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Monday, May 07, 2012

Buying a Used Car

Recently, our 1995 Honda Odyssey went the way of the dodo, so we were forced to shop for a new (well, new to us) van. I am not an auto expert, but I discovered a way to solve the classic used car comparison problem that some people have found helpful. Maybe you will find it helpful as well.

Phase I - Setting Up The Spreadsheet
Apart from one small caveat (see Phase II below), the year of manufacture doesn't matter.  All other things being equal, you need be concerned only about a car's mileage and price.

Specifically, you want to calculate the sales cost per mile over the life of the vehicle.

Now, we bought our 1995 Honda Odyssey at 90,000 miles and ran it until the engine essentially gave out at 220,000 miles. So, I assume that any van we buy today will last the same distance - a minimum of 220,000 miles.

 I set up an Excel spreadsheet with the following headings:
ContactInfo     VIN    Make/Model/Year    Price      Mileage    Cost/Mile     TotalCost   URL

ContactInfo - phone number, address of the dealership, etc.
VIN - If you are doing internet searches, keep track of the URL and the VIN. You may see the same car on multiple sites or similar cars on the same site. Sometimes, the only way to distinguish various ads is by the VIN.
Make/Model/Year - self-explanatory
Price - the advertised price for the vehicle
Mileage - the mileage for the vehicle.
Cost/Mile - The formula in this cell should subtract the car mileage from the expected mileage, then divide the price by that number.

For example, let us say you have:

  • the car's Price in column A4, 
  • the car's Mileage in column A5
  • and you expect to run the car 220,000 miles.
  • The formula in Cost/Mile would be:   +A4/(220,000 - A5)

You can cut and paste that formula into a spreadsheet cell if you want, and modify it accordingly.


That will give you the cents per mile as a decimal number (e.g., 0.12435 is roughly 12 cents per mile). This is the price of the car amortized over its useful life.

With that number, you can now compare cars directly, no matter their mileage, price or year.

After tracking vans this way for a month, we discovered that anything below about 5 cents per mile was not worth looking at, anything above about 10 cents per mile was above our price range.

TotalCost - the probable price including sales tax, license, fees, etc. If you're on a tight budget, as we were, the sales tax and fees can kill a deal if you haven't accounted for it up front.

URL - You may not remember the exact search criteria that got you to this ad, so save the car's URL so you can visit it again easily.

Phase II
Now, visit the library and check out old issues of Consumer Reports.
See if any make or model has specific weird problems you don't want.
Also, see which makes and models you definitely want to avoid because of bad histories.

For instance, we had a very limited budget for this purpose, so that cut out all the newer model years. In order to avoid a lemon in an older model year, we discovered our only hope for a decent van lay in the Honda Odyssey and the Toyota Sienna.

We wanted the fold-down seats, which Sienna only started using in 2004.
Our old 1995 Honda Odyssey had had them, and we loved them.
Unfortunately, while the Honda Odyssey always had the fold-down seats, the 2000-2003 model years also had problematic transmissions - a serious expense. I searched the internet for whether or not that problem could be resolved. It turned out that Honda had put out a fix that seemed fairly reliable from reports.

We also found out that the Honda Odyssey Touring edition 2005 had weird tires that were very expensive and virtually impossible to replace if they failed - not something I wanted to deal with.

Hmmm... as I searched the web, I also saw the same cars coming up day after day. And I watched the prices fluctuate. After a month of daily evening reading of ads, I got a feel for what a reasonable price would be. I also saw prices on certain vehicles head steadily downwards.

We were under no time constraint, so I didn't mind if a van I had been watching suddenly disappeared (bought). I live in the huge metropolis of Dallas/Fort Worth - another would replace it soon enough.

The used Honda van we ultimately bought had been price-reduced by the local Toyota dealer. We were the first ones to test drive it after a month of advertising on the dealer's part. It was a company vehicle with complete maintenance records, a 2003 Honda Odyssey with the transmission fix already taken care of 50,000 miles ago. We bought it in November 2011 and have been very happy with it. It cost us 9 cents a mile, which I felt relatively good about.



Errata: Where to look on-line

Here are the most useful websites I visited to look for cars:
Be careful on Craigslist. The auto listings would frequently (nearly every day) have an ad which consisted of nothing but a jpg that had all the car information listed within the picture. Phone number, price, VIN, make/model/year - all embedded in the jpg, and no text in the ad at all.

Ads comprised of nothing but a jpg with embedded text were always scams.

The vehicle price would be unusually low. When I contacted the poster, s/he would give a sob story about needing to leave for Europe or Alaska immediately, having just gone through divorce, military deployment, etc., and they were always based far, far from Dallas, so you couldn't see the vehicle. And they never had a good explanation for why they were advertising in Dallas.

They promised to ship the vehicle upon receipt of payment through Ebay. Ebay was invoked, I think, in order to give the patina of reliability to the sale.

The whole ad was in a single jpg in order to keep Craigslist scam identification engines from reliably identifying their phone and/or e-mail addresses.

Craigslist often has good deals, and we checked out a few, but be careful.
It also has con artists.

I hope this is of use to someone.
God bless.

2 comments:

Flambeaux said...

Steve,

Thanks. I hadn't considered a cost/mile analysis before.

This is very helpful.

Steve Kellmeyer said...

I suspect I got the idea from the IRS.

For decades, I could never figure out why the IRS compensation for vehicle mileage was so high. It's currently something like 55.5 cents per mile - nowhere near the cost of maintenance and gas.

But, if you figure the sales price cost per mile in, the IRS number makes more sense.

Looked at that way, you never really "buy" a car. You're either formally leasing a car from a company, or you are "buying" the car and implicitly leasing it from the auto industry as a whole.

After all, the car won't last forever - you're going to have to replace it at some point. That replacement purchase cost is functionally identical to the balloon payment at the end of a lease.

You're leasing a service whether you "lease" or "buy". Leases run according to mileage - they amortize the cost of the vehicle over miles run.

"Buying" is almost always cheaper than "leasing," but if you view a vehicle purchase as a kind of lease, then it makes sense to use the same calculations leasing companies use.