Keep It or Trade It In?

May 31, 2007

The question of whether to keep your old car or trade it in on a new vehicle may intensify as new models are introduced. From an image standpoint, most of us would probably like to purchase a brand new vehicle every couple of years, but is it really practical from a cost perspective?

Runzheimer International, the Rochester, Wisconsin-based management consulting firm, analyzed the specific cost difference to keep your old car or trade it in. The assumptions used in the analysis are detailed in Table One below.

The vehicle you presently own is a 4-year-old 2003 6-cylinder, 4-door sedan; the vehicle you are considering buying is a 2007 6-cylinder, 4-door sedan. The one you own originally cost $19,727 and gets 21.0 miles-per-gallon(mpg). The new vehicle costs $23,451 and averages 23.5 mpg. Your current vehicle is fully paid for; you must finance the new vehicle with a four-year loan with an annual interest rate calculated at 7.0%. The down payment for the new car is the trade-in value of the old car ($10,158).

So what does this analysis reveal?

New car payments are the decisive factor. Even though the new model vehicle has a much greater trade-in value after four years and you save on repairs and maintenance, the monthly car payments - which total slightly over $16,600 in principal and interest over four years - more than counterbalance these other factors.”

The bottom line: a difference of $10,894 in savings over four years if you keep your 2003 model rather than purchase a new vehicle.

Table One: NEW VS. USED VEHICLE COSTS
May, 2007

The figures below are based on 2003 and 2007 6-cylinder, 4-door sedans. The older car originally cost $19,727 and produces 21.0 miles per gallon. The new car costs $23,451 and averages 23.5 mpg. The Runzheimer figures are based on certain assumptions; individual costs should be determined by each vehicle owner’s circumstances.

Notes:

1. Assume the older car is paid off. The total car payment principal ($14,501) equals the cost of the new car plus average sales tax at the beginning of Year One ($24,659) minus the trade-in value of the older car at the beginning of Year One ($10,158) which is used for the down payment.
2. The interest is calculated for four years at 7.0%.
3. Fuel is regular unleaded priced at $2.717 per gallon (100% self-serve) and is based on 15,000 annual miles driven.
4. License, registration, and personal property/excise taxes are based on national averages.
5. Insurance is based on $500 deductible comprehensive, $500 deductible collision, $50,000 property damage, $100,000/$300,000 bodily injury & uninsured motorist. Commutation coverage, clean driving record, over age 25 driver.
6. Covers normal repairs and preventative maintenance plus tire replacements, repairs, rotations and balancing.
7. Resale values are calculated at the end of years 5, 6, 7, and 8.

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About Runzheimer International
Founded in 1933, Runzheimer International serves 60 percent of the Fortune 500. Recognized for providing innovative solutions relating to total employee mobility, Runzheimer is the global leader in business vehicle reimbursement programs, travel management consulting, employee relocation and compensation, virtual offices, and corporate aircraft.

For more information, contact Luella Dooley at Runzheimer International, Runzheimer Park, Rochester, Wisconsin 53167, (262)971-2277, ljd@runzheimer.com, www.runzheimer.com.