This is the first part of a two part series on whether to keep or replace your vehicle. The second part can be seen here.
So there you are, staring glumly at your car – one you’ve owned and enjoyed for a long time – while holding an estimate from your repair shop. The cost of repairs is very high, the value of your car (if repaired and in moderately okay condition) is less than the cost of repairs. In an extreme case, perhaps the repairs would require you to spend $10,000, maybe more, and end up with a vehicle you could sell for only $5,0000, maybe less?. What to do? Repair or replace?
But wait. There’s a lot to consider before you answer that question. Indeed, the chances are you’ve already made the first of potentially several mistakes – mistakes which the auto industry, one of the most powerful economic forces in the US, are happy to see you make. Reread the first paragraph and see if you can spot the error.
The error is where we talk about the value of your present car. Sure, you can look up on a car valuation websites and in some considerable detail get a guesstimate about what your car is worth if you were buying it from a dealer or a private party, and what it is worth as a trade-in if you sell it. But you car’s value – believe it or not – is almost irrelevant.
The more relevant consideration is how much it would cost to replace your car with something more or less equivalent but newer – not identical in age and everything else to your present car, but what you’d choose to buy if your present car vanished and you needed to get yourself a new vehicle. This is the other part of the equivalence you must consider. On the one hand, you repair your current car, and you know the outcome of that will be a car that is now repaired and hopefully likely to keep working well for some time into the future, at a cost in line with the estimate you’ve received. The alternative however is not considering the value of your car, either as is or after repairs, but rather, the replacement cost if you choose not to repair your car and get a different car instead.
Needless to say, the replacement cost for an alternative vehicle is almost certainly much higher than the realizable value of selling your car – particularly in its present condition, prior to spending a lot of money on it!
So, what do you do? Now that you more accurately understand the twin outcomes of repair or replace, you’ve essentially got four choices.
- Should you repair your car, or is that “throwing good money after bad”?
- Should you get a brand new car, with everything “state of the art” and a lovely long new-car warranty on it, too?
- Should you get a slightly used car, after the initial depreciation hit of 20% – 30% in the first year has happened, but still nearly new, and with lots of factory warranty?
- Or should you get an older car that has depreciated further, but with moderate miles and a realistic expectation for many tens of thousands of miles of relatively trouble-free motoring, with only moderate maintenance costs?
As part of working out what to do, there’s another thing to keep in mind. We’ve been assuming that the “worst case” scenario is your present car is essentially worthless. But there is an even worse case scenario you need to be aware of, too. It is unlikely, because we’re assuming your car is not near-new, but let’s check, just to be sure.
Are you still making payments on the vehicle that now needs expensive repairs? If so, if you sold or junked the car, what would you end up having to pay the finance company? With many car purchases, both new and used, and especially with the longer term car loans often extended these days (to obscure the fact that cars are getting more and more expensive) there are typically a few years in the early part of the loan where you end up owing more than the car is worth, but later in the period of financing, that changes and the car is worth more than the amount owing on it. If you’re in the period where you owe more than the car is worth, there’s actually a cost – maybe even thousands of dollars – to you to stop owning your car.
The Biggest Difficulty – Guessing the Future
In theory, you’d hope there’d be some sort of formula or rule of thumb to apply that guides you to either repairing or replacing a car. While there are indeed plenty of formulas and rules of thumb, none of them are very useful, no matter what their advocates say.
The problem is your decision involves a lot more than the simple repair/replace choice right now. It requires you to guess into the future, about what future costs each option might carry with it as well.
At one extreme, if spending a large amount of money now gets you a “like new” car that will run reliably for some more years, that’s a positive outcome and encourages one to spend generously on car repairs. At the other extreme, if the high costs now imply ongoing similar high costs extending without end into the future, then that of course causes one to choose to replace rather than repair.
The second similar problem is not knowing what to expect if you buy a replacement used car. At least, if buying a new car, you have a many-year warranty that gives you “peace of mind” – albeit at enormous cost. But if you are considering buying a used car as a replacement for your present car, that introduces its own unknowns – after all, one of the main reasons a person sells a car is because it is starting to become unreliable!
