As always, I ponder economics as a leading reason to think about LTP, and as my 1997 Jeep starts to experience some really interesting noises in its 3rd transmission, I ponder the economic impact of buying a 4th transmission vs. buying a new vehicle.

As a quick aside - we have no debt, other than a Mortgage, and we owe far less than the house is worth, even in this terrible, terrible real estate market. We never use debt to buy non-performing depreciating assets.for example,
I'd never use credit to buy a boat.
I would use credit to buy a boat, if income was dependent on having a boat and the income much greater than the debt cost of the boat over the term of the loan.

So, back to vehicles. Gas here is $3.09 a gallon now, and with oil closing above $100, expect gas to hit $4 to $5 a gallon very soon.

So, let's do some economics what-ifs.

At the current cost of gas, here's how I look at the cost of operating the old Jeep

Miles Per Gallon 15.5
Miles Per Month 1500
Cost Per Gallon $3.09
Monthly Fuel Cost $299.03
Annual Fuel Cost $3,588.39

Insurance (Annualized) $350.00

Maintenance & Such

Routine Fluids Etc. $525
Annual Inspection $120
Annual Registration $40
Mechanical Repairs $2,400

Subtotal $3,085

Monthly Payments $0
Annualized Payments $0
Annual Cost $7,023.39

Now, if I look to a new vehicle, I can compare these figures side by side:
Old Car/New Car
Miles Per Gallon 15.5/40
Miles Per Month 1500/1500
Cost Per Gallon $3.09/$3.09
Monthly Fuel Cost $299.03/$115.88
Annual Fuel Cost $3,588.39/$1,390.50

Insurance (Annualized) $350.00/$600.00

Maintenance & Such
Routine Fluids Etc. $525/$525.00
Annual Inspection $120/$120.00
Annual Registration $40/$40
Mechanical Repairs $2,400/$250
Subtotal $3,085/$935.00

Monthly Payments $0/$480
Annualized Payments $0/$5,760
Annual Cost $7,023.39/$8,685.50

So for the new car, my annualized cost - even factoring in $2400 a year in repair work on the old car - is still $1662.11 LESS than the annualized cost a new car.

In fact, using the same basic formulas, I learn that if gas goes to $5.46 a gallon, then - and only then - does it get cheaper to buy and operate a new car.

So the question is - do I think gas will go to $5.46? Yes, I do. When? Maybe not in 2008, but then again, Summer's coming. We hate debt. Car payments are expensive. But then again...gas might be more than car payments soon.

Something to think about.

Annual registration is the same on a 1997 vehicle and a 2008 vehicle, and only $40? I need to move where you live. I won't even tell you what the sales tax and reg costs us on the 2007 GMC P/U we bought last year, it would make your hair fall out.

Good job on all the figures, I think that there comes a point in time where an older vehicle will start nickle and diming you to death and needs to be replaced. That is why we got rid of our last home on wheels, it was killing us with repairs, much more than anyone could have anticipated. If you do buy a new ride, be sure to look into the extended warranty...

An very interesting post. Imho, one other factor to be considered is dependability. I recently traded for another vehicle when the milage on my old one was approaching 250,000. I REALLY hesitated because I do not like to use debt to purchase anything if I can avoid it. In addition to the ever increasing frequency of repairs, I didn't feel as though I could trust it, especially on long trips. If its one thing I want in a vehicle, its dependability.

Hi Martinfocazio,

I would get the new car. Although from your calculations an additional $1662.11 would be needed in the first year of ownership to finance the new vehicle, it will give you more dependability and reliability (possibly safety as well). Plus you have a new car and by purchasing a car with greater fuel economy you are helping to save the environment as well.

Over here in the UK current petrol prices are £1.05 / litre = $8 / US gallon.

You may want to carry a break even analysis on petrol pricing from year 2008 through year 2013 as follows;

year 2008 - $4
year 2009 - $5
year 2010 - $6
year 2011 - $7
year 2012 - $8

You may find that only in years 2008 and 2009 you are paying more for the new car than the old one. The following years may potentially be saving considerable sums of money to offset the first 2 years. This is of course is assuming that the monthly repayments for the new vehicle are fixed and not variable.

