When to Junk a Car

My basic advice on cars is that you should buy them mildly used, two to four years old, and drive them until they are inert heaps of rust. This is based on the commonplace observation that used cars are generally a better deal for buyers, that is, that relative to new ones they are cheaper than really makes sense.

Whether this disconnect between new and used car prices is because consumers irrationally prefer new ones or irrationally fear used ones is a metaphysical question I am not going to answer. But the gap is there, and many personal finance types will advise you to buy used rather than new because of it. I don’t disagree, but there is an equally important second principle to be drawn from the new/used price anomaly. Besides “never buy new” there is “never sell used.”

We can all probably agree that buying a car new and selling it used two or three years later is just about the most wasteful way you can own wheels. But buying it as a three year-old and selling it at six is not that far behind. You capture the used car discount when you buy, only to give most of it back again when you sell.

To fully reap the benefit of the (possibly irrational) discount on a used car, you need to never sell it. You need to drive it until it is all used up.

I do not think of this as a particularly fringe opinion. Yes, most people talk about the importance of not buying new rather than holding on until the bitter end, but it is not like driving a car for a long time is an obscure and subtle strategy that would only occur to an eccentric genius such as myself. People drive cars to the end of their useful lives all the time.

So, you would think, there must be some sort of conventional wisdom on when to call it quits on a car and send it to the junkyard. If there is, Google and I can’t find it. Search for “when to junk a car” on Google (or Bing) and you get dozens of answers on how to do it, including offers from towing companies and charities that will accept your clunker as a gift. (The best I could do was this.) I guess I will have to mint new conventional wisdom. You saw it here first.

To begin with, there are sometimes moments when a car is obviously all done. The mechanic or body shop wants $4000 to fix it but it would only be worth $3500 when fixed. Or the government offers to buy it for more than it is worth.

But much of the time it is not so simple. I’ve got a 1998 Volvo wagon we bought new when Mrs. Curmudgeon was pregnant with what is now a sixth grader. Best I can figure, in working order it is worth about $3500. Last week the mechanic needed $2400 to fix the steering system, which had essentially rusted away.

We paid for that repair, adding it to a long list repairs of non-trivial cost that have been done in recent years. Although the drive train has never given us trouble, knock on wood, it seems as if everything else has been replaced at least once by now. It’s not that the car was poorly made. Thirteen Boston winters take a toll.

The Volvo has cost us $8110 in repairs and maintenance over the past two years. Does it make sense to spend $4000 a year to keep a car only worth $3500 on the road? Sure. Why wouldn’t it?

That this is a good idea might strike some as odd. If you would junk a car if it needed a single $4000 repair, why wouldn’t you junk it if you expected it to cost you about that much over the course of a year?

Because ditching the car that will be worth less after being fixed than it will cost to fix is something of a special case. If it will cost $4000 to get a car to be worth $3500, then the market value at that moment is negative $500. Junking it is, essentially, exercising your option to sell it for $0. Since $0 is greater than -$500, walking away is, at that moment, the wealth-maximizing move.

However, if you have a $3500 car that will require $2000 repairs every six months, there will never be a point at which junking the car makes sense. Twice a year the car will be broken and be worth $1500. Selling it then for $0 would be irrational.

Moreover, $4000 a year (gas not included) to keep the car going only sounds unreasonable when you compare it to the market value of the car. Actually, it is not a particularly bad deal. Were I to upgrade to a ‘08 Volvo wagon (and this being Volvo the cars are nearly identical) I probably wouldn’t visit the mechanic much, but it would depreciate in value by nearly $4000 a year. The ‘98, on the other hand, is just about done losing value to age.

The answer might be different if the annual repair cost were, say, $6000, but under those circumstances it would be pretty likely that a single repair bill would exceed the car’s value in short order. So perhaps waiting for the moment when it would cost more to repair than it would then be worth is the best strategy after all.

There you have it folks, new conventional wisdom. Buy used, drive until the value is negative.

