Ending The New vs Used Car Debate (Without ANY Sentiment)

New vs Used Cars: Depreciation and the ‘Used Car Logic’

It is said that immediately after most brand-new cars are driven off the lot, they lose about 10% of their value, followed by an additional 10–20% after the first year. Generally, they depreciate by about 15–25% per year after that (source).

This, to the uninformed mind, is crazy, to say the least, and is what drove economists and accountants to come up with the ‘used car theory’, arguing for the purchase of used cars instead (as a smart economic move). 

On face value, too, their arguments make sense: why buy something that will lose more than 50% of its value after the first 5 years of ownership?

Why not allow someone less savvy (financially) to take the blow and then buy it off them for about 50% less than the MSRP?

Makes perfect sense, at least, on face value, doesn’t it?

No, it doesn’t. Folks who insist on buying (and driving) new cars know (and fully understand) things that the economists and accountants do not appreciate.

 And, this has nothing to do with extra-large egos that need to be massaged.

What Economists & Accountants Don’t Know about Used Cars

When economists and accountants suggest that you buy used cars only as a way of saving your prudent ass from vehicle-induced depreciation, especially in the first five years of its life, what they essentially focus on is the monetary and financial part alone , and the fact that you’ll be saving some bucks from the MSRP.

But, is this the full story? 

It turns out there’s more to car ownership than this bit about depreciation that economists (and accountants) would want you to focus on — and this is where the meat of the story lies: used cars are usually a pain in the butt ,  something prudent economists and cost-conscious accountants know nothing about.

1. A Messed-up Break-in Period

The life of an engine and transmission, besides the quality of their manufacture, is determined by the break-in period such vehicles they are attached to face.

JD Power holds that this break-in period varies from manufacturer to manufacturer but is generally 500–1000 miles of driving the vehicle gently, with varying speeds, and usually, changing the engine oil right after the period. 

While I agree with JD Power, I generally recommend 2000 miles , just to be extra safe with the engine oil (and transmission fluid) changed after the first 250–500 miles and then, after the next 1000 miles again.

Done properly, this creates the foundation of engine and transmission longevity; done wrongly (or ignored), the seeds of destruction for that vehicle are sown already.

Now, this is what happens when an engine (or tranny) isn’t broken in correctly: such problems as the cylinder walls getting worn out quicker than expected and the camshaft lobes wearing incorrectly, causing the valves to open and close at the wrong intervals (and overheating/premature wear of the tranny) could present themselves, down the line, when the original owner has sold the vehicle to the ‘financially savvy’ second owner/buyer.

What then happens? This ‘savvy’ buyer wastes money trying to fix these issues (or in extreme cases, gets a new engine  or tranny).

At the end, when the time and money spent are calculated, it usually amounts to simply buying a brand-new vehicle and handling everything (properly) yourself from the very first day.

So much for the wisdom of buying a used car (touted as a smart, financial decision).

2. Warranty Expiry

The warranty (rust, drivetrain, etc.) on most new cars doesn’t extend beyond the first five years; for most cars, it’s usually way less than that.

For those who buy their cars brand new, for the duration of their warranty cover, they need not bother about paying out of pocket for anything that goes wrong with their vehicles, mechanically, electrically, electronically, or otherwise.

This is NOT (usually) the case with users who buy their cars used, thinking they are saving up and being smart (minus incidences of ‘extended warranties’).

So, essentially, instead of enjoying your new car and thinking only about gasoline, tires, and other consumables like brake pads, you’re worrying about what the strange noises in your transmission are and whether they’ll go away on their own or wind up being something major, requiring unplanned out-of-pocket expense.

At the end, this worry, quantified, runs to several hundred dollars weekly. 

This, certainly, isn’t the right way of vehicle ownership!

3. Most Cars Are Designed Around the Warranty Period In Mind

When car manufacturers throw away warranties like confetti, they aren’t stupid: usually, they’re sure that no issues (or at worst, little issues) will result in such a time.

