Sunday, May 15, 2016

The arithmetic of repairing a car

Should you trade in an old car or repair it? The accountants tell you that when the cost of a major repair comes in at about the value of the car, it’s time to buy a new one. “It’s costing you more than it’s worth”, they say.

I think that depends on how you look at it. At current prices, replacing an old car with a newer one will cost $200-$400 a month, whether you borrow the money or save for a future purchase in cash. Insurance and licensing will cost the same whether you drive the car or not. Regular maintenance and fuel costs depend on how much you drive. So $200 to $400 over and above those costs buys a month’s worth of car life.

Let’s define a major repair as one that costs at least $400. That’s about the cost of a brake job. So if the brake job lasts longer than a month, you’re money ahead. Buy a rebuilt transmission for, say, $2000. In less than half a year, you’ll be money ahead. And so it goes. Even body work, such as patching holes or a new paint job, can buy you more additional life than the same money spent on a newer car.

I think that repairing (and maintaining) cars to a nearly new level makes huge economic sense. But as a car ages, owners are less and less willing to do that. There are many reasons for that, but to discuss those would make this post far too long.

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