Cars | Frank Curmudgeon | April 21, 2010 11:59 am

29 Comments

By Greg Smith, April 21, 2010 @ 12:26 pm

I also factor in what it will cost to replace the car. If those $4000 in repairs will give the car 10 years more of life and it will cost me $5000 a year to replace the car then it’s worth it to me to do the repair.
By Ivy, April 21, 2010 @ 1:41 pm

For me the equation looks like this:

Projected repair cost for the coming six months (based on previous year actuals and mechanic’s future estimates) + cost of repair inconvenience (difficult to quantify but includes alternate transportation costs, lost time, lost opportunity)

Compared to:

Cost of similar car that does not need those repairs (or that level of repair, depending on how wild your estimates are) – current car value

Basically I compare how much my car is going to cost me in repairs and inconvenience with how much it will cost to sell that car and get a less unhealthy replacement.

Then keep track of actual repair costs. If the next repair will make you hit your half-year estimate sooner, reevaluate for another six months with adjusted estimates.
By Adam, April 21, 2010 @ 1:45 pm

This whole argument removes any irrational attraction people might have to driving a car that’s nice looking and gets compliments; or having a car that isn’t a hair’s breath away from breaking down on the side of the road at night in winter; or the umpteen hundreds of other valid reasons one might want to own a newer car that are as important as the economic cost.

I am definitely a fan of buying a slightly used car and driving it 10-15 years though. My car is a ’99 and through ridicule of family/friends I am keeping it until it dies. So far it only has 60,000 miles on it and looks fine (they never made another model so its not dating) and runs fantastic.

But I do want a new car soon just..because.

Spending $8110 on a car worth $3500…I really can’t buy that makes economic sense; could you not have traded in the car and spent that plus the $8110 on another used car that wouldn’t have required any repairs for 2+ years? Wouldn’t that have gotten you in the same position or better?
By Mt, April 21, 2010 @ 2:29 pm

You are ahead of the game if you track the depreciation. I think that is going to be the key to this type of decision.

I suppose you could check the Blue Book value every year, and expense the loss in value. Or you could take an accounting approach like the Sum-of-Years-Digits method (my favorite!), but would then be forced to estimate the useful life and salvage value. Either way is really helpful.

My first problem with the drive-till-death approach is ripoff hazard at the repair shop, followed closely by the potential disaster of a week without a car. For me, those costs could easily exceed the depreciation expense for a new car.

By the way, I searched for “when to junk a car” on Google, and this very page was the top result. I guess this internet moves quickly. The second and third results had a hot chick flashing a fistful of cash.
By Clambone, April 21, 2010 @ 2:32 pm

The Car Talk guys were once asked when it becomes more economical to replace a car than repair it. They said that, as a rule of thumb with some exceptions, it’s almost always more economical to repair the car. For what it’s worth.
By Mt, April 21, 2010 @ 2:36 pm

Oh, and Frank, I should mention that my parents drove a Volvo wagon for ten years of my youth. For the last few years of its life, it was old, rusty, and embarrassing to my teenage self. Although I understand now, the fact remains that I haven’t directly forgiven them for not replacing it sooner.
By Lance, April 21, 2010 @ 3:02 pm

“Because ditching the car that will be worth less after being fixed than it will cost to fix is something of a special case. If it will cost $4000 to get a car to be worth $3500, then the market value at that moment is negative $500. Junking it is, essentially, exercising your option to sell it for $0. Since $0 is greater than -$500, walking away is, at that moment, the wealth-maximizing move.”

Surely there’s something missing from this analysis. Suppose your car was worth $4,000 in working order, but required a $1,000 repair. Okay, fine, you spend the $1,000 instead of junking and come out out ahead $3,000. The next day, your car needs a repair. The good news is, it’ll only cost $1,000, so you come out ahead $3,000. The next day, your car needs a repair… and, well, this goes on until you have a visit with a chapter 7 attorney. Once your car reaches the point where you know it will most likely start to need expensive repairs, surely you’re better off selling it for whatever you can get– either to somebody who doesn’t know anybody or a gearhead (but I repeat myself)– and then starting the cycle anew with a used car 2-3 years old.
By Dan, April 21, 2010 @ 3:40 pm

Heh. I drive a ’99 Chevy Malibu with 120k miles on it. Best I can tell, KBB thinks it’s worth $1300.

