How does a value investor go about buying a automobile?

[LR1400]

I'm about to buy an Audi R8, used, so that qualifies as a value investor philosophy.

[jhcap]

As a value investor I hate buying depreciating assets, but a car is a necessity for my life and business. I have found the best way to buy a car is to get one from a salvage dealer. The prices are significantly lower than a comparable non-salvage car.

 

The trick is to find the cars that have a salvage title because the car was stolen and the insurance company had to pay out before it was recovered. These cars often suffer no real physical damage (Other than being found with a bunch of syringes in the back seat) but some state laws requires that a salvage title be issued if the insurance was paid. I drive my cars into the ground, so resale value isn't much of an issue for me.

 

There are a few of these dealers around the country. They usually know what kind of repairs if any were done to the car if you ask.

[jwelborn93]

As a value investor I hate buying depreciating assets, but a car is a necessity for my life and business. I have found the best way to buy a car is to get one from a salvage dealer. The prices are significantly lower than a comparable non-salvage car.

 

The trick is to find the cars that have a salvage title because the car was stolen and the insurance company had to pay out before it was recovered. These cars often suffer no real physical damage (Other than being found with a bunch of syringes in the back seat) but some state laws requires that a salvage title be issued if the insurance was paid. I drive my cars into the ground, so resale value isn't much of an issue for me.

 

There are a few of these dealers around the country. They usually know what kind of repairs if any were done to the car if you ask.

 

This sounds interesting. Any suggestions about where to look/how to go about it?

 

 

[orthopa]

Like others have mentioned I hate buying cars, dread it actually. Last car I drove had 205k miles, was 14 years old and rusted to hell. Wife hated it but got me to where I going. The idea of spending money on something that defeats the entire purpose of why I work my ass off/invest makes me mad.

 

Last car I bought 12 months ago now was used,6 years old, and less then 1% of my net worth. Already has rust on it  :o

[jhcap]

As a value investor I hate buying depreciating assets, but a car is a necessity for my life and business. I have found the best way to buy a car is to get one from a salvage dealer. The prices are significantly lower than a comparable non-salvage car.

 

The trick is to find the cars that have a salvage title because the car was stolen and the insurance company had to pay out before it was recovered. These cars often suffer no real physical damage (Other than being found with a bunch of syringes in the back seat) but some state laws requires that a salvage title be issued if the insurance was paid. I drive my cars into the ground, so resale value isn't much of an issue for me.

 

There are a few of these dealers around the country. They usually know what kind of repairs if any were done to the car if you ask.

 

This sounds interesting. Any suggestions about where to look/how to go about it?

 

Prestman Auto in SLC is one that advertises on Ebay Motors. you can tell that their cars are cheaper compared to the same models from other dealers with similar year and mileage. They deal mostly with newer cars though.

[twacowfca]

This is a tough question.  In value investing, the principle is that, "price is what you pay, value is what you get."  When you do your due diligence, you spend most of your time trying to figure out what range of value you should assign to the asset (ie, you want to buy a dollar for fifty cents, but the hard part is to figure out whether the asset is worth a dollar in the first place).  Since both price and value are denominated in dollars, you can make a quick assessment of whether you got a bargain or not.

 

The problem with a car is that value is not usually denominated in dollars.  Rather it can be denominated in quantitative factors of total cost per year (or per kilometer) and qualitative factors such as:

 

-does it provide the capacity or comfort that I require?

-does it start in the winter?

-how often will I have to take it to the shop?

-are the safety characteristics aligned with my risk preferences?

-is it easy to park?

-etc

 

The quantitative part of the problem is relatively easy if you spend a bit of time with Microsoft Excel.  But in my experience, the qualitative aspects of value are *more* important and are much more difficult to assess.

 

 

SJ

 

 

+1

 

Quiz: which of the following will increase your life expectancy more?

 

A)  Get a thorough physical exam every five years.

 

B)  Buy a new car.

