This is why many dealerships try to you sell you a car based on a bi-weekly or monthly payment vs. the total out the door cost. It is easy to convince/confuse the customer that they got a good deal.
Or dealers try to roll over to the same monthly payment as the traded vehicle or lease with a longer payment or lease term--5 year financing goes to 6, 7 or 8, or the manufacturer's data analytics say a 39 month lease offer will work in getting folks to the same monthly payment coming off their 36 month lease.
Which brings me to a matter of potentially large chucks of monetary savings even in comparison to $0 extra per month. To my mind, if you roll over a vehicle after 3 years or even longer, whether trade or lease, you lose the value proposition which is very substantial over a middle-class or upper middle-class adult lifetime.
Typically vehicles lose 40 - 50% of their value, give or take, in the first three years, then depreciation slows. The longer you hold the car the better the value proposition if the car is even just reasonably reliable, i.e. no power train failure on the horizon as the minimum.
If you're not interested in a real life case study with actual numbers that illustrates the point, stop here.
I had not run the following numbers before in detail, and since I'm doing it now I might as well type it up if anybody is interested. It's not too much work with Quicken reports. Yeah, I'm one of those guys who enters anything with a $ sign into that application.
Lets take my 2014 Sienna for example: $31,800 sticker, no trade, $29,200 - $1,000 cash back + taxes and fees with 5 year 0% financing = $509 per month, currently 90,000 miles over 6 years, with the last year having no payments.
Now, if I had gotten an itch for some new-new thing when the 5 years were up, a sale or lease can be finagled to get me something comparable to $500 without trade, less with trade. But by keeping it for a 6th. year, that's about a $6,000 cash difference against a $500 monthly payment. I keep a record of KBB trade values on a quarterly basis with a conservative assessment of condition. The depreciation on that basis for that 6th. year which I'm hitting the end of right about now is about $1,500. That reduces the savings to $4,500. Maintenance costs have been running about $650 per year once I got into tires and brakes, with usage at that 15,000 miles/year. That's net cash in my pocket of about $3,850 for one year plus whatever would have been spent on maintenance in the first year of a new vehicle.
A more extreme example is my 2006 top trim Accord V6 with 100,000 miles, also purchased new, which I just traded for the CX-5. Long story, I needed a higher step in vehicle otherwise I'd have expected to keep it at least another decade. The total depreciation less the trade value after the first 5 years (last 9 years) was about $11,000, maintenace by the book or better plus tires and brakes was about $4,800, repairs were a grand total of zero (!) with nothing neglected except a windshield scratch = 9 year cost of ownership of $15,800. Compare that to a constant $500 monthly payment over the same 108 months = $54,000 in payments + higher insurance costs on the newer cars + maintenance costs + any repairs.
Now, we have to adjust those savings in an every-5-years trade scenario. Those two trades would have have had something like $22,000 in total value above my one trade at 14 years, resulting in total savings of $32,000+ over 14 years. I was coming up on the 100,000 - 110,000 mile timing belt, water pump, platinum plugs, and serpentine belt (not needed, but "while you're in there"), but that doesn't move that $32,000+ needle very much.
For my last 3 vehicles before the recently purchased CX-5, the 2006 Accord, a 2004 Sienna and the 2014 Sienna, all bought new which have totaled of 340,000 miles over 30 total years and counting, the grand total out-of-warranty repair costs not including damage caused by the owner or a technician or a rock flung at a windshield, etc., stuff you can blame directly on the vehicle, have totaled $473, most of which was a leaking water pump at the time of a timing belt replacement on the 2004 which conventional wisdom says you do regardless.
While no look into the future is foolproof, success is maximized by using reliability reports as the highest priority and the first cut off in the process of elimination in selecting a vehicle. Success is further maximized by not buying in the early years of a generation of that model. I learned that lesson once by ingorning my better instincts. Let other buyers pay to have the manufacturer work out many of the kinks. A proven drive train is paramount and the more electronic glitches worked out the better. And I say avoid turbos and CVTs if you want to get 150,000+ miles out of a vehicle like I aim to do unless the CVT is Toyota's.
Over a lifetime, with some luck, there are hundreds of thousands of $ in savings out there with pair of averaged priced vehicles ($36,700 in the US as of May 2019 according to Edmunds) in a two car garage.
The same approach can be taken when thinking about flipping a smart phone every year or three, or flipping any manner of consumer goods that are operating reliably. It isn't a matter of "just $20 more per month". It's a matter of going from $x per month to zero dollars to month for a potentially extended period of time.
This is old hat for a lot of us old guys and some young folk. Folks here are talking about buying used which might work out even better. Some youngsters, however, thinking of trading a perfectly reliable older CX-5 to get 3 more diagonal inches on a screen might want to run some numbers to see how many thousands of dollars that will cost, money that could be spent to get out from under student loans or credit card debt faster (with even more savings on interest payments), faster into a first home, more into a retirement fund, or faster to whatnot.
The next step for such youngsters should be to read "The Millionaire Next Door," an oldie but goodie. Not all lessons apply to everybody. I sure have not followed all of them like the idea of of always buying two year old cars, but the overall perspective is valuable for a lifetime. You'd be less likely to ask down the road (pun intended), "Where did all the money go?"
Of course if one's net worth is in the multi-millions this stuff might look like quaint notions for the little people, but as the aformentioned book shows that is not necessarily the case..
www.dealerrefresh.com
www.manheim.com
publish.manheim.com
www.blackbook.com
