Before I start: a shout-out to Chris for pointing out that this was a topic worth writing about.
It seems to be a standard rite of passage.
At about the 60,000km/3 year mark, the dealership politely reminds you that your service plan is about to run out; and then invites you to please come in and try the new Ford Focus. And every interaction after this is peppered with disparaging looks, portentous warnings about your engine/brake discs*, and “Oh, well, you can try our sister-branch in Vereeniging; otherwise we’ll have to import that fan belt from Japan because the spares department no longer stocks it – should take four to six weeks.”
Then. Suddenly. You’re organising road safety certificates and letting strangers drive your car around the AA parking lot while you wait for the credit bureau to re-approve your financing.
It is, without doubt, one of the most highly-manipulative and emotionally-charged of situations. Before I even get to the discussion of cost effectiveness, I would like to make some observations about car dealerships:
- No car salesman is going to be on your side. It’s the salesfloor equivalent of a woman asking her husband if she looks fat in this dress: the good husband will sketch together a loose array of factual assertions that allow him to interpret his own answer as “yes,” while allowing his wife the freedom to reasonably conclude that his answer was actually “no.” But she changes the dress anyway**.
- The reason for this is because the car salesman gets a commission from his sale to you.
- The car dealership pays him a commission because they also really want you to make the deal. If you trade-in your vehicle, then they get profit from the new car they sell you and interest on your financing. They will also get profit from re-selling your old car, and interest on the financing they offer the guy that bought it. Along with a host of fun extras like motor plans and insurance kick-backs and such.
- Can we honestly discount these incentives and just agree that their trade-in opinion is even marginally unbiased?
- Especially when they set the timing of your decision by giving you a three year motor plan…
So let’s talk about the cost effectiveness of replacing your car.
What is the right time?
Firstly, you’ll notice that I don’t dispute the necessity of having a car. There is a clear distinction in pay-slip that comes from having a car. It’s why you mention having a driver’s licence on your CV, and it’s why you get asked if you have a car in interviews.
But once you have it, and you’re looking at replacing it, then you need to look at two factors:
- The cost of replacement (ie. how much it costs to have a new car, less the trade-in value); and
- The cost of continuing with your old one (repairs and maintenance, and so on).
In a car salesman’s mind, the trade-in value plummets just after your service plan expires. So the effective cost of replacement looks like this:
At the same time, the repairs cost gallops past the effective cost of replacement almost immediately. Thus:
And who knows how soon that will happen? [Cue: story about the guy last week whose engine exploded as he left the dealership after rejecting a trade-in offer]. So, obviously, you should upgrade as soon as you take your car in for its 3 year service.
When they hit you with the massive bill for replacing the brake discs and other assorted charges.
The reality is that your plummeting of trade-in value occurs as you buy the car, and actually slows as time goes on. By the time you’re three years in, you are just about maximising profit for your dealer.
And your repairs cost grows over time, but not immediately. The issues, I’ve read, crop up at the 90,000 to 120,000 mile stage. So, in the 140,000 to 190,000 km region. Which is, you know, a lot more than 60,000 km.
And I do think it does begin to increase radically after this – after all, the more time your car spends getting repaired, the more irritating life becomes.
So in conclusion***:
There is no rule of thumb for this decision. But you do get to calculate that point for yourself. Because every year, there is a little pocket guide released for the banks, insurers and second-hand car salesfolk, giving the replacement value of your make and model adjusted for mileage. And when you start to see your costs creep past that point, it’s time.
Reasons to Trade-In Early
Prestige. Because it’s cool to have a new car every three years.
Just so long as you know that you’re paying for it.
Only please. Don’t call it “a sensible financial decision”.
*Usually something about “outside the limits recommended by the manufacturer”.
**An example: “Honey, you know you’re beautiful to me #Fact. I’m just not so keen on the colour #Fact. What about that blue one you wore to dinner last Tuesday? #SuggestedConclusionOpenToInterpretation”
***If you’d like some more, this article is also worth reading: “Don’t listen to what others say“.