[CorpRaider]

Like others have mentioned I hate buying cars, dread it actually. Last car I drove had 205k miles, was 14 years old and rusted to hell. Wife hated it but got me to where I going. The idea of spending money on something that defeats the entire purpose of why I work my ass off/invest makes me mad.

 

Last car I bought 12 months ago now was used,6 years old, and less then 1% of my net worth. Already has rust on it  :o

 

I think I read somewhere that the average american works 2 out of every 5 days (or something like that) just to pay for their lifetime automobile related expenses.

[EliG]

My current car is the ultimate value pick. I bought used ex-rental Hyundai Sonata directly from Hertz. It's a triple play on depreciation:

 

* regular depreciation of a used car

* accelerated depreciation because it's a Hyundai

* extra-special-super-sized depreciation because it's an ex-rental

 

Most ex-rentals go to dealer auctions. Used car dealers recondition them and sell them as regular used car. "Ex-rental" part is buried in the fine print. Buying directly from Hertz cuts out two middlemen: the auction house and the user car dealer.

 

Hyundai factory warranty is 5 years / 100K km. The car was 18 months old when I bought it, with 60K km mileage. Which means I got 3.5 years / 40K km balance of factory warranty when I bought. I estimate I saved at least 12K compared to buying new.

[adesigar]

This is a tough question.  In value investing, the principle is that, "price is what you pay, value is what you get."  When you do your due diligence, you spend most of your time trying to figure out what range of value you should assign to the asset (ie, you want to buy a dollar for fifty cents, but the hard part is to figure out whether the asset is worth a dollar in the first place).  Since both price and value are denominated in dollars, you can make a quick assessment of whether you got a bargain or not.

 

The problem with a car is that value is not usually denominated in dollars.  Rather it can be denominated in quantitative factors of total cost per year (or per kilometer) and qualitative factors such as:

 

-does it provide the capacity or comfort that I require?

-does it start in the winter?

-how often will I have to take it to the shop?

-are the safety characteristics aligned with my risk preferences?

-is it easy to park?

-etc

 

The quantitative part of the problem is relatively easy if you spend a bit of time with Microsoft Excel.  But in my experience, the qualitative aspects of value are *more* important and are much more difficult to assess.

 

 

SJ

 

 

+1

 

Quiz: which of the following will increase your life expectancy more?

 

A)  Get a thorough physical exam every five years.

 

B)  Buy a new car.

 

I really don't get why people feel so great/proud about buying the cheapest car and driving it for 10-20 years. Its one of the dumbest things you can do.

 

http://en.wikipedia.org/wiki/List_of_motor_vehicle_deaths_in_U.S._by_year

fatalities per 100,000 has been dropping the last couple of decades

 

1. Buy the safest car you can afford (especially if you have kids).

2. If safety has significantly improved since the model year of your car its time to get the newer model.

 

It doesn't matter how great a driver you are you can always get hit by someone else who is drunk etc. The difference between the more expensive car with better safety and the cheap model/clunker/15 year old model could be the difference between you and your family walking away from the accident or not. Insurance is something you pay for and you hope you never have to use. The latest and best car safety features are something you pay for and you hope you never need them. All the money you save is meaningless if you and your family are not safe.

[StubbleJumper]

This is a tough question.  In value investing, the principle is that, "price is what you pay, value is what you get."  When you do your due diligence, you spend most of your time trying to figure out what range of value you should assign to the asset (ie, you want to buy a dollar for fifty cents, but the hard part is to figure out whether the asset is worth a dollar in the first place).  Since both price and value are denominated in dollars, you can make a quick assessment of whether you got a bargain or not.

 

The problem with a car is that value is not usually denominated in dollars.  Rather it can be denominated in quantitative factors of total cost per year (or per kilometer) and qualitative factors such as:

 

-does it provide the capacity or comfort that I require?

-does it start in the winter?

-how often will I have to take it to the shop?

-are the safety characteristics aligned with my risk preferences?

-is it easy to park?

-etc

 

The quantitative part of the problem is relatively easy if you spend a bit of time with Microsoft Excel.  But in my experience, the qualitative aspects of value are *more* important and are much more difficult to assess.

