It’s a view you hear all the time. Drivers compare the cost of a big repair—say, a $2,000 transmission replacement—with the resale value of their car, saying, “I’m not going to put $2,000 into a car that’s only worth $2,500.”
But this rationale for buying a new car isn’t always sound. With money tight, keeping the old one going might be a better option. The real issue is the cost of driving, not the value of the vehicle.
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In many parts of the world, people keep their cars going until they disintegrate. But in the U.S., late model vehicles are a status symbol, and many people refuse to tolerate any failure. This attitude can cost a fortune.
After a vehicle passes 100,000 miles or so, the repair bills generally start to come more often. While they are a headache, failing mufflers, alternators, belts and hoses should be chalked up to routine maintenance.
Bigger problems, like transmission failures that can cost $2,000 or more, often prompt the owner to buy a new vehicle. But repairs generally make more financial sense if you look at the cost of driving on a per-mile basis.
Assume your current vehicle is paid for, and that it and its potential replacement, a new car, have the same gas mileage and insurance cost.
If rebuilding the transmission for $2,000 gets you another 40,000 miles before other failures overwhelm you, the job will cost five cents per mile. Assume 40,000 miles is four years of driving.
Over four years, a new car will lose a third to half of its value. So a new, $24,000 car will lose at least $8,000 in value over that period, or 20 cents a mile. That’s four times the cost of the transmission repair.
