The Nightmare of Car Shopping

Vehicle Purchase 

Buying a vehicle is the second largest purchase after buying a house. They are hugely expensive, taking years to pay off or save up for. Worst of all, for both house purchases and vehicles they require haggling which can cost thousands more than needed along with stress and anxiety. Overpaying for food and souvenirs on vacation is one thing but overpaying on your largest purchases can set you back years. Unlike the price of milk and gasoline it is extremely difficult to know the true market value of a home or vehicle. The stress of haggling with car sales reps or random Facebook Marketplace sellers can be maddening.

New Vehicle Purchase

Buying new seems like a logical option. Nice shiny car, a fancy dealership with friendly sales reps that just want to be your friend. Sales reps are not your friends though. They want to sell as many cars as possible for as much as possible. The mark up on new vehicles can be as high as 10% not to mention upsells and add-ons. New cars are averaging $56,264, SUVs at $61,285, and pickups reaching $75,072. Meaning it can be thousands in extra cost. You also have to think about sales tax which is absent when buying privately. 

If you are going to buy new here are a few pieces of advice to keep in mind.  

    1. Shop Around (via Email)

 

If you are set on buying a Honda Civic, reach out to every Honda dealership within reasonable driving distance. Dealerships are not a team and their prices vary dealership to dealership. Some may be low on their sales quote or with younger sales reps and be willing to lower their markup to make an extra sale. Email each dealership for all in price as they will drag out the process in person and lay on the sales pressure hoping to clench a sale.  

    2. Drive the New Vehicle into the Ground

Driving the car off the lot typically loses 10% of its value right then and there. Cars typically lose most of their value early in their lifespan with depreciation slowing down over the course of its life. If you think of a graph with cost of driving per 100KMs on one side and maintenance costs on the other you will see how driving a new vehicle is extremely expensive in the begin but with minimal repairs. Typical new vehicle costs are around $20 per 100KMs driven which slowly drops off to around $5 per 100KMs on an older vehicle. Older vehicle might loses less value when driven but they are more prone to repairs raising the cost of ownership. The sweet spot is 60,000 to 100,000KMs to 150,000 to 200,000kms where you can see the valley between high repair cost and high depreciation. Happy medium.  

When you buy new you have taken on the higher cost of ownership especially within the first 5 year. Lots of vehicles that are financed are up at around 5-7 years which makes it desirable to want to upgrade to the latest and greatest but it's a trap. You just fought through the most expensive part of your vehicle's life, don't throw it away now that you're in the sweet spot. Drive that thing into the ground or at least passed 200,000kms so you can better spread out the cost of ownership.

    3. Think Practically (Shop for the 90%)

Dealerships are known for their sleazy sales reps but they are also known for upselling. Added rust protection spray, rain guards, oil change packages, extended warranties, high trims, body maintenance. Do you really need leather seats, cooling seats and auto pilot navigation? No. No one does. Is it a need or a nice to have. Think logically and practically. What is actually important. What will you use 90% of the time. 

Upsells are common in any business and if you think you can win on the extended warranty or oil changes you probably can't. Businesses are in the business of making money. They would not sell you an extended warranty if they thought their vehicle would break down enough more than what you paid on it. Same with oil changes. They have run the numbers and know people either sell their cars thus voiding the free oil changes or they have some maintenance schedule they require you to follow so even if they do lose money on the oil changes, they will make it up on engine flushes or coolant top ups. 

Larger is better?

It is quite common in North America to buy larger vehicles which cost more and burn more fuel. Why do we buy larger vehicles? Because it's nice to have extra space. That extra space is expensive and sure it is handy when you are camping or going on a road trip but if you are only going camping once a year you are paying for a lot of space to be hauling around. It's similar to electric cars and range. After a while the battery just gets so large that it doesn't make sense to have a battery so large that it rarely gets below 50% charge. You are just hauling around a giant battery that you only use on a road trip once a year. Its the same with storage. Do you actually need storage or is it just nice to have?  