About all we can say when it comes to the challenge of guessing the future is that no matter how much you are spending on your vehicle now, you should realistically expect more expenditures in the future. You should also expect that any non-warrantied car that you buy as a replacement will also have repair costs, although perhaps at a lower level to your present car.
In these two respects, it is helpful if you can find someone in a repair shop who is familiar with working on the type of vehicle you have and who can give you a sense for what the future might hold. For example, they might say “Oh, yes, we find that the XYZ generally needs replacing after ??,??? miles, and that costs about $?,???; and the PQR seems to come due for replacement at about ??,??? miles and that costs about $?,???”. That is very helpful information – it isn’t guaranteed, of course, because the various component groups in any given car might have been well or harshly treated, and might have been made at the high or low end of the quality tolerances associated for the unit in the first place. But when faced with an otherwise unguessable future, any data is helpful.
Another source for this type of data can be enthusiast groups and their forums/chat groups on the internet, although beware – sometimes opinions and guesses are disguised as facts on such places, and you need to consider all such advice as being approximate and subjective rather than guaranteed and exact.
When Does it No Longer Make Sense to Keep Repairing a Car?
Back to our main question again. Some people cite “rules of thumb” such as “it is time to replace a car when the cost of repairs is greater than its value“. We don’t think this is at all a helpful rule of thumb, and as we mentioned at the very beginning, the current value of your current car is almost an irrelevancy. A rule of thumb which says “it is time to replace a car when the cost of repairing it is greater than the cost of replacing it“, on the other hand, would be a helpful consideration.
There are a number of factors to consider, some more subtle than others.
The obvious answer to the “when does it no longer make sense…” question is the rule of thumb we modified immediately above – “when the cost and hassle of repairs is greater than the cost of buying a replacement vehicle”. That’s an easy sentence to write and read, but what does it actually mean in dollar terms?
There are problems with assessing the cost/hassle of continuing to repair your present car, and the alternate cost (and hassle – no-one likes buying a car) of buying an alternate vehicle.
The problem with repairing your present car is as we touched on in the preceding “guessing the future” section. You don’t know how long it will be before it needs another item repaired or replaced. I had an old car, a couple of decades ago, and every few months, I’d spend a considerable sum repairing or replacing something, and each time I’d drive it back from the repair shop, happily telling myself “Now I’ve got a car that is back to ‘as-new’ condition, yay!”. I’d tell myself “This part, now replaced, lasted 75,000 miles before needing replacing, I’ve now got a trouble-free 75,000 miles to sit back and enjoy”. But, all too soon, something else would fail and need a costly repair.
It is truly astonishing how many expensive parts there are in a vehicle! I hope you never need to find out. And sometimes it is little seemingly insignificant and easily ignored items that can be as costly as the major obvious items. Plus there’s the duality – there’s not just the cost of the replacement parts, but the cost of the labor to replace them as well, which brings us to a “heads you lose, tails you don’t win” issue.
Labor Costs and Standard Hours
Most of the car repair shops in this area are charging $130-150/hour for their labor, and invariably they use “standard hours” to base their charging on.
A “standard hour” seems to have fewer than 60 minutes in it – these time allowances are standard times to do standard jobs, and sometimes it is possible for a skilled mechanic to work much faster, and to have everything go smoothly, and get it done in much less time – but the standard time is still charged.
In theory, that is supposed to be a two-way street – if a job takes much longer, you should still be charged only for the standard time, but my guess is that if there are unusual complications, the repair shop will say “Ah well, yes, the standard time is for the standard job, but your car took more time to work on because (insert excuses here) and so our labor charge reflects the actual fair reality”. (Notice how they snuck the word “fair” into the concept of “If the job is easy, we still charge the standard time, but if it is hard, we charge more”?)
I’ve had cars in a repair shop for, say, four hours, and when I collect the car, discover I’m being charged for six or more hours of labor. I know that the car wasn’t immediately worked on when I dropped it off, and I know it was finished some time before I returned to collect it, but I don’t know how you can get six hours of labor into a car that was on-site for less than four! This is where the “standard hours” concept becomes hard to disguise.