I brought it in for state inspection awhile back, and they told me it needed $2k worth of work to bring it up to code, and another $1k to fix something else that wasn’t required by law. There are other miscellaneous things that need to get fixed (or continually ignored) as well.

Most of the repairs required are wear-and-tear type stuff, ie, brakes, spark plugs, or what have you. I don’t worry about the reliability of this thing.

Do I junk it? Well, I drive 6.5 o/w to work, and that’s the only time I ever put miles on it. Yeah, I put less than 4000 miles on the car each year. If I were to scrap the car and keep the cash, $2k is only going to buy me someone else’s junker.

What it really comes down to is what I expect my transportation needs and expenses are going to be over the next X years (4-5 is a realistic projection for my current circumstances.) Given that most of my expenses are routine wear-and-tear type stuff, which is something even a brand new car will have, I can’t convince myself to junk the car.
By jim, April 21, 2010 @ 6:51 pm

Like Lance said, if you end up with $1000 bills every day then at some point you have to just give it up and junk the thing.

It really depends on what your realistic expectations are for the cars dependibility in the future. If theres really nothing wrong with the car and it doesn’t have an excessive amount of mileage on it then you might reasonably expect that aren’t likely to be any more major repair bills in the future. But if the car is starting to fall apart and has 230k miles and several major systems are nearing the end of their likely lifespan then it may make good sense to cut your losses and give it up. You can’t know for sure but you just have to make an educated guess. The $4000 in bills could be the first signs of the thing falling apart piece by piece at a cost of $2000 per piece. Or it might be pretty sound and able to last 10-50k more miles without major problems.

If the car is very old and annual repair bills start to add up to exceed the cost of buying a new car then I’d junk it.
By Investor Junkie, April 22, 2010 @ 12:26 am

Another reason to junk a car. New parts are hard to come by and you have to go to a junk yard to find parts.

Depending upon the car, some cars actually increase in value after they decrease in value. Look at muscle cars from the 60′s-70′s. Somehow I don’t think a Volvo wagon will be a collectors item.
By Contrarian View, April 22, 2010 @ 7:43 am

The accepted conventional wisdom of the first part of this article is to buy slightly used in order to take advantage of the market imbalance that comes from an irrational love of new cars and/or an irrational fear of used cars.

However, in some of my casual Craigslist and Kelley Blue Book browsing, I’ve recently found that the opposite is sometimes true when a brand has a particularly notable reputation for high quality (Honda). The marketplace has an irrational love for this brand.

Specifically, I have a seven year old Honda with about 85,000 miles. My best guess is that this car is right around its halfway mark. And KBB’s private party sale value (the middle of the three) is just about half what I paid for the car new. This is ridiculous, even ignoring the emotional appeal of a new car, a car is cheaper to maintain during the first half of its life versus the second, especially when part of the first half is covered under warranty.

So, if a car’s depreciation is going to be almost linear, what’s the point of buying used? (Of course, you’re tying up more capital buying new for seven years from $25k to 12.5k vs. used 12.5 to 0.)

I’m not saying this is always the case, but it surprised me. It is certainly not the case with domestic or European cars, and probably not Toyota/Lexus right now either. Maybe it was a temporary anomaly caused by the recession. Maybe, since most buyers amortize their purchases, the typically lower interest rates on new cars pushes the market this direction.

My only point–sometimes used cars are irrationally over-valued.
By Andrew Stevens, April 22, 2010 @ 11:14 am

As I’ve said a number of times on PF blogs – we bought a 1992 Ford Escort in 2002 for $3500. (I don’t even believe in the “slightly used” part of the formula. As long as the car has been taken care of, the older the better.) At the time it had 50,000 miles on it. Eight years later, it’s at about 150,000 miles and still going strong. I keep track of how much I’ve spent on the car and, counting depreciation of the original purchase price (paid in cash, but calculated so that the car is worth $0 at the point of calculation), repairs, and collision insurance (but not including gas), the amount of money spent per month on that car is ridiculously low. It comes to about $150 per month for the last eight years, though of course the monthly mode is zero (the collision insurance is paid every six months) with lots of big spikes (the biggest being the month of purchase, obviously). Of course, we’ve never had as much in repairs at one time as $2400 for a steering system. We’ve put in about $8000 total for the last eight years.

