Keep your car from eating your cash

These tips can drastically cut your acquisition and maintenance costs.

By Dennis Murray
Senior Editor

Unlike homes, which in many locales are almost guaranteed to appreciate, cars generally sink in value. Each year, yours costs you thousands of dollars in gas, routine maintenance, repairs, insurance, and registration fees. But with a bit of forethought and effort, you can keep those expenses—and the price of buying or leasing—to a minimum.

If you're shopping for a new car, your first goal is to strike the best possible deal. For that, you need to arm yourself with information. You can easily find out how much a dealer paid for an automobile. Popular guides such as Edmunds (www.edmunds.com) and Kelley Blue Book (www.kbb.com) list invoice and retail prices for the base vehicle and option packages. Many magazine stands and bookstores carry these guides. Always negotiate up from the invoice price, not down from the sticker price.

The longer a particular type of vehicle sits in a dealer's lot, the more likely it is to be discounted. "If a model has been in inventory for 60 days or longer, dealers and manufacturers will be more willing to negotiate," says Michigan-based automotive journalist Michelle Krebs. To find out which vehicles have been slow to move, visit the IntelliChoice CarCenter (www.intellichoice.com). For instance, IntelliChoice recommends offering just $200 over the $22,367 invoice price for a Pontiac Aztek GT, a quirky-looking sport-utility vehicle that has sold poorly.

The site also posts information about rebates and dealer incentives that can further lower the price you pay. "The midsize SUV market is becoming extremely crowded, and there are more incentives than ever," Krebs says.

Once a dealer has you hooked, it may offer the choice of a rebate or special financing. To get a quick assessment of which is better, go to www.bankrate.com, then click on "Calculators."

Get the most value for your purchase dollars

If you plan to keep your vehicle longer than four years, it generally makes the best sense to finance it—or pay cash, which will save you the most money—rather than lease it. Without getting into detail (and leases involve a lot of details), that's because with a lease, you're paying mostly for high initial depreciation. If you buy, you get the benefit of using the car in later years when the depreciation rate is much lower.

Furthermore, leasing rates are less attractive than they used to be. "The gap in the monthly payment for a car that's leased vs one that's financed has narrowed dramatically—lease payments might run only $100 or so less per month on the typical new vehicle," says Art Spinella, vice president of CNW Marketing/Research, in Bandon, OR. That's because the sweet lease packages of the 1990s came back to bite many lenders, to the tune of $11 billion in losses in 2000 alone, according to CNW.

Other ways to maximize the value of your purchase:

Turn your car into a tax deduction. Buying or leasing your vehicle through your practice, whether you're a partner or an employee, is one of the smartest business decisions you can make. The deductions you'll be able to take will help offset your annual vehicle costs.

Nevertheless, the IRS' rules on reporting car expenses are some of the trickiest and most confusing in the tax code, and they've been known to give even experienced accountants fits. For instance, regulations govern the method of depreciation you can use and how you allocate miles between business and personal use. One section even defines a "car" for depreciation purposes. The best advice: Before you make an offer on a vehicle, sit down with your accountant, explain what type you've got your eye on, and crunch some numbers.

Purchase a used vehicle. Pre-owned vehicles offer several compelling advantages. The original owner has paid for the steep initial depreciation, and insuring an older vehicle costs less. But buying a pre-owned auto from an individual can be a gamble, because you typically must agree to accept the vehicle as is. A dealership, on the other hand, will usually offer at least a limited warranty.

To lessen the chances that you'll get burned, have your mechanic thoroughly inspect the car. Not only will this allow you peace of mind, but it may help you negotiate a better price if the mechanic detects a problem. Another tip: Get the vehicle identification number (VIN) and order a report from Carfax (wsf.carfax.com) to determine whether the automobile has been in a major accident, suffered flood damage, or had its odometer rolled back. Carfax charges $14.99 for one report, or $19.99 for two months of unlimited reports.

An editor at Medical Economics used Carfax to check the record of a Toyota Camry that a salesman claimed had come off lease prematurely and was almost new. "A quick check of the VIN showed me that the car had been put into service only two months earlier, which certainly seemed to confirm the salesman's story," he says.

Buy a "luxury" car with a different name. The pre-owned or pre-leased route may make particularly good sense if you're buying a high-end vehicle. So can buying a previous year's model. Better still, if you do your homework, you can get a brand-new vehicle that rides like a luxury model but costs thousands less. "The Toyota Camry, for example, is outstanding," says Krebs. "It rides like a Lexus for considerably less money—many of its components are the same." (The Lexus group is a division of Toyota Motor.)

