Nailing down the best deal

Kiplinger's New Cars & Trucks, Annual, 1999 by Ed Henry

Unfortunately, at some point the statute of limitations runs out on this particular money-saving tip. The more the car is in the shop, and the wider the oil slick grows on your usual parking spot, the more you may think seriously about replacing the old chariot with something, well, nicer. Meanwhile, the money you save by not buying a new car tends to be eaten up by the growing cost of keeping the old one on the road.

The question is: Where's the tipping point? When does it become counterproductive to keep laying out cash for old-car repairs instead of new-car payments? To put it another way, how long does it take for the higher cost of purchasing a new car to be justified by the growing cost of maintaining the old one?

Longer than you think. Runzheimer International, a management consulting firm that specializes in measuring travel and living costs, runs this sort of calculation on a regular basis. Recently it compared ownership costs of a brand-new car against a similar four-year-old car. Both were sensible sedans. The new car was assumed to cost $20,000, financed over four years at 9%. The old car was worth about $4,500 and assumed to be traded in as the down payment on the new one. The old car has 60,000 miles on it, both cars are driven 15,000 miles per year, and both get 21 miles from a gallon of regular unleaded gas. Here's how four years with car payments and low maintenance costs matched up against four years without car payments but higher maintenance costs.

The actual numbers are less important than the overriding message: Those loan payments stack the deck against the new car. You could encounter much higher repair costs than assumed and still come out ahead by keeping the old one. If you're confronting this question, you can use the format above to run estimated numbers and see how they come out, Better yet, don't bother. In the absence of a gigantic repair bill--you need anew engine, for example--an old car is almost always cheaper to own than a new one.

You can close the gap a bit with a few strategies:

* Pay cash for the new car. This will reduce your total expense by eliminating the interest on the loan, but in order to make a fair comparison you would also have to take into account what else you might have done with that money and the interest you might have earned if you had not spent it on a car.

* Finance the new car at a lower interest rate. A lower rate helps. But if you eliminated all the interest in the example above, the old car would still be about $6,300 cheaper to own than the new one over the four-year period.

* Buy a used car. This is probably your best bet to close the gap completely. The problem is, a used car doesn't come with a new-car warranty, so you take on the same risks of unanticipated high repair bills that you already have with the car you've got.

But let's face it: When all is said and done, most of us don't base decisions on such a detailed accounting of the costs. Comfort, style, image, safety, convenience and realiability--those are the forces motivating the vast majority of Americans who decide to buy a new car. So be it. The important thing is to choose the right car and get the best possible deal.