What’s more important – a car that doesn’t depreciate, one that’s cheap, or one that gets great mileage? That’s what this reader wants to know; maybe you’ve wondered about it as well…
Dear Mr. Johnson,
I have started reading your articles after discovering them while learning about classic cars. I really enjoy your writing as it is very informative. I am a young business owner learning about investing my money.
I have recently bought my first classic car, a 65 Mustang. I realized the many benefits of owning a classic car as opposed to a new car, but there is one thing I am having trouble with in my discussions with others: gas mileage.
These days, everyone wants to know the gas mileage. I can say that my car’s value will remain high, maybe even increase. But some say I will be paying the difference in gas. Does the value purchase of a classic car cover the low gas mileage of a classic car? Will I be paying so much more for gas that the value argument is not worth it?
While not many people are cruising for classics, I chose this question because it’s about comparing the price of something with the cost to maintain it. A.N.A. is asking whether a car that appreciates is worth it if it costs more to use. But another more common question: Is it better to buy a cheap gas guzzler, or a more expensive car that sips gas?
These are interesting questions, because people are often led to believe that the cost of gas is more important than it really is. Let’s do a little math…
Cheap gas guzzler or expensive high-mileage car?
There are two different reasons to use as little gas as possible. First, to be environmentally responsible. Second, to save money. Since this is a website devoted to money, that’s what I’ll discuss. But that doesn’t mean I don’t care about the environment. Oil is a non-renewable resource as well as a major pollutant and should be regarded as such, budget or no budget.
That being said, let’s look at the numbers. Say you’ve got two choices: a $5,000 car that gets an average of 20 miles per gallon, or a $20,000 car that gets 30. Which is better?
Uncle Sam can provide us with a quick answer. At this page of fueleconomy.gov, there’s a calculator that allows you to input the cost of gas, how long you intend to drive the car, average MPG, and how many miles you drive per year. Here’s the math for driving 12,000 miles per year for five years and paying $4/gallon…
$5,000 Car: $2,400 per year, $12,000 total fuel expense
$20,000 Car: $1,600 per year, $8,000 total fuel expense
So the $20,000 car costs $4,000 less to drive over five years. But since it cost $15,000 more, you’re $11,000 worse off.
Obviously this simplistic example ignores other important factors. The $20,000 car might look better, ride better, and be less prone to mechanical issues. On the other side of the coin, the cheaper car would likely depreciate less and cost less to insure. But based on mileage alone, it’s not worth paying an extra $15,000 to save $4,000.
In short, environmental issues aside, an obsession with gas mileage could be penny-wise and pound foolish – something to keep in mind before using great gas mileage as an excuse to drop a bundle on a new car.
The math behind driving a classic
Now let’s get back to A.N.A. His question: Does the value purchase of a classic car cover the low gas mileage of a classic car?
The answer will obviously depend on things like the number of miles A.N.A. drives and how bad the mileage is on his Mustang. But it’s probably a smart move. Depreciation is the biggest expense of a car, and a classic may avoid it. But there are other considerations when buying an older car…
- You should always buy a classic for love, not money. Like many non-traditional investments, there’s no guarantee any car will appreciate. So if that’s the only reason you’re buying one, don’t.
- Most older cars aren’t nearly as comfortable as newer ones, and often need more work to keep them on the road.
- Depending on the car, finding an experienced mechanic may prove challenging.
Bottom line? Driving a classic is fun, and it can turn a car from an expense into an appreciating asset. But there’s no free lunch. Buy the right car, and it could be one of the best moves you’ve ever made. Buy the wrong one, and you’ll be hating life. Take your time, do tons of research and hire the right help to evaluate potential purchases.
Stacy Johnson is the founder and CEO of Money Talks News, a consumer/personal finance TV news feature that airs in about 80 cities as well as around the Web. This column first appeared in Money Talks News.