If you don't use a truck, especially a full sized truck for work everyday, it really doesn't make sense to pay for all the vehicle and hauling capacity just to help someone move twice a year. Same thing with a 5 seater SUV. Sure they have better handling in winter but you can also just buy winter tires. SUVs that seat 5 cost around $10,000 - $15,000 extra versus a 5 seater car not to mention worse gas mileage and high insurance premiums. Mathematically speaking unless you are a large person that cannot fit into a car you should almost always buy a car over an SUV. How often are you really going to go camping and pack your vehicle to the brim with equipment? Once a year? The convenience of a bigger is just not utilized enough to justify a purchase of a larger vehicle.    

    

      

Trading In

When purchasing from a dealer they often want you to trade in your current vehicle making it an easy car swap, of course at a loss for you. I recently sold my 2013 Hyundai Elantra with 169,000 KMs. I was offered $3,500 at a dealership, but I was able to sell it privately for $8,000 after listing it for 2 days. A great rule of thumb when it comes to anything financing, not just cars, if it's convenient that means it will be expensive. In this case, the convenience of selling directly to a dealership to avoid selling privately would cost $4,500 in potential profit. 

Convenient is another word for expensive

Vehicle True Value

It is difficult to know the true value of a car since no one has the identical car with identical mileage, maintenance and damage that a vehicle has. The basic principle is to find the closest possible equivalent. Find the same year and similar mileage and list it for higher than you want. I was hoping for $7,000 so I listed my Elantra for $8,500. We haggled down to $8,000 netting me $1000 more than I expected, while also giving the buyer the feeling of getting a good deal. Always aim high as you can easily lower the price in a few clicks. Added bonus of a high price is less messages from potential buyers to sort through. 

     

Used Vehicle Purchase

Buying used is scary. What if I buy a lemon and there is no warranty? How do I know if I am getting a good price? Should I get a Carfax? How old of a vehicle should I purchase?

Buying used is generally cheaper versus buying new. If you buy privately you even save on tax. 

Buying a lemon is always a risk even with buying new. Sure there is a warranty, but most of the large repairs come after the warranty expires after 100,000 KMs. Paying out of pocket for little repairs is not a big issue with buying new. It's when the transmission or engine fails a month after purchasing. 

Getting a Good Price

The best way to know if you are getting a good price is to break out a spreadsheet. List year, price, and KMs. Comparing as much as possible apples to apples. Ultimately the goal is to try to boil down each vehicle to a number. Vehicles typically last 300,000kms with regular care and maintenance so taking 300,000 and minusing the current KMs will give you the rough amount of life left in the vehicle. 

Cost per Km

Take the price of the (vehicle / divide by the KMs left) multiplied by 100 (to give it more context)

I recently was shopping for vans and made a spreadsheet of some popular new vans. Most new vans average around $20 per 100kms.

The used market is a bit cheaper per 100 KMs getting down to $14 - $16. The price per 100 KMs only takes the price for the vehicle and the amount of KMs on it into effect. The year, trim, make and model are all outside the equation. 

If you are looking for a more fully inclusive equation to boil only the attributes that are actually important to you down into a single number consider using =Max formula or =If formula. I have an example spreadsheet from when I was shopping for vans.

Example Spreadsheet 

Listing vehicles on a spreadsheet cuts down the emotion and can give you confidence when making an offer. 

Carfax 

When buying a used vehicle, one of the biggest concerns is the unknown—past accidents, title issues, or costly repairs that might not be immediately apparent. This is where Carfax reports can offer significant peace of mind. A Carfax report provides a detailed history of the vehicle, including any past accidents, repairs, ownership changes, mileage discrepancies, and more. 

Carfax typically includes: 

• Accident history - Has the car been in a collision? What was the severity?
• Title status - Clean, salvaged, or rebuilt title? This is crucial for understanding whether the vehicle has gone through significant damage or legal issues. 
• Odometer readings - Are the reported kilometers accurate, or has the vehicle’s odometer been tampered with?
• Service records - Regular maintenance reports, which can indicate how well the car was taken care of by previous owners.
• Ownership history - How many owners has the vehicle had, and was it used as a personal car, rental, or fleet vehicle?

