Is it cheaper to buy new?

[Jack Dinkins]

So this is my first post so sorry if I mess anything up.  I was told recently that buying a new vehicle and owning it for the life of the vehicle is cheaper than buying used and owning for the rest of the vehicles life.  I have been unable to find any research into the topic and was wondering if anyone has asked this question before or has research they can share.  Any and all help would be much appreciated, thanks.

[JD Martin]

In general, yes this is true with the caveat that the right used car - one priced at a point where the initial depreciation hit has been absorbed by someone else but the concurrent miles used are negligible - will be cheaper, everything else being equal. Of course, there are a lot of assumptions in this equation, the most shaky being that cars are equally reliable mechanically and comparable in cost to maintain or repair. German cars such as BMWs or Mercedes, for example, are more expensive to maintain and repair than a Toyota or Honda. 

But yes, you have the right idea. In general the cheapest car is the one you drive until the wheels fall off or until the cost of repairing the vehicle exceeds the cost of buying the same vehicle, with the same miles, but not needing the repair. If you look at a depreciation scale, it becomes virtually zero at a certain point in time as the car becomes virtually worthless as an asset. 

So, for example, I bought my commuter car (my last, since I've retired!) in 2012 brand new. A Kia Soul, base model stick shift, for $12k. I drove it almost 200k miles (and still drive it). It's probably worth $2k on a quick sale. My ownership cost per mile - leave out insurance, gasoline, tires, etc for simplicity - is 5 cents per mile ($10k [$12k purchase price minus $2k current value] divided by 200k miles). After the first year I owned the car, I had drove it about 30k miles, and the book value was about $9k. That meant my cost per mile after the first year was 10 cents ($3k [$12k purchase price minus $9k value] divided by 30k miles). It took me 9 more years to cut that cost in half. Let's say for some reason I drive it another 200k miles in the next 10 years, and let's say it's worth $1k at that point. Then my cost per mile will be 2.75 cents. 

The problem with all of this is that most people don't want to do what I did and drive a car 200k miles for the next 10 years. They get bored. They want new gadgets and safety features. They get tired of looking at the stain on the seat. ETC. They convince themselves the "new" car will be the one they drive into the grave and do the same thing 3 years later when they're trading in the now old car for a different new car, ad infinitum. Nothing wrong with having new or nice cars to drive, but you have to be honest with yourself on the cost of that privilege if you're interested in financial freedom.