,500 fixing your $5,000 car, but when it doesn't happen all at once, it can be hard to know when you've reached the point of diminishing returns. Will another $200 fix it for good? Another $500?
The first thing to do is determine a value for your vehicle. You can check Web sites such as Kelly Blue Book (kbb.com) and Edmunds.com, and follow the steps there to determine what your car or truck is worth. You can also check AutoTrader.com, and check asking prices for vehicles like yours. If you know what your vehicle is worth, it's easier to determine how much you might be willing to spend to keep it running.
Then, you have to decide how attached you are. Do you have an emotional connection that can justify spending more on your car than it's worth? It's nothing to be ashamed of if you do — several times I've spent more on a car than I should because I really liked it — just so long as you know you are going above and beyond whatever solid business case you can make for keeping a vehicle that most others might have abandoned.
Next, place a value on reliability. Are there other cars in the family available to drive if yours isn't running? Is mass transit an option? If not, and you must have a vehicle that starts every time you turn the key, then it maybe it's mandatory that you move on to a newer vehicle.
And finally, know what you owe. As the value of new vehicles plummets, thanks to all the incentives being placed on them, the value of your model may drop, too. A study released last week listed dozens of vehicles that actually cost less now than they did a year ago, meaning that if you bought that model then, and have been making payments on it since, you could still owe more than a brand-new one costs now.
In the car business, owing more than your car is worth is called being "upside down," and if that's the case, your only choice may be to hang onto the vehicle until you've finally paid it down to the point where it won't cost you cash to just get rid of it.
"In 15 years in the business," a dealer told me, "I've never, ever seen so many people upside-down on their cars."
So here is your checklist for deciding whether or not it's time to trade:
•What is my vehicle worth?
•What, if anything, do I owe on it?
•How attached am I to it?
•How important to me is day-in, day-out reliability?
•How much am I willing to spend to maintain a car to a satisfactory level?
•If I make the repairs needed, will it actually enhance the value of the car?
Only you know whether the numbers add up in your car's favor, or suggest that it's time to move on.
No hard feelings, OK? We'll always have Paris.
Sentinel Automotive Editor Steven Cole Smith can be reached at scsmith@orlandosentinel.com, at 407-420-5699, or through his blog at Enginehead.com.
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