My own opinion is that the sticker shock of a big repair for a used car and the inability of people to be prepared for it is part of what drives this fear of used cars. My father-in-law, who is far, far poorer than I am (so much so that we’ve moved him into our basement), spends a fortune on cars because he’s terrified of spending $1200 all in one go. But the net effect is that the worst year I have ever had with our car is far cheaper than the cheapest year he has ever had with one of his. Our most expensive months are, of course, worse, but he’s paying an enormous premium for that reduced standard deviation.

I agree with the Car Talk guys. It’s virtually always cheaper to repair an old car (short of the body having rusted completely out, the fate of our last car) than to buy a new one. The exceptions are few and fairly obvious when they come up. Even Frank’s formula isn’t the best. The Blue Book value now is about $150 or so, but it’s worth far more than that in utility and I wouldn’t blink at a $600 repair. Nobody will sell me my car for $150 (or I’d snatch it up), even if nobody will pay me more than that to take it.

There are lots and lots of perfectly good reasons (many mentioned in this thread) to replace an older car before it’s done, but don’t kid yourself into thinking that financial reasons is one of them.
By Patrick, April 22, 2010 @ 2:00 pm

As others have pointed out, the correct calculation is not that simple. The proper way to compare is with a net-present-value calculation. If you’re talking about a short enough time frame (say a year) then the discount rate you use doesn’t even matter much.
By Boston Steve, April 22, 2010 @ 2:46 pm

I completely agree with Frank on this one. I also live in the Boston Area and bought an used Volvo.
I had a ’88 that was leased and the people were getting divorced. They had driven many more miles than their lease allowed and so were losing money big time for every mile they put on it. Between the mileage restriction and the divorce they had to give it away.

I paid about $ 3000 less for it than the dealers were charging, and paid in cash. The only downside was I did have to wait a couple of weeks to get the lease paperwork completed.

The car came with 85 K miles and I drove it for 13 years. It had 250 K on it when I finally got rid of it for $ 100.00, and it was still running (the engine was anyway, the rest was falling off in hunks of rust).

These people way overpaid for this car and I got to drive the same car for way longer and for way less money.
By Bobbi, April 23, 2010 @ 2:02 pm

I agree! I’m a career mom of 3 elementary kids and my husband is currently away being active military. So if anyone needs dependable wheels its me. I have 2 clunkers, I don’t have to calculate down time because if one wont start I can jump in the other.

I bet I didn’t pay more than 2k for the both of them and spend much less than 2k a year on small repairs. I take good care of them and they have more than 160k miles each and over 10 years old. (Word to the wise, find someone dependable to work on it that will talk to you about it, not a high priced shop.)

I have had these two for about 3 years now and expect at least 3 more out of them. It might sound nuts to some people but my thing is the difference in the cost of those repairs and a car payment. How much do you pay in payments and full coverage insurance a year to have your new car? I wouldn’t know, I have never thought about buying one, but I bet it is more than my possible 4k a year, and that is if I get a new one. Well, new to me.

Oh, I know everyone is worried about the insurance. I get liability with a few little extras so if its my fault it pays for the other person. That car goes away, I drive my back up until I find another clunker worth my emergency fund. All is well and I save more money.

Good luck.
By In Iowa, September 20, 2010 @ 12:27 pm

@Andrew Stevens:

I think you are the closest to correct here: The comparison to make here should be the total average monthly cost of the car you have, vs. that of an alternate car. Fuel, maintenance, loan payments (if any), registration, insurance, and the opportunity cost of lost utility (=reliability cost) must be accounted for. All of these can vary, particularly between new vs. used, but also between the old vs. newer used alternative.

