Thursday 25 July 2013

Second-hand cars: the cost/mileage trade-off

Our current car (now our only car) has clocked over 100,000 miles, so time to look around for a replacement.


How do you choose between cars of the same make, model and year of manufacture, but with different mileage?

If you choose to buy a car based upon colour, its "babe-magnetic" rating, or just gut instinct, then there's probably little point in reading this post.

But if you want to reign in your initial enthusiasm with a few numbers on a on!

OK, so we've reached the stage in life where we just need a "sensible" car to get us around. Even when I still had the benefit of a company car, I had one eye on keeping costs down. Over the years I've had not only diesel, but also an LPG/petrol hybrid, and a petrol/electric Honda (very nice).

But now we just have a Ford Fusion 1.4 diesel, which suits us because its cheap to run (e.g. Road Tax=£30, and can do > 60mpg) and we can take bikes inside or on the roof.
To summarise, it's dull but functional.

So anyway, we are now looking at models in the same "Fusion" range. As brand new cars lose value very quickly, we have decided (once again) to look for a 3 year old car.

Doesn't this sound easy? We want a Ford Fusion manufactured in 2010.

You can easily look up the suggested second-hand price for just about any mass-produced car on the internet. These on-line calculators generally assume a mileage of 10,000 miles per year.

But how would you judge the relative value of (say) 3 cars with details like this:-
Car A: Fusion 2010, colour: slate grey, 21,000 miles, £7,825
Car B: Fusion 2010, colour: electric blue, 30,000 miles, £7,495
Car C: Fusion 2010, colour: flame red, 41,000 miles, £6,895
Apart from the colour, the main difference is that the higher the mileage, the lower the asking price.

Is it better to pay more for a lower mileage car, or go for a cheaper car with more mileage?

Or maybe just choose the colour you most fancy (slate grey is not a sexy look!).

Life-Time Costs

My solution to this question was to consider life-time cost. Although you cannot predict how much maintenance costs will be for a particular car (hopefully it won't have a festering problem when you buy it), since all three examples are for the same model, its reasonable to assume service costs will be similar.

However, in our case, we do have some data we can work with:-
  1. Purchase price of proposed car
  2. Trade-in value of existing car (for a car with over 100,000 miles, this will generally be less than £500)
  3. Current mileage of proposed car
  4. Our typical (average) annual mileage (say 12,000 miles)
  5. End of life mileage (say 100,000 miles)

Since we always start looking for a replacement car when our current car exceeds 100,000 miles, we will use this as the "end of life mileage".

We can also ignore the trade-in value, because this is likely to be about the same for any Fusion with over 100,000 miles on the clock!

So the useful life of any new car (to us) is: (100,000 - current mileage)/12,000)

For the 3 example cars we get:-
  • Car A: (100,000 - 21,000)/12,000 = 6.58 years (79 months)
  • Car B: (100,000 - 30,000)/12,000 = 5.83 years (70 months)
  • Car C: (100,000 - 41,000)/12,000 = 4.92 years (59 months)

Which is a range of 20 months.

As the trade-in value will be about the same when all these cars finally reach 100,000 let's just disregard it, and assume each car will devalue to £0.

We can calculate the annual cost by dividing the asking price by the "life":-
  • Car A: £7825/ 6.58 = £1,189 per year
  • Car B: £7495/5.83 = £1285 per year
  • Car C: £6895/4.92 = £1402 per year


So, although Car C is almost £1,000 cheaper than Car A, Car A should last longer, depreciate less per year, and therefore be better value for money.....

.............shame, I like Flame Red.

1 comment:

  1. There are many people in the world who buy second hand car and do not care much about the history of the car, later they regret even buying it. So it’s recommended to thoroughly go through a car’s history before buying it.