This is what keeps them in business; if warranties are claimed all the time, they’ll soon go out of business!

Unfortunately, right after the warranty period, it’s customary to have many things begin to fall apart, things that you need to fix with your hard-earned money!

For some European (and American) models, the entire engine might need an overhaul right after the warranty period — the period after which the original owner sells off to ‘the more financially savvy buyer’.

Does it remotely make any sense to buy problems in the name of ‘saving’ money?

Do All New Cars Lose Value This Fast?

The good news is this: not all new cars lose value this fast. In that regard, the 10% depreciation that happens the moment you drive the car off the sales lot does not apply to all makes and models.

For instance, a new Lexus LFA cost about $375,000 for the 2013 model — around that time. Curiously, once off the lot, this price increased appreciably and has remained so, through the years. 

Thanks to limited production numbers and eventually, the complete stoppage of production, the vehicle easily retails for over a million bucks now, used. 

Talk of buying it ‘cheaper’ when used!

The LFA, if you’re curious, isn’t the only vehicle that has this characteristic: the Toyota Supra and Porsche 911 are other examples that disprove this way of thinking and logic.

Generally, too, well-made vehicles like Lexuses, Toyotas, and Hondas also tend to hold their value better and depreciate more slowly than some imports that ride and handle excellently but have their transmissions and engines needing attention even before the first year of ownership.

When It Makes Sense to Buy Used Cars…

I’ve not been a great fan of the ‘used car theory’. This, I strongly believe, stems from my understanding of cars as a DIY mechanic. This is why my default position whenever the new vs used car debate comes up will always be: buy a new car – if you can afford it.

However, there are instances when it makes perfect sense to go with the accountants and economists, without argument.

Here:

1. When You’re Broke

Sometimes, buying a brand-new car isn’t simply a smart decision. The reason? You can’t afford it, plain, short, and simple.

Forget financing and down payments: if you can’t afford to pay for anything CASH, especially a depreciating asset like a car, then you clearly have no business around such a thing in the first place.

In this regard, it makes perfect sense to buy a used vehicle that you can afford to pay cash for, even if it means looking at a 20-year-old model (there’s nothing honorable about bad debt). This brings us to the point immediately below.

2. When You’re Looking at Well-Made (Reliable) Makes & Models

Another scenario where it makes sense to buy a used car is when a marque like Lexus is involved. Traditionally, Lexuses and Toyotas are the most reliable vehicles on earth, with their engines and transmissions lasting well over 300k miles with basic maintenance (and no rebuilds).

With such a reliability rating, you’re assured of what you’re buying and, importantly, are also confident that it will serve you well for thousands of miles.

For other, less reliable makes and models, you attempt this at your own risk!

3. When You Know How to Spot a Great Used Car

Finally, despite the two points above, you should only bother with a used car (assuming you have money to pay for a new one) when you know how to properly inspect a used car.

Or, can afford to pay a professional to properly inspect a vehicle for you.

The logic is this: even the best vehicles can be abused, and when that’s the case, it doesn’t matter if they’re Lexuses, Toyotas, or Hondas.

Once a vehicle is used, your best bet is to ensure that you properly inspect it in and out to avoid buying (and actively paying for) someone else’s problems.

Wrap-Up: Is It Better to Buy a New or Used Car?

I’ll speak for myself as a DIY mechanic with a daily driver that is 15 (plus) years old; a daily driver that is beginning to have some of its parts fall off as a result of age and less than ideal care its previous owner(s) gave it.

I’m the one paying for their carelessness and nonchalant attitude now , which, in my opinion, shouldn’t be so. This is the great irony about buying used cars (paying for the sins of another or needing to fix their ‘stupid’).

So, in the new vs used car debate, in terms of buying, I’d say you should stick with me, and buy brand new (if you can afford it) instead of your economists and accountants.

You should only consider buying used when there’s no other option and you’ve taken pains to ensure that the piece you’re interested in had an interesting life prior to being offered for sale.

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