Q.   Given the option, I'm wondering if I would save money by purchasing a new car and driving it until the wheels fell off.

Then it would be replaced with a new car (no trade in value from the original car).

Or would it be better to purchase a new car and drive it for X years/miles before trading it in as part of a purchase of a new car?   If the second option saves money, what is the best time/mileage to trade in a car as part of a purchase of a new car?

---M.D., Dallas, TX

  

A. Start with a used car and then drive it as long as possible. Depreciation is the largest single cost--- by far--- of automobile ownership. According to a regular study of transportation costs done by the American Automobile Manufacturers Association depreciation accounts for nearly 62 percent of all ownership costs. It dwarfs any other cost.

Actions you take to (1) reduce the original investment and (2) stretch it out over a long period will reduce the amount of depreciation per mile driven. This is the biggest single lever for cutting transportation costs.

Here's an example. You buy a new car for $20,000 (this will take some shopping since the average new car cost is higher) and it suffers typical depreciation. That's about 20 percent a year or 50 percent of its value every three years. If you drive the car 12,000 miles a year your depreciation in the first three-year-period will be $10,000 or 28 cents a mile.

In the second three years the car will depreciate another 50 percent. Its value will decline from $10,000 to $5,000. Depreciation costs during this period will be 14 cents a mile. If you purchased a three-year-old used car in the first place, you would miss that 28-cent a mile hit and start at only 14 cents a mile.

In the third three-year period the car would depreciate from $5,000 to $2,500. So your depreciation costs would be down to 7 cents a mile. The longer you own the car, the less important depreciation becomes.

  Long-term ownership has three additional benefits:

•           Declining tax expenses (most states charge an excise tax for                automobiles);

•           The elimination of interest expenses after a car loan has been paid off;

•           The elimination of collision insurance expenses when the burden of the                insurance cost becomes silly relative to what the insurance company                would pay to settle any claim.

These benefits may be offset by the rising cost of repairs and replacement parts as the car ages. Rising repair costs and declining reliability drive most people to replace an aging car.

In fact, a good case can be made for regular maintenance and planned replacement of parts. It can be a lot more cost effective than buying a new car, particularly when you consider the first year depreciation and sales tax expense.   If you replace an aging car with a new $20,000 car, the sales tax can be over $1,200. The first year depreciation, at 20 percent, would be $4,000.

That's a total of $5,200.

Every year you defer a purchase--- and spend less than $5,200 on repairs and maintenance--- is a year you've saved money. Of course, some cars seem designed to have repair and maintenance costs that balloon so rapidly after four or five years of ownership that you have no choice but to buy another car. But many cars today will to give at least a decade of nearly trouble-free service.

Some readers will think I'm a cheap killjoy for writing this. In fact, this is exactly what some real car lovers do--- they carefully select a car they want to own, they maintain it religiously, and they drive it forever, witness some of the 30 plus year ownerships of Porsche 356s, Corvettes, and Mustangs.