So, the point here is that repairing items on an older vehicle can become a seemingly endless process, which if ever finally completed, with everything replaced, may have you back at the point of needing to start to replace the replaced parts!
There’s a useful concept to keep in mind here when thinking about repair cost trends.
Comparing Your Car to a Bathtub
This curve, from Wikipedia, shows what is known as a bathtub curve – the blue line on the chart, which is the summation of three separate failure rate curves. It applies to many different items, not just cars, with the key characteristics being an initial period of improvement, then a nice period of low maintenance, then an ever increasing amount of maintenance in the future.
The question is at what point in the rising blue line do you reach the pain point where you decide to stop repairing your vehicle and replace it with a newer one.
We suggest the answer to that is partially financial and partially a convenience/reliability consideration. If you are having your vehicle breakdown, unexpectedly, that is a very negative situation, especially if it is a vehicle you need to rely on for not just around-town driving, but for long journeys, too. You must have a reliable vehicle.
If the repairs are of the “gets progressively worse” variety – leaking radiators, failing a/c units, strange noises in the transmission – then while still costly and unwanted, they are easier to accommodate and respond to.
From the financial point of view, you shouldn’t think only of the repair bill estimate you’re staring at presently. You need to consider how much you’ve spent on your car in the last year or two or three, and whether the rate of expenditures is increasing or staying steady. A $5000 repair bill, all at once, is impactful, but if it is the first time you’ve spent money on the car in two years, you need to factor that into your perception. Maybe it is better then thought of as if you’d been setting aside $200/month for repairs.
As part of a repair estimate, you should ask the shop to assess other pending repairs too. Don’t let them think you’re considering whether you repair the car or not, because they don’t want to talk themselves out of the repair work you’re considering today and might be more optimistic about the vehicle’s condition, than if you made it seem like merely a planning exercise for how much to set aside for the future. But it is helpful to know if there are other challenges coming due.
You probably already have some idea of the condition of your car. Are there strange noises or new behaviors? Is the engine seemingly less powerful, or less fuel-efficient? Is it harder to start? Does it sometimes idle roughly? Are the gear changes all smooth? Is it sometimes hard to engage Drive or Reverse? Does the steering pull to one side? Are there sometimes funny smells? Is it burning oil or leaking coolant?
You also have some sort of idea about how long before the brake pads and rotors need replacing, and the condition of your tires and battery too.
The Hidden Cost of Your Car
So, maybe you are at a point where some of the things to consider are starting to become apparent :
- The cost of currently needed repairs
- Any possible future repair costs in the foreseeable future
- The historic cost of repairs over the last few years
- An approximate cost of buying a replacement vehicle
But there’s one more cost factor, too. Indeed, overall, and particularly for cars in their first ten or so years of life, it is the highest cost of all. I’m referring to the depreciation cost of your current car and of any potential alternate vehicle you might buy instead.
It is no surprise to be told that cars go down in value. They drop based on their age, and their mileage. Other factors also apply, but these are the two key factors – every year, even if you don’t drive your car a single mile, it drops in value. And the more you drive it, the faster it drops in value.
But there comes a point where the car’s value has reached as close to zero as it will ever get. Indeed, there’s a hoped for happy point where, for some car makes/models, the value starts to climb again because it has become a collectible car. We’ll ignore that because it involves a bunch of other factors, and probably, for your car today, is not something likely to happen for another decade or two, if at all. Another often overlooked factor is that for a car to become valuable as a collectible, it needs to be in a high standard of condition in all respects.
When your car has dropped down to somewhere close to $0, you are no longer incurring additional depreciation costs each month. If you went out and bought a replacement vehicle – whether new or used – you immediately start another series of monthly depreciation costs, until it too has dropped down to almost zero value.
So when you are considering your alternatives, on the one hand, with your present vehicle, you have an ownership equation comprising the monthly depreciation cost, an allowance for repairs, and all the other associated costs of ownership (gas, tires, brakes, insurance etc). You can perhaps largely ignore many of the other associated costs of ownership because they might be reasonably similar, whether you keep or replace your car.
