 Driving
for Dollars: Few can afford new car
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Do you have $1 million?
No? Then you shouldn't be buying a new car. That's the somewhat
Draconian view of financial author and talk-radio host Dave Ramsey.
Ramsey's point is based on the depreciation that
comes with buying a new car, which usually runs about 30 percent of the sticker
price. With the median vehicle prices for 2007 hovering about $27,000, that means
a buyer loses about $8,500 from the start. So are you rich enough to just kiss
off $8,500? Ramsey and other conservative financial analysts think that only folks
whose net worth approaches $1 million can afford to fritter away that sort of
change. Money magazine recently suggested that, as part of
a plan to save $1 million, people simply cut $10,000 from the price range of the
cars they buy. Assuming someone buys 12 new cars over a lifetime, that move would
put you $120,000 closer to that $1 million goal. The problem, some argue, is that
buyers have become focused on monthly payments, not on the true cost of buying
a new car, and their financial priorities are out of whack. By some measures,
no one should be spending more than 15 percent of their take-home pay on car payments. If
we all took that advice, the auto industry would go into a nosedive. Based on
the median U.S. household income ($46,242 in 2005), 15 percent of take-home pay
would mean a family could only afford payments over three years that would support
buying a car costing only about $13,000 -- less than half the current average
transaction price of $29,400, according to the Auto Affordability Index compiled
by Detroit-based Comerica Bank. Nonetheless, it's sound advice
to suggest that before people go shopping for a new car they need to take an honest
look at what they can afford, especially if the only way the payments work is
by taking a lease instead of a purchase.
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If you have a question for Terry, e-mail him at Driving
for Dollars. |