You also will have/should have a more valuable asset with the new vehicle than with the old. It may also be worth while finding out what the initial depreciation of the new vehicle is over the 5 year period and comparing this to the old vehicle.

What are you planning on buying that gets 40mpg? Not another Jeep, that's for sure. Would it be a suitable replacement for the Jeep given your lifestyle and vehicle needs? You can't go off roading in a Smart Car or a Prius.

That's almost double what it is in some counties down here. IIRC registration for me was $26 this year & flat rate for passenger cars or pickups. It varies by county because some have a wheel tax. Also no state inspections. Sales tax maxes out at 9.5-9.75% with no income tax on most professions.

What repairs account for the $250 per year on the new car?

What are the maintenance intervals on the new car? Depending on model, oil type, and type of driving, the new car may go farther between service intervals.

Hi martin,

Okay, a few questions - what is the $525 covering under routine fluids, and why would that be the same for both vehicles? Newer vehicles usually throw in free oil changes for the first year, and even 10 years ago the sealed radiator systems only needed to be flushed maybe every 75k or 100k miles.

You throw in $250 for mechanical repairs on a new vehicle, but I would imagine that anything would be covered under warranty. Maybe this is budgeted to cover a flat tire or non-warranty work?

You also say this new vehicle gets 40MPG. That's rather impressive and I wonder if it has the same carrying capacity as your 97 Jeep. With the family, safety is a consideration and for me personally, 1 grand a year to have my family in a safer and more reliable vehicle is probably worth it.

You might want to consider a car that's 2 years old. Someone else has taken the depreciation hit, they are typically still under warranty and that can be extended, and most of the kinks are worked out.

I like your breakdown and only question the above because it might make a new care more attractive. You also list $2400 annual repair for the Jeep, and I'm curious to know if that's backed by historical fact? If so, I'm not ever buying a Jeep. If that's because of your 3rd tranny, you need to go to another shop that knows what they are doing. Maybe that $2400 needs to be spread out over more than one year for accuracy?

Something I'm running into on the same topic is tires. My truck is going to run me ~$750 for new ones. If your Jeep is running down on tread, you need to factor that in, as a new-2yr. old car can spread that cost out more.

Martin,

Since you just had a new addition to the brood I would step back and reconsider what has been pointed out about dependability and reliability. DW probably has a strong desire to feel that the car will get her and NB to wherever. The "peace of mind" factor is huge in this equation. I understand you abhor the debt thing. I applaud you for that. If you can move into something vehicle-wise that can handle everyone and the weather conditions in Bucks County (I know what the weather can be like) I would do it in a heartbeat. I had a 1986 Ford Aerostar for 16 years. I got to the point where I just needed to drive it to the junk yard, take off the plates and walk away.

FWIW

Here's how I arrived at the figures in question:

Maintenance & Such
Routine Fluids Etc. $525/$525.00
That's oil changes, washer fluids, wiper blades, cabin air filter (I change mine 2x a year), Car washes, lamps, etc. all the small stuff.

Annual Inspection $120/$120.00
That's what it costs here.

Annual Registration $40/$40
Again, that's for a passenger car.

Mechanical Repairs $2,400/$250

The $2,400 is based on the fact that I do a lot of preemptive maintenance, when and where I can. I tend to replace shocks, springs, tires and rubber under the hood long before it's likely to fail. With an older vehicle, you get breakdowns that are more complex as well - things like a starter motor, alternator, and, as has happened to my 1997 Jeep Grand Cherokee, Tranny failure, despite proper maintenance (FWIW, my 2000 Ford Windstar al;so suffered a catastrophic tranny failure at 145K miles the day after a full fluid flush and replacement, so trannys go when they go, apparently).

We're close to 200K on the old Jeep. It IS reliable, but just this morning, it would not drop out of 4WD without some encouragement and driving in reverse. The 4WD transfer case also seems to have a cracked mounting bracket, that's a real PITA to fix...

Ah...I guess it's time. Here we go to the Prius. My father-in-law has one, he gets 50MPG. Or I can look at the Subaru. Oy. I hate this.