Should I Buy a New Car or a Used Car?
QUESTION: I listen to you every Sunday at 3pm on Radio 2UE with Tim Webster, and was wondering if you would be so kind to give me some advice. My daughter is a single Mum, and does approximately 60km per day, five days per week. In the near future I feel she will be needing another car. She is looking for something economical and reliable. Not sure if new or second hand, or if we should try the auctions. She feels a new car, as she feels it will give her peace of mind, that all will be ok for a few years, but the males in our family keep tell ing her it is a waste of money? I know nothing! Would be so grateful for your advice. Cheers, Doreen
I get a sense that the budget is reasonably tight. In my view there's no right or wrong answer here - you can buy a reasonably affordable brand new small car, like a Hyundai i30 Trophy (see right - click to enlarge).
The truth is, you daughter is right, and the blokes in your family are also right - but I think the blokes have failed to consider the absolute cost of the depreciation.
As a rule of thumb, cars lose about 50 per cent of their value at five years of age. So she will lose about $10,000 over five years, which is in the vicinity of $40 per week.
For $40 per week she gets full warranty protection (Hyundai has a five-year/unlimited kilometre warranty) plus the inherent reliability of owning a new car. That's probably good value. (Most other companies offer a three-year/100,000km warranty.)
She also gets a five-star safety rating, which is very important if some idiot crashes into her and the kids - some second-hand cars available will offer less than that. She is exposed to this risk a bit, given that she drives probably 20,000km per year. This is an important consideration.
New cars have become very affordable, so I think that while the blokes are absolutely true about the depreciation they have failed to add up the real cost of the depreciation ($40/wk) and the benefit associated (full warranty protection plus inherent reliability). They are still thinking in terms of 1970-1980, when cars were much more expensive, and therefore the absolute cost of depreciation was higher.
I'm concerned about the Hyundai brand. Aren't they nasty, cheap cars?
See what one i30 customer sent me, unsolicited >>