Say your choices are between your present vehicle, which might be depreciating at a rate of $50 a month, (or maybe nothing at all), and a replacement car – either a used car costing $18,000 or a new car costing $40,000 (which is about the average cost of an average new car). The used car will probably depreciate at a rate of about $250/month to start with, and gradually slow down as it drops in value. The new car will probably drop at a rate of about $750/month in the first year, $450/month in the second year, $350 in the third year, and then perhaps $300 in the fourth year, and so on.
Depreciation rates vary very widely, based on car make/model, and many other factors too. This source suggests cars depreciate an average of 39% over their first three years. Most of that is in the first year.
The point is that if you keep your older car, you might be saving $200/month in depreciation costs compared to a used car, and $700/month compared to a new car. That would pay for a reasonable amount of ongoing repair costs. Consider also that a used car probably no longer has any warranty, or at best, a three month probably limited warranty, and of course, any used car is susceptible to needing repairs too – you’re not replacing your current car with a “guaranteed no trouble ever” alternate, you’re merely replacing it with a “hopefully won’t be quite as troublesome for a while” alternate.
If comparing to the used car, you’re saving $200/month in depreciation, perhaps, and then you have to allow for what the replacement car might cost you in repairs, too. Perhaps that should be another $100/month allowance. So keeping your present car now represents as a $300/month saving compared to buying the $18,000 new car (and we’re ignoring the up-front purchase price per se in this equation, other than as represented by depreciation). Is your present car likely to require more than $3,600/year in repair costs?
Not all Repair Costs are Relevant
You should distinguish between “consumable” items that wear out and need regular replacement, and long-life items that semi-randomly fail on no particular schedule.
Consumable items include everything that is changed in regular periodic maintenance events – oil, lube, other fluids, filters, belts, hoses, and so on. Plus brake pads and rotors, tires, alignments, and battery, and other items such as bulbs and wiper blades. Maybe, like with most of my cars, you know that usually every summer you’re going to need an a/c recharge.
These are predictable items that you can build into your cost per mile of driving, and, most of all, they are costs which don’t necessarily vary over time, and not necessarily much between similar types of vehicles, although for sure a luxury car’s consumable costs will be very much higher than those for a Toyota Corolla. While we all most visibly see the number on the display at the pump, with low fuel prices and high mileage efficiencies these days, it is possible that the other consumable items now cost more per mile than the gasoline does.
So if it happens, by coincidence, that you need to replace the brake pads and rotors, plus the tires, and the battery too, all at the same time, and you’re also giving the car an oil and lube, and find yourself with a $2000 invoice, that’s not actually a “repair”. That’s a regular running cost, and is probably no higher than it ever has been right from the day you bought the vehicle, and perhaps no higher than it would be if you bought a new car (keep in mind that most new car warranties don’t cover these types of “consumable” items).
But if you need a transmission replacement and a new radiator, both at the same time, plus some new wheel bearings, those are indeed repair costs to consider in your keep/don’t keep evaluation.
An Opposite Perspective
If you have a high mileage vehicle, and have owned it for most of its life, and know its service history, and are at a point where you’re now replacing an item which is expensive to replace, but which has never been replaced before, that is not necessarily a cause for concern. You can say to yourself “Sure, I just spent $2000 on a new differential and associated parts, but I got 150,000 miles of life out of the first one, and probably will get another 150,000 miles out of its replacement”. It feels awkward to have added a new $2,000 replacement part with 150,000 miles of probable life, but not to get any value from it – there’s a disinclination to now sell the vehicle.
The thing is your car’s resale value, if you were to sell it, probably doesn’t adjust much for whether you have recently replaced the diff or not, but its value to you, if you were to keep it, has definitely improved because you know there’s very little chance you’ll need to replace it again for another 150,000 miles.
But beware of another fallacy in the previous two paragraphs. Sure, if a diff is lasting 150,000 miles, that is a good thing, but will you really keep the vehicle for another 150,000 miles – all the way to 300,000 miles? If you know that for some reason or another, at the very most, you’ll only keep it another three or so years (say less than 50,000 miles) that puts the cost per mile of the diff replacement in a very different category, doesn’t it.
