Are New Cars a Waste of Money?
In my experience, even people who know literally next to nothing about cars often voice their opinions as if they were experts with a lifetime of experience in the retail auto industry, especially when it comes to buying cars. One particular prejudice I’ve often come across is when people who are convinced you should only ever buy used and never consider buying a brand-new car, so are they right and are new cars a waste of money?
Buying a new car is not a waste of money if you have considered your purchase carefully, weighed up the pros and cons, decided that a new car is right for you, and of course, as long as you can afford it. While the MSRP of a new car, truck, van, or SUV will almost always be more expensive than a used version of the same vehicle, there are situations where new cars can actually work out cheaper than buying used ones.
Is buying a new car a good investment?
Buying a new car can be a good investment in some limited circumstances, but generally speaking, few cars could ever really be considered good investments because they are almost always depreciating rather than appreciating in value.
There have been a couple of occasions in the last few years when used cars have actually gone up in value, such as just after the global financial crisis in 2007/8 and when the coronavirus pandemic hit global new vehicle production. The same can’t be said of new cars generally, but there are some circumstances where a specific new car can be viewed as either a short or long-term investment.
New cars with waiting lists
If a brand-new car is in huge demand and there’s a lengthy waiting list, if you’re lucky enough or you’ve been foresighted enough to be high on the list you may find people willing to pay over the odds for yours so they don’t have to wait months or longer to get one. What you have to be really careful of in a situation like that is that you take advantage while you can and you don’t wait too long to cash in.
When the Range Rover Sport came out in 2005 I probably had at least five buyers for every unit I could get. I even saw customers, straight after taking delivery, handing their brand-new cars over to someone else in the car park who had agreed to pay them a premium even though they were then buying what was effectively a used car.
The window of opportunity in these circumstances is very narrow, and a few months later we had plenty of stock and we were even starting to discount new ones. If you bought a new Range Rover Sport by that time and tried selling it on shortly after you’d probably have to swallow a loss of $10k or more!
If a new car is only being produced in very limited numbers, then buying one and hanging on to it could turn out to be a good investment. You could also probably get rid of it really quickly for profit as described above, but you need to understand that there are limited editions and then there are limited editions.
A lot of automakers now produce a strictly limited run of “launch edition” versions of a brand-new model which you might assume could become collectible due to them being a limited edition. In the overwhelming majority of these cases, you will lose just as much in depreciation on one of these as you would with any of the other versions that follow.
These launch edition new cars are usually just very high-spec versions that might be a little cheaper than a standard model if you specified it to the same level. They’re really just produced to generate interest and regardless of how few are produced, they’re rarely going to be anything close to a good investment.
However, some genuine limited edition new cars are GUARANTEED to appreciate in value. Some models that immediately spring to mind are the McLaren Senna, Ford GT, and the Porsche 918, but these sorts of cars tend to have one thing in common apart from being limited editions; they’re usually outrageously expensive to buy in the first place.
When a new car is a good investment for you
If you only think of an investment as an item you buy at one price and then sell at some point in the future for a higher price, then as far as new cars are concerned, I think I’ve pretty much covered that so far in this article. The thing is though, investments are often more than just something you buy and sell, and I can’t count the number of times I’ve tried explaining this to customers in the car business.
Absolutely anything that benefits you in some way can be seen as an investment, although how much of an investment can vary massively. Let me run you through a couple of obvious examples.
If you have a business and you employ people to put labels on bottles of something you produce and sell, if you buy a machine that can apply labels, you’ll be able to considerably increase production and make a lot more profit.
The machine will inevitably cost a fair amount of money, but the extra profit it allows you to generate means it will eventually pay for itself and you’ll continue to make money from it long after it has paid for itself.
An example that’s closer to you buying a new car being an investment is a builder buying a truck. They may have been able to manage in the past by transporting their tools in an old sedan and relying on suppliers delivering materials to the site for them, but buying a pickup truck will allow them to carry more tools, use bigger tools, tow a trailer, collect supplies and even give a lift to employees. They can then take on bigger jobs and make more money.
