August 23, 2004

Economics of Cars, a Personal Reflection

We own, outright, a Volvo station wagon. We bought it in the days following 9/11 when my wife's job was transferred to New Jersey and we needed a car in the City. Since then, we have moved out to Westchester and have been leading the you-gotta-have-a-car suburban life style. The Volvo has not been a fulfilling experience. Many electrical problems -- locks, windows, etc. Many other small problems. All of this means that I have lost confidence in our ability to drive this car another 75-100,000 miles as I had hoped we would do when we bought it. I bought the car with the intention that we would drive it into the ground. It appears as if I was wrong. Did I mention that it is very expensive to fix, too?

Well, the warranty on the beast is about to run out and I have been considering the cost of the extended warranties that Volvo will offer to me. They are several thousand dollars and they have deductibles, like an insurance policy does. They do not appear to replicate the original warranty on the car.

So, here's where the economics part of the post comes in. What to do? Buy the warranty or, and this is where things get more interesting, admit that the Volvo was as bad an investment as that JDS Uniphase stock and see if I can cash out the equity that remains in the car and buy another car for about or not much more than the cost of the extended warranty. Clearly, we'd be talking about a used car. That led to some investigation by my wife. She selected a couple of cars from Consumer Reports and compared them for safety and reliability. After Saturday afternoon driving four different SUV type cars (a moment of silence for the BMW X5, please, which was so great and so not a possibility), we have arrived at an Acura MDX. More precisely, the 2001 version, with around 29,000 miles. We will, I think, be able to swap out the Volvo for the Acura for a minimal amount above what the extended warranty costs for the Volvo.

The Acura will come out of their certified pre-owned program, is on the list of used cars recommended by Consumer Reports, has been serviced exclusively by the dealership selling me the car, and has a reputation for being a reliable car that can go the distance. Oh, and to extend the warranty (no deductible) on the Acura would be about 30% of the cost of doing so on the Volvo and I think that has to tell you something about the confidence that Acura has in its workmanship

Does anyone have any experience with Acura, generally, that they'd care to share? Anyone think that this transaction makes no sense and I have screwed up a major assumption? Did I get the economics right?

Posted by Random Penseur at August 23, 2004 09:00 AM

I've yet to make a wise car purchase, so I'll spare you my thoughts on that.

However, I most certainly agree that it would be best to trade the car in now, being that you've had so many problems with it. No sense in dragging out the inevitable any further and watching the car devaluate.

Posted by: Mick at August 23, 2004 09:54 AM

*jaw drops*

RP! That's MY stock! JDSU! I have several thousand shares.

Much good it does me now, right? God...that is one heartbreaker of a story. *shakes head increduously* Remember how high it was? Yeah...I try not to look at the price now.

As far as cars go, sounds like your Volvo might be a lemon. They do exist. My brother got stuck with one years ago, a very nice Cadillac. Everything went wrong with it. He finally traded it in around 25,000 miles. And good riddance.

I've never owned an Acura, but I've heard nothing but good things about them. My friend Carla swears by them; she had her car forever and she never had any problems with it at all, and Dan's friend drives one too and loves it. Sounds like a good bet to me.

Posted by: Amber at August 23, 2004 03:49 PM

well - my boss is on his 3rd mdx... he swears by them.
i love my honda - though - i wish it had a little do you say this...

i think the acura sounds great.

Posted by: kbear at August 23, 2004 03:57 PM

Why not a Prius since oil will go over $50 a barrel, soon?

Posted by: Azalea at August 23, 2004 07:10 PM

Greetings RP,
I think you are on the right track.
I've been thinking about Acuras for quite some time as I have been very happy with my Hondas. We just traded in a 13 year old Accord and got a Honda Element. My wife and daughter love it even though I think it is kind of goofy looking. It has space, they are higher up and have a better view of the road and feel a bit more comfortable than in a sedan.

Acura/Honda has an excellent reputation.
Buying certified used is not a bad idea at all.

First, the biggest depreciation occurs the day you drive a new car off the lot. So, you would be getting a relatively new car that will not depreciate nearly as rapidly viz. Your purchase price as a new car.
Second, if you can buy a used car without accruing debt you are ahead of the game.
Third, Volvos parts and service are notoriously expensive - as you must know by now.
Four - my service experience with Honda has always been positive.
In terms of selling the Volvo - consider CarMax or the like rather than a trade-in. You will get the most $ for your car if you sell it privately. If you use it for trade in you will generally get the least $. Carmax tends to give you the middle between what you can get privately and what you get at trade in.

Posted by: stolypin at August 23, 2004 09:18 PM

My wife, then I, drove our first Honda (an Accord) to 270,000 miles over ten years -- it still had the original clutch when we traded it in for my current Accord. Acura's the same as Honda, just a bit pricier. Next time, I plan to trade up to an Acura sedan (probably the RSX) to replace my Accord. I used to drive a full-size Chevy blazer -- like the Tahoe or Yukon - and apart from a few kinks in the transmission during the first 15,000 miles, it ran great until well into the 100,000+ mile range.

Posted by: John Lanius at August 25, 2004 03:29 PM

Well, my Chevy Blazer finally totalled (the clutch burned -- not worth the cost of reparing) after 230,000+ good miles.

And my first car was a Honda Civic, and, I tell ya, that little bugger had some real spunk for a 4 cylinder.
My Nissan Sentra gave me many good years, too.

The Acura sounds like a sound way to go, RP. I don't know about Volvos, all I know is that my mechanics tell me that there are two makes you should never ever ever buy used: Buick and Pontiac. Just steer clear of them and you'll probably make out just fine!

Posted by: Tuning Spork at August 26, 2004 01:46 AM

Thank you, everyone, for your helpful suggestions. I believe I will go ahead and do it over the weekend. I am appreciative for all the advice and all the time you all took to answer my query.

Posted by: RP at August 26, 2004 02:23 PM

I second the Honda choice, if you haven't already bought something. We just perchased a new Honda CR-V for well under $19,000 with some good options. It won out over the gutless Forrester in the test drive, even though the Subaru was Consumer Report's first choice. It isn't a BMW SUV, but the price *(and size) was right. Good Luck.

Posted by: Mark D. Firestone at August 29, 2004 10:25 AM

BTW, another reason to buy a Honda SUV: They hold their value and I have gheard that there is a Honda SUV hybrid in the works, so the possibility of a future trade-in on a hybrid of that size was tantalizing.

Posted by: Mark D. Firestone at August 29, 2004 10:27 AM

Thanks, Mark. We decided to go ahead and do it. This weekend I traded in the Volvo and with a little extra got a 2002 MDX with 18k miles on it. I'll be able to keep this truck a long time, I think.

Posted by: RP at August 29, 2004 01:40 PM

I'm looking for a recommended Volvo mechanic in the area, but not the dealership in Mt. Kisco. Have you any suggestions??? Thanks John

Posted by: John at May 6, 2005 02:11 PM

Posted by: psikeyhackr at June 26, 2005 10:32 AM
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