Some Reasons to Replace Rather than Repair
Don’t think we’re advocating holding on to your old car for any longer than you should. While we become quite sentimentally attached to our cars, and we’re definitely not advocating premature replacement, there are also definite reasons for replacing your present vehicle that are difficult to cost out or exactly value and equate to simple dollars and cents.
Newer cars are sometimes safer. They may have more airbags, for example. The days when a car had only two airbags – one each for the driver and front seat passenger – have long since passed. Some cars now have over a dozen airbags, which, we’re told, is a good thing. They might also be two-stage airbags and open more gently with less explosive shock to you and your skin.
Traction and stability control is becoming commonplace – electronic stability control was mandated in 2011. Since September 2013, antilock braking systems have been compulsory. They are also, theoretically, a good thing – although in practice, there has been less reduction in accidents than expected, because some people are now driving more aggressively to “compensate” for the better braking of ABS.
The last five or so years has seen a steady roll-out of “driver assistance” features – starting with adaptive cruise control, and now extending to much more sophisticated types of systems for keeping cars in their lanes, and avoiding other cars, and so on.
Cars continue to become more fuel-efficient. Maybe your current car does 25 miles per gallon, and a replacement would do 30 miles per gallon. At, say, $2.50 a gallon, and 12,000 miles driven a year, the replacement would save you $200 a year in gas costs – not exactly a life changing amount, and no way could that by itself justify spending some tens of thousands of dollars on a new(er) vehicle, but it is still another small bonus, which combines with assorted other small bonuses too. Newer cars also need fewer oil changes, and don’t need to be tuned as often.
Cars are becoming much more “intelligent” in terms of their automation. At the simplest, they probably have Bluetooth connection capabilities for your phone. Maybe they have a phone type operating system on their dashboard that will put your phone’s display onto the dashboard display (make sure that such capabilities match your preference for either iPhone or Android phones or else it won’t be nearly as useful). Maybe the car has GPS or can display your car’s GPS on a screen. Maybe there are cameras all around the car – great when backing and parking (this has been mandatory since 2018).
Talking about convenience and safety aids such as cameras, a surprising cost saving for many people, when getting a newer car, is insurance. You might think that newer cars are more expensive because it would seem if you have a $100,000 car, the insurance company is risking up to a $100,000 replacement cost if you write-off the vehicle, compared to if your car is worth only $1,000. But that is only one element of the very many risks a car insurance policy covers, and only one of the many cost line items. Other significant issues include things like newer cars being safer than older cars, older cars being more expensive to repair due to increasing difficulty in finding parts for them, and a possible correlation between the standard of care/safety of drivers of new cars and old cars. Several readers have reported their older cars cost them more a year to insure than their newer cars. Of course, the insurance saving on a newer car is likely to be small rather than large – the key point is not to assume insurance will be more on a newer car – it might be the same or even less.
One other possibly appreciable point of difference is if you’re in a state where your annual license/registration cost is based on your vehicle’s assessed value. That can make a sizable difference between a $1000 (or higher) annual cost of registration and a $100 (or lower) cost.
There’s another reason to consider replacing your car, too. Perhaps your life-style and vehicular requirements have changed since you bought the current car. Maybe you’ve become an empty-nester, or maybe the opposite – you’ve gone from a single person happy with a two door convertible, and now have a partner and young kids, needing a “sensible” four door vehicle. And so on. Perhaps a different style of vehicle would better match your new situation and circumstances.
As a side-comment only, because it is a complex topic, but something to also consider is whether you might be better off with two vehicles rather than one. Some people choose a single vehicle that will do everything for them – it will go everywhere in the snow, tow a heavy load, fit seven or more people in it, has huge capacity for carrying things, and who knows what else. Unfortunately, that can end up with some impossible compromises and becomes an overly featured vehicle that does many things moderately well, but nothing very well. Perhaps your needs are better served by a small “around town” vehicle and a larger “working” vehicle, or in some other way and allocation of features, two vehicles rather than one.
Read more in part two of this two part article, which looks at total cost of ownership considerations, a spreadsheet to calculate your options, and – yes – the ultimate answer to the opening question, “Should You Repair or Replace Your Car?”.