The Budget Geek

Fanaticism Without Regret

The Budget Geek - Fanaticism Without Regret

Do You Repair That Old Car Or Replace It?

Last week, my wife called me at work to inform me that her car had suddenly become difficult to steer and began to emit a strange odor. I was not at all surprised by this phone call. Her car is a 2002 Subaru Outback with nearly 250,000 miles. Her business requires a lot of driving and, occasionally, a 4-wheel-drive vehicle in order to traverse the back roads, hills, and construction sites in our surrounding counties.

We purchased her car in early 2009 for less than $5,000. We have made a few repairs to it since taking ownership, but none were too outrageous. Given the car’s age and mileage, we have already saved up enough money to purchase its replacement. So the question we started asking ourselves was how much are we willing to spend on repairs before it made more sense to purchase another vehicle.

We used the following steps to analyze whether to repair the Subaru or purchase a replacement vehicle:

  1. Determine value of the car if it is in good running shape. We looked up the car’s value on Kelley Blue Book. We chose Private Party Value. Our Subaru would rate between fair and good condition, so the repaired value would range between $2,600 and $3,300.
  2. Determine value of the car without repairs. Typically, a reputable junk vendor will offer between 20%-50% of the retail value of the vehicle. That means that if we do not decide to repair the car and choose instead to sell it to a junk vendor, we would likely get somewhere between $1,000 and $1,500 for the car.
  3. Use the formula to determine the maximum amount you should spend to repair the car:

Value of Car In Good Running ShapeValue of Car Without Repairs = Maximum You Should Spend To Repair Car

So, to use our Subaru as an example, assuming the low end of the range for both the value of the car repaired and the value of the car not repaired, we determined that we should spend no more than $1,600 on repairs ($2,600 – $1,000 = $1,600)

If the cost to repair the car is more than the value calculated above, then you should sell the vehicle for salvage value. Then, take that money, plus any money that you have saved up for vehicle replacement, and pay cash for another vehicle. No car payments!

Even if the replacement vehicle that you purchase is not the vehicle you want to drive long-term, you can drive it for a short period of time while you pile up cash to move up in vehicle.

Given the age and mileage of the Subaru and the fact that we already have cash saved for another vehicle, we decided to repair the Subaru if the repairs were going to cost less than $1,000. We figured that $1,000 or less would buy us time to find the “right” vehicle for our next one.

Fortunately, we did not have to make a decision at all. Our mechanic determined that the Subaru was not yet on her last legs. Instead of a costly repair, he believes that a rock got caught in the insert name of auto part here (aren’t you impressed with my knowledge of auto parts?) and that caused the steering difficulty and odor. So we will continue to drive the Subaru, add to our auto replacement fund, and keep a lookout for our next vehicle.

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Category: Budget