 

 

SJ

 

 

+1

 

Quiz: which of the following will increase your life expectancy more?

 

A)  Get a thorough physical exam every five years.

 

B)  Buy a new car.

 

 

 

Well, without doing the arithmetic, I'd say that both A and B are virtually worthless.  In the case of A, I recall there there were a couple of papers written that demonstrated the cost of an annual physical exam exceeded the benefits -- not sure if those results are applicable to 5-year intervals. 

 

In the case of B, if you buy a new car with better safety equipment, your likelihood of dying in a collision might decline marginally (ie, from 1-in-10k per year to perhaps 1-in-11k), but it doesn't really change your life expectancy meaningfully because the risk was so small to begin with.  So, if a typical male currently has a life expectancy of 77 years, and assuming that his driving career starts at age 16, his life expectancy number has already baked in a 61-in-10k probability that a collision will send him to the next world.  If he elected to *never* get in a car over the course of his life, his life expectancy might be 78 years instead of 77.  By regularly purchasing new cars with better safety equipment, he might at best buy back a few months of life expectancy.

 

Injuries, however, are another story....

 

SJ

[Guest longinvestor]

Postponing buying a car does it for me. Treat a car as bent metal on wheels with cushion seats. And one that never leaves you stranded on the hwy. I understand that this is not for everyone and there is a different kind of pride involved with car ownership. I have great pride in my old one.

 

The best way, IMO, to find out which cars last longest is to talk to a taxi driver-owner. I live in Chicago and used to travel a lot at one time, so took taxi rides to the airport often. After speaking with several drivers, I got my answer as to the most popular taxi models. Honda Odyssey and Toyota Camry. The Prius is also getting to become popular as seen by their growing number on Chicago roads. Chicagoans will be able to confirm this. BTW, a similar story in Germany, the E class Mercedes Benz is the most popular Taxi model over there. I rode one with 750K KM on it.

 

It so happens that I have a Honda Odyssey and I'm eagerly looking forward to the odometer read 200,000. I've previously owned a Chrysler Grand Voyager, VW Golf and Honda Accord /s. The Odyssey is unmatched.  It runs like it did when it was new, in 2002. It has a couple of rust spots, I plan to get a paint job done soon. And I avoid going over 70MPH. The best vindication came when I broached the topic of the market price for my Odyssey with the taxi operators, they did not name the price but promptly gave me their business cards for me to call them should I decide to sell. I had about 150K on the vehicle at that time. One of them told me that they run their cars to half million miles easily. One of my (female) colleagues owned a Camry to 450k miles. To put things in perspective, taxis here get oil changes done about every two weeks. They tell me keeping these car running (wearing gradually) all the time on the freeway is key to longevity. Also, get the same mechanic to work on the car, always.

 

 

 

 

 

[oddballstocks]

longinvestor,

 

Interesting story.  I think a difference in taxi drivers (and truck drivers) is they run the vehicles all the time.  What kills a car is when it sits unused.  A car that is being used constantly will last longer than a car that sits and drives to the grocery store 3 miles a way once a week.  Engines are built to run, not sit.

 

For your friend with 450k miles she must use the car a lot.  If she drove the standard 12k miles most Americans do then she's been driving the Camry for 37 years or so.  And considering it was first introduced in 1982 that's impossible.  She proves the point that cars can really last if you push them.

 

My dad routinely gets 200-300k miles on cars.  A Camry, a Malibu, a Lumina.  All between 200-300k miles when he sold them running.  The Lumina is still going at 300k miles.  How?  He was in sales for years and drove constantly.  He put on well more than the average per year but used the cars constantly.  He was fanatical about routine maintenance.

[Guest longinvestor]

longinvestor,

 

Interesting story. I think a difference in taxi drivers (and truck drivers) is they run the vehicles all the time.  What kills a car is when it sits unused.  A car that is being used constantly will last longer than a car that sits and drives to the grocery store 3 miles a way once a week.  Engines are built to run, not sit.

