I love my car. It’s a 2003 Ford Explorer with 143,000 miles. It’s a great machine: powerful, practical, safe. And it’s also about worthless as far as resale value, which I wear as a badge of honor. In the same way I am currently wearing slippers with the soles almost entirely detached from the foot, I love getting my money’s worth.
To recap my feelings about cars, they are one of the most inefficient and wasteful expenses you can have. There aren’t many things that depreciate in value faster than a car. It’s like buying a stock and have it drop 20% the next day. And then decline by 10% each year steadily until it reaches $0. It’s perfectly fine to categorize a car as entertainment and enjoy owning different vehicles, but you should never consider it an investment. And when it comes to buying cars, you should always pay in full, in cash and never finance or lease. If you are making a $500 a month decision, it’s pretty easy to buy and sell cars. If you are making a one-time, $50,000 decision, it makes you really scrutinize your purchase.
Back to my story: as I was about to leave for work, my shifter wouldn’t budge. It had been getting tight over the past couple months, but this morning it was just stuck. I don’t know much about cars, but when a car has trouble shifting, it tends to be the transmission, which is horribly expensive. The tow truck guy came (thanks, AAA) and instead of towing it, actually helped me shift out of park and drive myself to Firestone.
The guy there suggested I go to a transmission shop, but said he’d take a look. I spent the never few hours searching Carvana for a new Explorer and thought about what the potential fixes for my current Explorer might be and what I would and would not pay to repair. I really wasn’t interested in buying another car so soon after Mrs. Passionate Saver’s new ride.
You’ve probably heard the rule of thumb that you shouldn’t spend more on a repair than the car is worth. My car is only worth about $1,500, so following that rule would make all but the most mundane repairs impossible. I don’t fully subscribe to this theory though. From an investment standpoint, it obviously doesn’t make sense to repair a $1,500 car with $1,000 of work if the final outcome is a car that’s still only worth $1,500. But really, the car in a broken state might only be worth $1,000 and with $1,000 or work is back to it’s working value of $1,500. Again, not a good investment.
But the rule is really to provide a point to cut your losses, not to do the math on what the car is worth broken and fixed. The idea is that if the repairs are so significant that they cost more than the car is worth, then your vehicle has reached a point when it will continue to break down. And that’s when it’s time to get rid of it.
I like to view repairs as a cost per year to keep it running. Because my car is basically worthless, there’s no real money to protect in it. I’m in the mindset that each year I keep it running is another year I can keep the replacement car money in the bank and do something with it. I can use that $25,000 to invest in something. Keeping my car running also decreases the cost per year value I’m getting out of it. A $25,000 car driven for 20 years is a dirt cheap form of transportation.
So while I waited for the diagnosis, I found a replacement Explorer on Carvana for $22,000 and decided that I wouldn’t spend more than $1,000 on repairs, assuming that $1,000+ would be a significant component, likely prone to future issues. $1,000 today, $1,000 6 months from now, etc., etc.
Turns out that the problem was the shifter itself! $250 and I was out the door. I can continue on my quest to drive my Explorer for 20 years.