The Mathematics of Keeping a Car

Unsolicited testimonial

First of all, let me congratulate you on the great web site that you have put together.  Skip, Mariska had to talk me through how to use it (you know my level of IT expertise is strictly 1st  grade).  In any event, that is really a great service that you provide your customers.  Allowing them to look back at their service record for each of their cars that you service is really 1st class.

I thought you might want to know why I am still driving a 1989 car with over 289,000 miles on it. So I decided to do a little basic math (I could really make it complicated by doing a TVM exercise) but let’s start with the basics.

From 1/1/09 thru 1/31/10 I have spent a TOTAL of  $4,619.79 on our 1989 Mercedes 190 (Average of $355.37/mo).  Let’s assume that only 10% of that average was for routine maintenance that I would have to do on a new car too.  Thus, my monthly average drops to  $320 - round numbers.

Now let’s assume that I buy a new car for $35K (out the door with everything including tax), and I get 0% financing on the whole amount for 60 months.  Car payments become $583/mo.  Yes, I have a new car, but it will still need some maintenance, and it will still be an old car by the time it’s paid off.

Or I could put $10k down, so now I am financing $25k over 60 months at 0% and my payments are $416.66. But I have to consider that my $10k at only 1.5% interest over 60 months would have grown to $10,778.33, divided by 60 months equals $12.97. That has to be added to the $416.66 for a true monthly out of pocket expense of$430/mo (rounded).

Let’s try it another way.  I am spending on average $320/mo with NWA for the MB-190, and I only want to spend the same amount per month for a new car (that will be an old car by the time it is paid off).  Thus, I have to buy a car (everything included) for $19,200, and that does not include the fact that the new car will need various items serviced during the six year period. I think it would be safe to say that I will not be driving a Mercedes Benz, at least I have not seen any new Mercedes listed anywhere for $19,000.00.

Thanks again for the great service you provide.  At this rate, I should be able to keep the 190 for another 100,000 miles!

Regards,
Richard F. Charette
Financial Area Manager
HP Financial Services