Motor vehicles today are more expensive than ever. You would think that it would be just the opposite since the economy is currently floundering. In 2006 Americans purchased approximately 16M new passenger vehicles. But not this year. Now it is more like 10-12M. Manufacturers have significantly reduced their production so there are fewer “leftovers” and other traditional bargain offerings. In fact, the dealer margin, not necessarily the msfp, on new cars now is higher than I can ever remember. Plus, most new car dealers don’t have enough used cars to meet demand. Correspondingly the prices of both used and new cars have significantly increased over the past two years.
It is always important to be frugal when making a car purchase. In The Millionaire Next Door, four types of millionaire car buyers were profiled [pp. 109-139]. I believe that this discussion is more relevant today than ever. Of the four types of buyers, one stands out as the most frugal and most productive in transforming dollars of income into dollars of wealth. On average their latest motor vehicle purchase represented less than 0.7% of their net worth. This group is referred to as the “used vehicle-prone shoppers.” Its members buy only used cars and/or are aggressive shoppers of vehicles offered by individuals as well as a variety of dealers, leasing companies, financial institutions, consignment companies, auction companies and agents, Internet listing sites such as Craigslist, etc.
Used vehicle-prone shoppers are extremely patient people. They are the most likely of all millionaire car buyers to take months to find the best overall deal. They never seem to be in a hurry to buy. In some ways, they are always looking for a deal. They are in a semi-searching/buying state all the time.
I recently received an e-mail from an engineering professor who is a used vehicle-prone shopper and is a multi millionaire next door type.
“I’m an outlier. . . about millionaires next door driving luxury cars. I drive a Mercedes Benz diesel. Did not buy it new. . .
As a college student I was hitchhiking around Europe. In Germany a fellow with a diesel Mercedes Benz gave me a ride on the autobahn at 200 k per hour. I loved the car and decided that I would own one someday. But from 1988 to 2008, I drove a 1981 Buick that was a hand me down from my uncle. Still ran well but was becoming impossible to find parts. . . .
I started looking for a car on our local Craigslist website. I kept coming back to a 1980 diesel Mercedes 300SD sedan. The owner wanted $5,000 in August of 2008. It did not sell. He kept listing it at lower prices. It still did not sell. By January of 2009, it was listed for $2,000 or best offer.”
Footnote: in Stop Acting Rich, millionaires (those with investments of $1M or more) paid the equivalent of only 1.4% of their investments for the motor vehicle they most recently purchased.
To be continued . . .