Douglas Johnson wrote:
> Mark Bole <m...@p...net> wrote:
>
>> Otherwise, I still recommend the "replace when
>> repairs are 50% of value" rule, it's easy to follow and pretty much
>> guarantees cash-flow payback in two years.
>
> Could you show me the arithmetic on this? I still don't see how the resale
> value of the car relates to the fix or replace decision.
>
> I drive a 1995 Ford Explorer worth maybe $1500. It is very dependable and has
> been averaging about $300 a year in repairs. A new replacement would be about
> $26,000. Why should a $750 repair bill make me trade it?

Who said anything about a "new" replacement? Not me.

How many miles do you put on it? Do you rely on it for your livelihood?
Can you afford to leave it in the shop at any old unexpected time, and
be without a vehicle for a day or two?

If I am spending $750/year cash for repairs to a $1,500 car, and I
replace it with a $5,000 car and reduce my repair bills by two-thirds
for the next seven years, then I am even or ahead.

(Incidentally, I don't think your example or my sample numbers above are
anywhere close to reality for the vast majority of drivers, but I don't
have any studies to back it up. There will always be the extreme
example of the miracle car that still runs like new twenty years later.)

Let's put it in analytic terms -- if repair cost and depreciation are
strictly straight-line functions of time, then it really doesn't make
any difference how long we keep the car. But everyone seems to agree
that the rate of depreciation is high up front and then slows, and I
would argue that repair cost is the converse -- more growth on the back
end than the front end. Therefore there must be a point of diminishing
returns where the ever-decreasing benefit of holding on to the car
longer finally becomes less than the ever-increasing cost.

If you agree, where do you think the point is? I think it's a lot
closer to ten years than fifteen.

-Mark Bole

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