How much is too much? (Part 2)

So to review, the question is: at what point do you decide that the old vehicle is costing too much and replace it with a new one.
For me, there are a lot of factors that go into making this decision.

Factor #1: Safety

Call me crazy, but it's probably not safe to drive a vehicle that won't turn left!

Factor #2:  Cost of repairs vs value of vehicle

We got an estimate on repairing the steering and found that it would be $800-$1000.  So I googled the price of a 1990 4rnr and found several sites that quote prices on used vehicles.  The first site I tried told me that it was probably worth about $2025.  That seemed awfully high to me so I tried another site.  That one said that it would be worth $1350 from a dealer or that I could trade it in for a whopping $331.  Finally, I went to the gold standard, Kelly Blue Book which informed me that it was worth about $1321 (this was for a 1992--their site doesn't go back as far as 1990).  The last two sites asked me for detailed information about the options, mileage and condition and since they agreed pretty closely, I decided to go with "about $1300."

So here is where the math part comes in--what kind of value was I going to get out of the vehicle in exchange for putting in the $800-$1000 worth of work?  And that would be nada.  Zilch.  Zip.
How did I figure on this?  There was no box to check on either of the last two sites for "steering actually works."  In other words, the money I would put in for the repairs would simply bring the value back up to $1300, not enhance it in any way.  If I repaired the steering for $800 and sold the vehicle for $1300, I would be ahead by $500.  If.

Factor #3:  Cost of repairs vs cost of new vehicle

This is always a fun one because you get to go to the dealer and actually look at new vehicles and pretend you are interested.  Then, just when you have the salesman on the hook, you say "just kidding!" and head on out.  I love that!

So I went and looked at new 4rnrs.  The two I looked at sold for $40,000 and $45,000 respectively.
Uh, Oh! Time for more math!  Fortunately, there are a plethora of auto loan calculators available on the Internet.  To finance the vehicle was going to cost me between $530 and $600 per month.  Could I afford this?  Was I willing to pay this much? The bottom line answer was "no," I was not willing to pay that much.  Fortunately, I found the new models (fifth generation for you 4rnr fans out there) to be absolutely and stunningly butt-ugly!  There is just no other way to describe it.  I'm not going to pay over $500 per month for butt-ugly!

The bottom line on this calculation was that I could fix up the old 4rnr for about two month's worth of payments and have a useable vehicle again.  Useable in the sense that it would get me around, but given the many demons that still possessed its darkest recesses, could it be trusted?

As far as value goes, I could sell the old 4rnr to help buy a new one at which point I would have a vehicle that was worth about $38000 (because you lose around 5%-10% just driving off the lot).  I lose no matter what.  I would simply end up driving an embarrassingly ugly vehicle that would have nothing wrong with it and probably wouldn't break down.

Factor #4:  Cost of repairs vs cost of a used vehicle.

The grand plan here would be to sell the old 4rnr and buy one with around 100,000 miles on it.  We found these selling in the $15000-$20000 range.  I could also buy a 4th generation 4rnr which had the advantage of not appearing to have been designed by robot trolls.  There would still be payments, but they would be in the $300-$350 range and the vehicle would still have the advantage of being in pretty nice shape and (hopefully) not racking up any repair bills.

Value wise, this is a compromise.  You don't lose nearly as much due to depreciation as you do with a new vehicle.  It still costs more than fixing up the old 4rnr but it is going to look nicer and have fewer demons living in it.

The bottom line:

So this whole calculation boils down to what kind of person you are and what and how you prefer to drive.  For me, I don't mind driving an older vehicle, but I was getting pretty concerned about the safety and repairs on this one.  Mathematically, it made sense to fix the steering, but what about the occasional clouds of black smoke?  Were they an artifact of the steering fluid being spewed all over the engine or a sign of yet more money to be spent on yet more repairs?  And what would happen when it needed new tires? Would that be worth it?  What else might break?

And how much money are you willing to spend to upgrade the vehicle?  For some people, image is everything.  They automatically buy a new vehicle every 5-10 years because they want something "nice."  They are willing to spend more money up front or on payments to have the feeling of driving something that looks, feels and sounds good.  This has the added advantage that they will seldom have to deal with major repairs.  Simply trade in the old for a new before it starts having problems.  As far as value is concerned, they will never come out ahead in the exchange.  They will pay a higher percentage of their disposable income over their lives but that will be okay for them because they are paying for an image.

So what about a used vehicle?  How do you know what you are getting?  Can you trust the seller? What price range makes sense?  What happens if it breaks in the first year?  For me, this made more sense than buying a new 4rnr, but it was a calculated gamble.  We spent a day in the Sacramento area looking at 4rnrs.  We found that anything priced under $15000 appeared a little bit too well-used for our taste.  Anything that looked really nice was invariably priced at over $25000.  We finally found and bought one for around $17,000.

The next part of the plan was to sell the old 4rnr.  Only we didn't!

Stay tuned for more math in part 3!