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by Gary North, Ph.D.
I learned my lesson with that Toyota. It had a defective engine. At first, it ate a quart of oil every 1,000 miles. That was too high. The dealer's chief of repairs refused to fix it. He said it was all my fault. Then the engine blew up, just after the one-year or 12,000-mile warranty expired. (That was back when the auto industry had not figured out that by offering extended warranties tied to regular servicing, the dealerships would make more money.) I had to pay over $100 - $500 in today's money - to get it fixed. The repair lasted less than six months. It blew up it again. It did this three times. The last time was in March, 1974. I remember this because UCLA's basketball team lost in the semifinals to North Carolina State. I saw that game on the road, waiting for news about my dead car. The local dealer in that distant town admitted that Toyota had issued a bulletin: This model's engine was defective. The dealer fixed it for free. He said the engine would be like new. It was. I never paid for another engine repair. That was at about 24,000 miles, as I recall. I got rid of the car at about 170,000+ miles in 1987. I learned from that experience that you can buy a new car and still get a lemon. You can buy from a dealer, yet still get stiffed by the dealer's repair manager. I have never bought another new car. I have never regretted this. MY LATEST EXPERIENCE Early last year, I bought a 1999 Chrysler van for my wife. It had 95,000 miles on it. It was spotless. I paid $6,700. I bought it from a private party. I find that you get better deals this way. You pay for the car, not the dealer's overhead. After a test drive, I did not argue about the price. The seller said something that persuaded me to buy the car. He said that he would have to sell either the van or his wife's car, and he did not care which. This meant that he was happy with the van; he just needed the money. I believed him. I am glad that I did. The car has run flawlessly. At $6,700, I did not have to get a bank loan. A lot of Americans would have had to get a loan. They have no savings. This fact impedes many buyers from competing effectively with me. I am ready to buy immediately. The typical used car buyer must first go to his bank and arrange a loan. A seller wants money right now. A buyer who is ready to drive with the seller to the bank and hand over a cashier's check is in a strong buying position. I own a 1993 Dodge Grand Caravan van that I paid $2,300 for in 2002. It had 125,000 miles. I have had to get three repairs: replacement shocks, cv joints, and a replacement right front axle. These repairs have cost me an additional $2,000 or so. I could probably sell the car for $1,500. So, I'm $3,000 in the hole. But I have put on 37,000 miles. That's about 8 cents a mile (not counting gas). In 2006, the IRS per-mile deduction for business use of a car is 44.5 cents. I have beaten that by a long shot. I'm thinking that I would like a 2006 Toyota Sienna. And I might even buy one ... in 2010. But I am not paying $30,000 for a new one this year. THE MINDSET The mindset of the rich man who has made his money on his own is to cut expenses to the bone by buying high-quality goods from high-salary people who have lost their jobs or who get into so much debt that they have to raise money by selling off their nice things. You buy what is in effect the other guy's mistake. You pay half or less of whatever he paid because he is selling under pressure, or selling out of boredom with whatever it is he bought. This is the only way to buy exercise equipment, for example. The downside of this mindset is that it gets more and more expensive as your income rises. Your time gets more valuable. But I have found that this mindset keeps paying off because, when you buy high-ticket items, your eye for a bargain is still operational. The mindset of not paying retail applies to everything. CASH ON THE BARRELHEAD A check talks. A cashier's check talks louder. Currency talks loudest of all. All three are instantaneous. The seller doesn't have to wait. A seller who cannot afford to wait is a motivated seller. A motivated seller will take less than the listed asking price. I have money in reserve so that I can deal with motivated sellers. Let's get back to that used Toyota Sienna that I would like to own. I can go to the local newspaper and sign up to have an e-mail sent to me whenever a classified ad appears for a Toyota Sienna. That's a very nice feature. I can monitor prices this way. I'm looking for one with over 100,000 miles. Why? Because a Toyota will go for 250,000 if I care for it, mainly by changing the oil every 3,000. After 100,000 miles, most buyers refuse to buy without being offered a steep discount. I love those words: "steep discount." So, I'm willing to take a chance with a Sienna with 100,000+ miles. I might do the same for a Honda Odyssey. There are not many Siennas offered for sale. I know that I must be patient. If I want to buy a clean used one, I will have to wait. Then, when it comes up for sale, I must be willing to act fast. That's where cash comes in. Will I really buy one? Probably not. The larger Dodge and Chrysler vans are really as much as I need. I just want to get from here to there and back without anything breaking down. CONCLUSION Do you budget your spending? Do you allow yourself very little leeway when buying anything that is not on your shopping list? That's what millionaires do. I am not speaking of multi-millionaires who inherited their wealth. I am speaking of those who created wealth. They created it with entrepreneurship. But they had to possess capital to get started. This is why they are self-disciplined budgeters.
Dr. Gary North earned a Ph.D. in history and is one of America's keenest economic analysts and commentators. He supports the Austrian school of economics and is a previous assistant to libertarian congressman Dr. Ron Paul. Visit his website at http://garynorth.com. To subscribe to Gary North's Reality Check go to http://www.dailyreckoning.com/sub/GetReality.cfm If you enjoyed this essay and would like to read more of Gary's writing please visit his website at http://www.garynorth.com or http://www.freebooks.com
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Resource Center Main Page & Index |
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I
learned not to buy new cars early in my career,
when I got my first full-time job in 1971. I bought
my first and only new car: a 1972 4-door Toyota
Corolla. I paid $2,200 - about $10,000 in today's
money. These days, a comparable entry-level new car
is in the $11,000 range, and a five-year loan is
commonplace. I bought it with a three-year bank
loan.
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