Is a Carfax Worth the Money?

At around $70, a Carfax report may seem like an unnecessary expense, but consider this: you could potentially save thousands in repair costs by avoiding vehicles with hidden issues. Most sellers today, especially dealerships, offer a free Carfax with their listing. If you're purchasing from a private seller who doesn’t offer one, it might be worth investing in the report yourself—especially for vehicles priced over $10,000 or those with higher KMs.

What Carfax Can’t Tell You

While Carfax provides a comprehensive look at a vehicle’s history, it's not foolproof. It relies on information reported to its database, which means that if an accident or repair wasn’t documented or submitted, it won’t appear in the report. For this reason, a Carfax report should be used in conjunction with a professional inspection and thorough test drive.

Vehicle Age  

When buying a used vehicle it is recommended to buy a 3-5 year old car for a balance between affordability and reliability. 5-7 years are more for budget-conscious buyers who want a balance between upfront cost and longevity. Anything older with higher KMs is at risk of costly repairs. 

KMs 

When evaluating a used vehicle, mileage is one of the most important factors to consider, often more so than the age of the car. While a newer car might seem like the better deal, a vehicle's condition and longevity are largely influenced by how many kilometers it has been driven.

Lower Mileage is Generally Better

As a general rule, lower mileage is preferable. A vehicle that’s 5 years old with 50,000 KMs on the odometer will likely be in better shape than a 5-year-old car with 100,000 KMs. Lower mileage means less wear and tear on the engine, suspension, and other critical parts, which translates to potentially lower maintenance costs in the immediate future.

However, it’s essential to balance KMs with age. A 7-year-old car with 50,000 KMs may have been driven infrequently, possibly leading to issues from sitting idle for too long. Conversely, a 5-year-old car with 100,000 KMs might have mostly highway kilometers, which tend to be less taxing on the vehicle than stop-and-go city driving.

Longevity of Vehicles

With regular maintenance, many vehicles can easily surpass 300,000 KMs, especially foreign made vehicles. As a rule of thumb, when looking at a used vehicle, subtract the current KMs from 300,000 to estimate how much life the car might have left. For example, if the car has 150,000 KMs, you might reasonably expect another 150,000 KMs of use, assuming proper care with some repairs closer to 300,000. This can help you determine if the car is worth the asking price.

How KMs Affect a Car's Value

Typically, the more kilometers a car has, the lower its value. This is why higher-mileage cars tend to be more affordable. However, it’s important to assess whether the savings upfront outweigh potential repair costs down the road, especially when the car crosses the 150,000 KMs mark, as many vehicles begin to require significant repairs, like timing belts or transmission work, at this stage.

Highway vs. City Driving

All kilometers are not created equal. Highway kilometers generally put less strain on a car compared to city driving, which involves constant stopping, accelerating, and idling. If a seller can confirm that most of the kilometers were accumulated on the highway (for example, commuting to work), the car might be in better shape than its mileage suggests.

Car Shopping Conclusion

Purchasing a vehicle is a significant financial decision that requires careful consideration, as both new and used cars come with their own challenges. New vehicles, while appealing with their modern features, often come with high markups and lose value quickly through depreciation. It's recommended to shop around and avoid unnecessary upsells to minimize extra costs. If buying new, driving the car well beyond 200,000 km helps spread out the cost of ownership. 

For used vehicles, the key is finding a balance between price, KMs, and reliability, with 3-5-year-old cars typically offering the best value. Creating a spreadsheet to compare costs per kilometer can help in making an informed decision, and obtaining a Carfax report is advisable to understand a car's history. Whether buying new or used, avoiding emotional decisions and focusing on practical needs is essential to getting the best deal.

If you found this helpful and would like help budgeting or investing please email me at taylormckeecoaching@gmail.com