Reliability and the unknown future cost of maintenance are the usual wildcards here: most people evaluate reliability irrationally, and unless you or your trusted sibling are a gearhead, estimate the future cost of maintenance is a crapshoot — you can quickly find yourself in the downward spiral that Lance describes. Many people have no knowledge, intuition, or trusted resource for this evaluation, so they prefer the safe, but generally more costly alternative of owning a newer car they think will be more dependable.
By Zach in California, October 25, 2010 @ 9:45 pm

There is also sometimes the question of emotional attachment to a car that you have driven for many years. I bought a 1988 bmw 325ix when I was 16 and drove it for 12 years. I loved that car. It went through many Nebraska winters and I drove it to California two years ago. Repair bills were always high on it, but in California it became consistently difficult to pass the smog. My final decision was to junk it for $1000 and buy a used 2003 325i for $9000. I did similar calculations what it would cost me in insurance, maintenance, etc vs. what I could make investing that money. I made the right financial decision, but I miss that car every day. So sometimes you also have to ask yourself if you should get a new car are you able to keep the old one as a Sunday drive car ? If you do this you end up in a situation like Bobbi where if you have to bring the everyday car in for repairs you still have something to drive. Although it may not make financial sense if you have a strong attachment to the car also ask yourself what will make you happier.
By Dave in NY, November 5, 2010 @ 10:28 am

@Contrarian View

The deal is that 85k miles is no where near the half lifetime on a Honda. My wife and I bought a Honda Civic Si used, 13 years old, with 160k miles on it. We then drove it for 6 years, including a trip over 2500 miles, and multiple 800 mile trips. When we finally turned it over, it had about 275k miles on it. The engine still ran great, but the body was rusting away, and various anciliary things kept going wrong due to exposure from the body damage. At one point part of the horn circuit rusted away so that the horn constantly honked as long as the battery was connected.

Honda and Toyota never did the ‘planned obsolescence’ thing that domestic auto makers did in the 80s and 90s, and their cars from that era will just go and go and go. Hence having a high resale value.
By Ugly American, December 30, 2010 @ 7:32 pm

When you can buy new cars with better gas milage & a 10 year power-train warranty for $16K it should be obvious to you that spending $8K to fix a 13 year old car with no warranty, bad gas mileage and lacking modern safety features is bad money advice.
By Jon W, January 20, 2011 @ 2:43 am

Ugly American: wise words. I was recently faced with spending potentially thousands of dollars on repairing a 1992 Taurus, or buying another car. I took the plunge and bought a recent model Honda Accord. The included *safety features* are way beyond what I had in the old car. 6 air bags, traction control, STABILITY CONTROL (this is the big one), active head restraints, a better-designed frame, electronic brake-force distribution, among other things. Yes, it may have made more financial sense to repair the old car, but the safety of me and my family are worth far more than a couple thousand dollars. Plus, the 5-year depreciation cost of the new car is not that much more than I would estimate the repairs for the old Taurus would have been.

It is worth it to take stock in what is really important, and not just focus on the numbers sometimes.
By Bubba, January 25, 2011 @ 8:34 pm

What you are doing when you spend money on an old car is you are “buying transportation.” When your monthly average for major repairs starts to approach a monthly car payment, then it might be time for a change.
By matt, February 22, 2011 @ 8:03 pm

I drive a 1999 GMC suburban and I will drive it until it dies! What I haven’t seen is any talk of insurance. New vehicle insurance is much higher than used vehicle insurance. So, along with all the other reasons to keep your used car, if you’re like me, you hate paying the insurance companies!! I drive my truck with PL/PD basic coverage. If it gets wrecked the insurance company isn’t going to give me crap for it, so why purchase the comprehensive coverage? I save on that alone.
By jj, April 22, 2011 @ 7:16 pm

Congratulations, this is the best blog post I’ve read today. I roll wid my ’96 Jeep Cherokee with over 200k miles. I spent $0 last year maintaining it and $0 so far this year. My dilemma is this…

My spouse (and to be honest me too) kinda want a third row. We have two kids and a third row would be really nice when we’re carting around a couple friends or our nieces. Sadly, the Jeep is an 8 cylinder and we could potentially get a mini-van with a 6.

I am lobbying hard to keep it so long as it requires no maintenance and it’s only transgression is dripping a little oil on the garage floor. I like your rule of thumb.

Here’s the next question… If the jeep is worth $0, should I just let it sit in the drive when we get a new car in hopes that the value of the scrap metal will continue appreciating as it has done these past few years.