For your friend with 450k miles she must use the car a lot. If she drove the standard 12k miles most Americans do then she's been driving the Camry for 37 years or so. And considering it was first introduced in 1982 that's impossible.  She proves the point that cars can really last if you push them.

 

My dad routinely gets 200-300k miles on cars.  A Camry, a Malibu, a Lumina.  All between 200-300k miles when he sold them running.  The Lumina is still going at 300k miles.  How?  He was in sales for years and drove constantly.  He put on well more than the average per year but used the cars constantly.  He was fanatical about routine maintenance.

 

I made my point about Taxis running all the time with the 2 week oil change routine... at 3k change frequency, that is about 70 K miles a year.

But, not every car runs to half million, why Odyssey / Camry beat all others in what is arguably the most rational ownership - that of a taxi owner operator.

 

I will check with my colleague as to when she bought her camry. I remember her saying early 90's. And she lives in central IL and had several kids go to college, take vacations etc. Don't know all the detail but it is not a 12K annual mileage from central IL ;). She recently had to part with the car, with much regret.

 

[matjone]

I can attest to the lumina's longevity.  That is what I drove from the time I got out of high school till my late 20's.  I finally sold it because it needed a new starter or something and I just didn't feel like fixing it.  I think it had over a quarter million miles on it and never used any oil or had any engine problems.  The only maintenance I ever did was to change the oil every 3k miles. 

 

One problem with those old luminas was that they were constantly burning up alternators, so I went and bought an alternator at autozone the first time it happened. They gave me a new one for free every time after that, which I always installed myself.  It had to have been one of the cheapest car ownership experiences in history, especially since my parents bought it for me.  I should have kept it.  It's probably still running somewhere.

[bizaro86]

longinvestor,

 

Interesting story.  I think a difference in taxi drivers (and truck drivers) is they run the vehicles all the time.  What kills a car is when it sits unused.  A car that is being used constantly will last longer than a car that sits and drives to the grocery store 3 miles a way once a week.  Engines are built to run, not sit.

 

For your friend with 450k miles she must use the car a lot.  If she drove the standard 12k miles most Americans do then she's been driving the Camry for 37 years or so.  And considering it was first introduced in 1982 that's impossible.  She proves the point that cars can really last if you push them.

 

My dad routinely gets 200-300k miles on cars.  A Camry, a Malibu, a Lumina.  All between 200-300k miles when he sold them running.  The Lumina is still going at 300k miles.  How?  He was in sales for years and drove constantly.  He put on well more than the average per year but used the cars constantly.  He was fanatical about routine maintenance.

 

This is why some sort of car sharing should end up being the default car ownership option, imo. I don't enjoy anything about owning a vehicle, if I could walk to the end of the block and be sure one was there I would absolutely sell my vehicle and do that instead. (Or definitely once my kid is out of his car seat, which is non-trivial to install)

[kfh227]

I considered a used Prius when I bought new.

 

Why?

1) new Prius: $26K

2) 2 year old Prius w/ 40K miles: $20.5K

 

Assuming 20% of the life on the car was gone, I was saving 20%.

 

Here's the deal.  A car is a pure cost assuming you drive it into the ground.  So you can get a 3 year old car and drive it for 7 years and into the ground.  Or get a new cars and do the same thing for 10 years.

 

Also, you have a good job (presumably) so why base your life on not having anything new ever.  By that logic, you should only by used Miatas. 

 

If you are buying a used BMW, Lexus .... whatever .... why do you think it is saving?  Why not just get a lesser car that is new that has newer features and probably better fuel economy.

 

I could go on and on and on.

 

Bottom line.  Set a budget and stick to it.  Get what you need and if you can afford some wants, go for it.

 

My F-150 is due up next in about 2 years.  I will be spending up to $30K on a new vehicle.  I don't care if I get a used BMW or a new truck or whatever.  As long as I spend under $30K ... I am content.  I have my requirements and I'll go from there.  Right now it looks like a full cab Chevy Colorado.  Then I can cart the family around.  My kids are older so in and out they go much easier.  And I can take mountain bikes wherever I need to.  And I have a truck when needed.  And I spend less than anF-150 and I get better fuel economy than a larger truck.

