A few months ago, over diner with friends at an AMAZING veggie restaurant in Royal Oak, Michigan called Inn Season, we had an interesting discussion about cars and car payments. I've only personally owned one car (my cute red manual 2001 Corolla), and I paid cash for it, so I have never had a car payment. I didn't want to buy a new car because I am a frugal lady and the thought of dropping over $10k on anything that depreciates gives me the willies. Hence, my used, now 12-year-old, 100k miles on it, scratched beauty. Our conversation got me thinking about questions I often ponder. Why do people buy new cars? I understand buying a new car if you plan to drive it til it dies-your amortization over the 15+ years that it will last can make sense, especially if you take great care of it from the beginning. It seems to me, though, in my limited observations, that people who buy new cars don't hang onto them until they die. It seems like they get bored after a few years and pony up for another one. A new car loses a huge amount of value as soon as it is driven off the dealer lot. Insurance on new cars is much higher than on used one, because replacement value declines as cars age. Why do people lease? Leasing makes sense if your company is paying for your car, but in almost all other cases, buying makes far more sense. It's kind of like renting a house vs buying a house. If you rent, after 3 years, you will still have zero equity in the house. All of your rent money turns into your landlord's equity (and I'm a landlord so this is a good thing for me!). But if you buy a house, part of your monthly mortgage payment goes to pay down the balance on your loan-thereby increasing the equity in your home. If you lease, it's the same thing as renting-after your lease term, you will have no equity, and though you will have the option to buy the car, why not just buy a used car in the first place? Why do people go for 'luxury' or 'status' cars? Some people are really really into cars. For them, cars are a passion and a hobby. But it seems that for most people, cars are a way to get from point a to point b. Full disclosure-I don't understand why people pay thousands of dollars for luxury handbags, when nice new non-status bags can be found for under $100 and used ones can be found for $10-30 at consignment and thrift stores, so I REALLY don't understand paying thousands and thousands and thousands of dollars for a luxury car, when reliable, efficient, safe cars can be found for far less. I guess if you have a job where you have to drive clients around, you may want to project an air of success, which can be connoted with a fancier car, but honestly, if I had a financial planner who was driving a brand new BMW, I'd probably reconsider their ability to plan my finances-they probably wouldn't understand my money philosophy. Why does anyone care what other people drive? As an LA native who is now in NYC, I have to say: LA's car-obsessed culture is batshit crazy. Since traffic is so horrendous, people spend way more time than they need to in their cars. And, since LA's public transit blows, nearly everyone has a car, and no one carpools, which makes the traffic even crappier. So people figure, I guess, that since they spend so much time in their car, they 'deserve' to be in a luxury car. Or they want to appear to be "successful" so a status car makes them feel like they've made it. It's not uncommon to see BMW's and Mercedes in carports under teeny tiny crappy apartments. Given that cars are a depreciating asset, this is seriously dumb. Why not drive a crappy car and save up for a house instead? Posted by K