But how does any of this relate to you? Well, just think about some of the things you do with a car. You use a car to get places and you use it to transport cargo and passengers. Using a car to get somewhere will often be quicker than walking or using public transport, and that will leave you more time to do something else you might not have been able to do otherwise.
A lot of us use a car to commute to and from work, and as you get paid for working, how is that any different from the builder buying a truck or the manufacturer buying a bottling machine?
You might have children and the good school you want them to go to might be across town. Taking them in the car might be the only practical option, otherwise, you might have to send them to a worse school that’s nearer. Wouldn’t you consider the car to be an investment in their future in those circumstances?
I could go on, but I probably know what you’re thinking right now, don’t I? You’re thinking, “a used car can do exactly the same and it costs less than a new car,” aren’t you? Of course, you’re right to some extent, but now I’m going to make my case for why a new car is the better investment.
Why a new car?
If you are going to rely on a car getting you or your passengers where you need to be and when you need to be there – and I really do mean rely on – a new car offers you the kind of reliability and peace of mind you will never have with a used car.
Now I know you can probably point to JD Power reliability reports that say car A has had X amount of reliability issues in its first year and car B has had this many. No car is 100% reliable, but there’s less chance that a brand-new car will let you down than a used one. Also, a new car will be under the manufacturer’s full warranty and that will probably also include breakdown cover.
New cars also have more advanced safety features than older cars, so how would you view the investment you made if your car saved you from having an accident or kept you safe if you couldn’t avoid a prang? What if you live somewhere that has cold winters with regular ice and snow? What if you could lease a new car with all-wheel-drive for the same or lower payments than a used car without the AWD that could get you to work in the snow when a rear-drive car might leave you stranded?
Employment laws in the US are pretty lax compared to places like the UK and Europe. If you have an old car that keeps letting you down and repeatedly makes you late for work it’s not beyond the realm of possibility that you could get fired as a result. Would investing in a new car that didn’t let you down suddenly look like a wise move in those circumstances?
Also, a new car comes with new tires, a new exhaust, new brakes and new everything else. These wear-and-tear items can all let you down eventually, but if you’re driving a new car, you have no worries in this area.
New cars are expensive, aren’t they?
Paying in full for a new car would mean handing over a seriously large sum of money, even if you were buying something like a new Nissan Sentra, but who pays in full for a car these days? More than 85% of all new cars on the road are financed in some way, and the monthly payments on a new car can be considerably cheaper than a used car.
That’s right. If you lease a brand-new car you could be paying tens, if not hundreds of dollars a month less than if you bought a used car on regular finance. I’m not going over the ins and outs here because I’ve already written a detailed article on the subject you should check out.
What I will say here is that I’m not talking here as a former car dealer, but as a car buyer. I’ve leased my last four new vehicles, and on at least one occasion it was because I couldn’t afford the finance payments for a decent used car that would do what I needed it to do at the time. After that, I’ve never considered anything but buying new cars.
Something else to consider
If you’re someone who just sees a car as a means of getting from one place to another then I’ve probably said what I need to say already. But if you’re anything like me, there’s more to buying and owning a car than that.
There really is nothing like getting a brand-new car, especially if it’s the latest model. The smell is fantastic, the latest new features make me feel like a child on Christmas morning, and as long as I’ve bought the right new car, then owning and driving it gives me a feeling of pride.
What I’m describing in my circumstance is probably more about the new car being a reward rather than an investment, especially as I could manage without a car at all if I had to. It’s a reward to myself for the hard work I put in to earn the money to make the payments, but what is that if it isn’t an investment in myself?
Before you accept the old adage that new cars are a waste of money and used cars are cheaper and better value for money, just stop for a moment and think about it for a while. If you want to know how affordable the brand-new car, truck or SUV you’d really like could be, use the form below to get free genuine quotes from dealers in your area.
You’re actually quite lucky in the US because you can negotiate various parts of a leasing deal, while in some other countries it comes as a single monthly amount and you don’t get to see the component parts and that limits your opportunity to haggle.
I’m not going to declare here that new cars are never a waste of money because anything can be a waste of money if you’re not careful, but what I will say is that a new car doesn’t have to be a waste of money as long as you buy wisely.