Guest Post: Preparing to Buy a “New” Car

This is a guest post from Curtis at Real World Finance$. His blog description: I’ve decided it’s time for a life change. We have been in debt for way too long and it’s time to get out. This blog will chronicle the steps we take and our results of getting our life back on track.

He’s planning to buy a new car soon and today he’s sharing his process with us!

Buying a car is something that most everyone dreads having to do. When I first started working on my Master’s degree (Industrial Engineering at the time) I took a class on decision making. We used mathematical models and decision tools to assist with business decisions. My team project for the semester we used personal rating systems and car specifications to compare a half dozen different types of cars.

I don’t want to get that complicated, but I do want to do something more than just “that one looks cool.” Below are the steps we are starting to take when making the decision.

1. Decide What’s Important: We came up with 3 things that will be important for us in our next car.First, we want cargo room. There are only three of us, but we do take regular road trips a few times a year and want room for our stuff. It also helps to have enough room to haul the dogs to and from vets and kennels as necessary.

   Second, gas mileage is also extremely important. I use the bus to and from work, but the wife and kid are all around town doing homeschool activities. The city mileage is thus of main importance.

   Third (but definitely not least) is cost. We’d like to keep our monthly payments as low as possible to meet those other 2 needs.

2. Develop a Model: For me, this is the math part. From all my days of taking calculus and other various math courses (and teaching quantitative analysis/statistics) I follow some basic rules.I know that to try and maximize our cargo room and city MPG I should multiply those numbers. Adding could work if they are in the same units of measure, but when there is a difference, multiplication is the answer. Next, in order to minimize cost I should divide the other by the cost. That leaves me with a nice little formula that looks like this: (Cargo Space * MPG)/(Cost).
3. Gather Some Data: This step involves some research in order to get some actual data from cars that you might already be interested in purchasing. This will allow you to see how they stack up against each other. You can see our initial list below (notice that I mention what units the numbers are in for reference):
4. Review Your Choices: Once you can see how your initial selection worked, you might find that the one topping the list has something that really turns you off from it. In our case, it’s the highest cost option, though it fares very well in the other categories.This is a good opportunity to decide HOW important each of those categories are to you. If one is more important than the others you can artificially “weight” the value. For instance, I’ve recalculated here and used a “doubled” cost in the equation. Notice the change in fitness:

   

5. Expand Your selection: Now is the time to expand your horizons so to speak. What do your top choices have in common? Are there other cars that might have those criteria? How do they stack up?
6. Test Drive: The proof is really in the pudding at this point. Make sure to take the time to test drive the car and that you feel comfortable behind the wheel. No since buying a big, fuel efficient, low cost car if you feel like you are riding in a go-kart.
7. Time Your Purchase: Dealers will always run year end clearance sales when the next model year comes out in the fall. Wait for special financing or clearance events to get an even better price on your favorite pick.

A couple of notes on all this. This method is actually much more valuable the more data you are comparing. I’ll be adding some further data areas to our selection and weighting each area appropriately before the time comes.

Also, I did make some adjustments to the listed prices of both the Prius and the Escape Hybrid. These both have tax credit incentives from the IRS. The 2008 Escape Hybrid has $3,000 of tax credits that come with the purchase. So, a normal $25k car become $22k because I will literally owe $3k less in taxes (not a deduction but a credit).

Another option we will be considering is buying something that is less fuel efficient (but cheaper) and buying a scooter for trips around town. By next summer the wife will be done babysitting and it will just be her and the kid, so a scooter will get them a lot of places. At about $2,000 and 90 mpg, it’s not a bad choice. In Missouri, anything under 50cc in engine size (max speed of about 35 miles per hour) don’t even need to be licensed!

If you are looking for data on for your car purchase, you can likely get about everything you need from the car maker’s website, but not always. Here are some more resources for you to check out:

MSN Autos – Good comparison features and independent rankings as well as owner rankings. Good way to compare older model years as well.

Yahoo! Autos – Very similar to the MSN site… almost too similar?

Kelly Blue Book – This is a great source for car value information, especially if you are looking at a used or older model car.

Car Fax – Buying an older car? I’d highly recommend getting a report from Car Fax to see the vehicle history. Many reputable dealers will offer this for free nowadays if you ask for it. If they don’t, get your own before you buy to make sure the car hasn’t been through some major damage. Plus, they used to offer a buyback guarantee if their report was found to be wrong.

Fuel Economy – This is a government site that has loads of information on vehicle fuel economy. Including details on how the hybrid tax credits work (they phase out over the life of a model year based on the number sold).

Editor’s note: I’m particularly glad Curtis volunteered to share this with us because I don’t know much or plan much about cars but it’s an important part of our lives. So it makes this blog more complete. Thanks, Curtis!

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