 

It's pure WIN.

[kfh227]

longinvestor,

 

Interesting story.  I think a difference in taxi drivers (and truck drivers) is they run the vehicles all the time.  What kills a car is when it sits unused.  A car that is being used constantly will last longer than a car that sits and drives to the grocery store 3 miles a way once a week.  Engines are built to run, not sit.

 

For your friend with 450k miles she must use the car a lot.  If she drove the standard 12k miles most Americans do then she's been driving the Camry for 37 years or so.  And considering it was first introduced in 1982 that's impossible.  She proves the point that cars can really last if you push them.

 

My dad routinely gets 200-300k miles on cars.  A Camry, a Malibu, a Lumina.  All between 200-300k miles when he sold them running.  The Lumina is still going at 300k miles.  How?  He was in sales for years and drove constantly.  He put on well more than the average per year but used the cars constantly.  He was fanatical about routine maintenance.

 

Actually, metallurgy has caught up.  You don't need to idle diesels anymore for a reason.

[TwoCitiesCapital]

longinvestor,

 

Interesting story.  I think a difference in taxi drivers (and truck drivers) is they run the vehicles all the time.  What kills a car is when it sits unused.  A car that is being used constantly will last longer than a car that sits and drives to the grocery store 3 miles a way once a week.  Engines are built to run, not sit.

 

For your friend with 450k miles she must use the car a lot.  If she drove the standard 12k miles most Americans do then she's been driving the Camry for 37 years or so.  And considering it was first introduced in 1982 that's impossible.  She proves the point that cars can really last if you push them.

 

My dad routinely gets 200-300k miles on cars.  A Camry, a Malibu, a Lumina.  All between 200-300k miles when he sold them running.  The Lumina is still going at 300k miles.  How?  He was in sales for years and drove constantly.  He put on well more than the average per year but used the cars constantly.  He was fanatical about routine maintenance.

 

This is why some sort of car sharing should end up being the default car ownership option, imo. I don't enjoy anything about owning a vehicle, if I could walk to the end of the block and be sure one was there I would absolutely sell my vehicle and do that instead. (Or definitely once my kid is out of his car seat, which is non-trivial to install)

 

I think we're headed that way.

 

The "sharing economy" leverages the current structure of inefficient ownership and makes it more efficient and cost effective for owners and users. This is why Airbnb and Uber and etc. are become more popular as people are no longer forced to pay for the privilege of waste.

 

A car that sits 20 hours a day or a guestroom that is unused for 50 weeks a year are both wasteful - now you have an option to recoup some of the costs of that waste by being an efficient user of resources. I like the trend and am glad to see it blow up as big as it has in the last 3 years.

 

[fareastwarriors]

longinvestor,

 

Interesting story.  I think a difference in taxi drivers (and truck drivers) is they run the vehicles all the time.  What kills a car is when it sits unused.  A car that is being used constantly will last longer than a car that sits and drives to the grocery store 3 miles a way once a week.  Engines are built to run, not sit.

 

For your friend with 450k miles she must use the car a lot.  If she drove the standard 12k miles most Americans do then she's been driving the Camry for 37 years or so.  And considering it was first introduced in 1982 that's impossible.  She proves the point that cars can really last if you push them.

 

My dad routinely gets 200-300k miles on cars.  A Camry, a Malibu, a Lumina.  All between 200-300k miles when he sold them running.  The Lumina is still going at 300k miles.  How?  He was in sales for years and drove constantly.  He put on well more than the average per year but used the cars constantly.  He was fanatical about routine maintenance.

 

This is why some sort of car sharing should end up being the default car ownership option, imo. I don't enjoy anything about owning a vehicle, if I could walk to the end of the block and be sure one was there I would absolutely sell my vehicle and do that instead. (Or definitely once my kid is out of his car seat, which is non-trivial to install)

 

I drive to my CVS/Safeway 3 blocks away because I don;t want to carry my stuff home.  It's bad I know....