Volvo’s are heavy, yo’ car ain’t worth nothin’. Find a good scrap yard that takes whole cars and see what they’ll give you. It might change your equation slightly. http://scrapmetalpricesandauctions.com/2008/07/car-and-auto-scrap-metal-recycling-prices/

Your volvo probably weighs around 3000lbs which might bring you a couple hundred bucks.

As an aside, I’ve also sold a dead battery to the scrap yard (for the led) for $3.00 and old brake rotors (auto-cast) for $8.00 (you just have to ask for your old parts back). Can you imagine what auto-zone makes off dead batteries?
By Pam, September 8, 2011 @ 2:14 pm

It makes good sense to me to drive a car until it’s reached its end, unless, of course, it becomes way too costly to fix. For the first few years of marriage, my husband and I bought really old clunkers as that was all we could afford. The downside was that we were always fixing them and they were so unreliable. If you can afford to buy one that’s just a couple of years old, that is probably the smartest. However, when we were about to do that last year, we found out that it ended up costing only about $1000 more to buy a new car rather than one that was just about off its manufacturer’s warranty. Although I am generally not in favor of buying a brand new car, in this case it seemed to make sense, and since we plan to drive it for as long as it runs, I think we made a good decision in this case.
By Truth, September 16, 2011 @ 9:51 pm

Reasons not to keep driving an old car: Poor gas mileage, not as many safety features (purely economically, cost of health care and lost work due to being injured or more injured than you would be in a new car), cost of down time and inconvenience because of breakdowns, cost of repairs, and social/stigma (if you are a stock broker or lawyer or doctor, your clients may not appreciate you frugality, deeming you a ‘loser’ and negating any savings whlie they take their business elsewhere; likewise, for single men, old clunkers may not appeal to their dates [although if you're looking for a frugal spouse...]).
By Truth, September 16, 2011 @ 9:54 pm

Oops – I also forgot. Fear of used may not be so irrational in all cases. You are risking a lemon (which will be sold, not kept), speedo fraud (not sure how hard this is these days, in days past, it wasn’t that hard and I have come across instances of it before), death/suicide/homicide in car (no disclosure required, unlike with real estate), flood damage, accident damage, engine abuse. You don’t know how well the car has been taken care of, unless you buy new and do it yourself.
By Cash For Junk Cars 1-800-340-2092 Junk Car Removal, October 3, 2011 @ 4:49 pm

Man I wish I found this article befor.
By A point or Two, December 27, 2011 @ 4:38 pm

I feel that there is always more to learn on this subject of auto ownership. I try very hard to drive with no cost to me for the auto its self. The ten rules that I use are 1. never visit a dealer, 2. Always buy from the orginial owner, 3. The auto must’ve been kept inside before I get it, 4. I must ask “what are the major items you’ve done to the auto as it was in your care”, 5. The make and model of auto must be approved by my mechanic, this is not inspected but the overall approval for the year, model and known defects of such auto, 6. Lots of this model must be on the road or built so parts are easy and cheap, 7. Saftey rating, 8. Miles and the understanding of the sweet spot in the resale value, 9. Fewer options the better, 10. Do I like it. It takes time to understand all of this, but for the past 40 years I have came close to not paying for the auto itsself. This is not counting the insurance, plates, fuel and such just the auto. To keep a vechile until it’s dead in not understandable to me. If you study the sweet spot you could find a 4-5 year old auto with 50k on the clock, chances are that the orginial owner has now had all of the main cost such as tires, brakes, battery and a few other items done. If you might think of that sweet spot for such an auto at around 80-85k and upto two years out if you bought correctly (price) you will see that there is very little discount from 50k-85k. There is an understanding that you may wish to drive a Honda or VW where it may be better to drive a Chevrolet or Ford. What we drive is also related to where we live. A Chevrolet may be right in the union belt where that Honda may set well in the Southwest. As with all money questions there are many ways to view such.
By Deb, January 17, 2012 @ 12:30 pm

Thanks for the comments, I have a ’98 Chevy Malibu that just recently won’t go, it feels like it is pushing against a wall, even tho it started right up. Whether to junk or keep. It has 125000 miles on it. We do have an honest mechanic, who said even at worst it would cost $1700 to fix. Thanks Deb