Likewise, check to see whether the maker of the car you're interested in sells it under another label. For instance, the Lexus LX 470 and the Toyota Land Cruiser are virtually identical SUVs, but the Lexus will set you back nearly $9,000 more.

Minimize the cost of keeping your wheels

What you pay up front is only half the story. Over time, you can spend as much to keep your car on the road as you did to buy it. To help shrink that insidious tab:

Whittle down insurance expenses. Annual premiums for the same coverage on the same vehicle can vary by hundreds of dollars, because each insurer uses its own claims experience to set rates. The Internet is a good tool for comparison-shopping. (For a list of recommended sites, see below.) You can also use the Yellow Pages. Insurance agents who work with several companies will be in the best position to offer lower rates.

When speaking with an agent—which you should do, rather than buy online, where scammers lurk—ask about discounts for air bags, antitheft devices, antilock brakes, and automatic seatbelts. Some companies also offer lower rates to people with clean driving records, and to those who drive fewer than a certain number of miles annually or insure more than one car under the same policy.

Happy with your current insurer? Then consider increasing your deductibles, which will lower your rates. And think about trading your luxury or sports car for something cheaper to insure.

Watch how—and how much—you drive. Altering your driving habits can help you get more miles per gallon of gas. By cruising at or under the speed limit, you'll use less fuel (and possibly save yourself a ticket). Moreover, your vehicle's overdrive or cruise-control option can help reduce gas consumption.

Also, avoid making several small trips throughout the day. Short trips, particularly on cold days, traumatize your engine and can reduce its life. Try to maintain a steady speed and avoid sudden starts and stops, which cause your engine to work harder and your brakes to wear faster.

Don't overpay for routine maintenance. You can save hundreds of dollars a year on repairs by letting a discount chain or local garage handle brakes, front-end alignments, oil changes, and the like. Why pay the dealer to install a new exhaust system when a chain such as Meineke or Midas can do the job for less?

Use common sense, though. Your dealership's charges for parts and labor may be pricey, but its mechanics are likely to be best trained to handle difficult jobs involving your vehicle.

Consider skipping some recommended maintenance. Yes, you ought to change your car's oil and oil filter faithfully and replace brakes and tires before the old ones become unsafe. But do you have to follow the manufacturer's recommended maintenance schedule to the letter?

Some leasing companies require you to, says Michelle Krebs, so that you don't void the manufacturer's warranty. But if you purchased the car and don't plan to keep it beyond 100,000 miles, you can put off replacing some parts if everything continues to run smoothly. These include the battery, water pump, exhaust system, and shock absorbers. Likewise, some minor recommended work, including tire rotations and the cleaning and adjusting of brakes, isn't going to extend the life of those items by much.

When you do have work done, including oil changes, keep good records. Maintenance paperwork will impress buyers, should you decide to sell the car privately. (Naturally, if you're asked about what you haven't done, you should be honest about that, too.)

If you do routine maintenance and fix small problems before they become big ones, you can easily get 100,000 to 150,000 miles out of a new automobile. Vehicles are generally much better built these days than they were even a decade ago. The longer you hang on to your car, the more value you'll get for your money.

When it's time to replace the old car, think about selling it yourself rather than trading it in. Dealerships rarely give you as much as you can get by selling privately. At Edmunds.com, you can plug in the make and model of your car, plus the mileage and condition, and get a free report that estimates the trade-in value, private-party price, and dealer's retail. You can even print out a window sticker on which you state your asking price and contact information.

Internet sites to help speed you on your way

These Web resources, in addition to the ones in the accompanying article, can answer your questions and save you money. Some of the sites offer services in several of the subject areas listed below. MSN Carpoint, for instance, has vehicle reviews and data; plus it brings together buyers and sellers.

Research and pricing:
Auto.com (www.auto.com)
Consumer Reports.org (www.consumerreports.org)
Edmunds.com (www.edmunds.com)
Kelley Blue Book (www.kbb.com)
Motor Trend Online (www.motortrend.com)

Purchasing and financing:
Autobytel.com (www.autobytel.com)
AutoVantage.com (www.autovantage.com )
CarsDirect.com (www.carsdirect.com)
MSN Carpoint ( carpoint.msn.com )
Yahoo! Autos ( autos.yahoo.com )

Insurance:
Insure.com (www.insure.com )
InsWeb (www.insweb.com)
NetQuote (www.netquote.com)
Quotesmith.com (www.quotesmith.com)

For ratings of the accuracy of car-pricing services, see Financial Beat, July 9, 2001.

Dennis Murray. Keep your car from eating your cash.

Medical Economics

2002;2:61.