Thursday, July 12, 2012

I Bought A New Car

I've put off this post because I expect very little support from the personal finance community. My recent purchase may even make me the recipient of some derision. And that derision may even be justified.

But I'm not here to share only my most fiscally conservative financial decisions. So here goes.

I don't splurge often - usually I wait until I really need something - but when I shop I tend to spend big, particularly as my discretionary income has grown. I keep things for years, including cars and clothes and homes, but when I am faced with the necessity of a new purchase I tend to get the best I can afford.

My last car was a relatively conservative one in every way - it was a Volvo sedan, known for safety and reliability. It was the perfect image for a responsible young banker to be riding around portraying. In addition I bought it used, paid for it in cash, and held onto it for about 6 years.

Then I had a car wreck and totaled it.

So clearly this was a "need a car" situation. I have never been really into cars, and I was more or less content with my 6 year old Volvo. I was especially content whenever I remembered that I didn't have any car payments to make and that my monthly gas bill was under $80. But the car had started requiring more frequent and more expensive service visits, so I had started to vaguely consider an upgrade.

The decision was imminent. I had very little time to mull it over or consider the options. And I procrastinated until the final hour. I dreaded the purchase, to be honest. I was sad about the huge check I was going to have to write, and I resented the fact that I'd probably spend tens of thousands of dollars on an item that would bring me little more joy or use that my old car did.

My mother drove me back to Dallas after Christmas and planned to stay for 4 days, during which time I had to buy a new car or be stranded when she left. We spent the first day furniture shopping and cleaning out my condo; the second day I had to go to work. Finally I did some brief internet research on "how to buy a car." The Motley Fool has a detailed and helpful, if somewhat outdated car buying section.

First I made a list of everything I needed to use the car for: getting to and from work, meeting clients and colleagues for lunch/happy hour on a daily basis, running errands, and driving my dogs home for the holidays once or twice a year. That's pretty much it.

How I Chose A Car Type
I then made a list of all the types of cars and compared my needs to their features. I ruled out truck and minivan because I don't need that much space or cargo room. I ruled out SUV even though I really liked some models because I figure if I do end up having kids I'll probably drive an SUV for the entire second half of my life so there's no need to start just yet - plus they use more gas and are more expensive in general. That pretty much left sedan and coupe and convertible. I don't like convertibles, so I had pretty much decided upon another sedan.

I decided my goal was to find a 2010 or 2011 sedan for around $40,000. I had no idea how realistic that price range was at the time, but it seemed reasonable to me.

How I Picked a Brand
I wanted a luxury car for several reasons. Primarily, I need a nice car for my job. I work with wealthy clients and though I rarely transport them I often meet them at high end restaurants and hotel bars. I have to represent myself and my company well by displaying an elegant, refined image of success - and though you don't need a wildly expensive car in order to do that, of course, it would not do for me to putter up to the valet line at the Ritz in an old beater. It's important enough to my employer that I drive a nice car that my new compensation package includes a $500 a month car allowance.

Of course I also wanted to drive a nicer car that I previously owned (my income has more than doubled since I bought my Volvo, after all), and most of my friends and colleagues drive luxury brands and I won't pretend that I don't like to fit in. I was also conscious of the fact that this may well be the last car I ever buy without having to take children into account, so even though I'm very young this may be the most luxurious, selfish indulgent car purchase I'll have the opportunity to make - at least for a few decades.

I was considering, therefore, purely off the top of my head, the following: Mercedes, Lexus, BMW, Audi, Infiniti, and Acura. I'd have considered Volvo too, but I'd been driving that brand for 10 years and wanted a change. I know some of them are nice, but I just wasn't going to consider a Honda or Ford or GM, or Toyota. Jaguar and Cadillac and Lincoln seemed too mature for my age.

I ruled out BMW and Lexus because - and I know this is going to sound snobby - but they are too ubiquitous in Dallas. It's what every 16 year old drives. Acura was a bit too sporty for me...or too hard/angular if that makes sense. Infiniti was a front runner but I don't love their bubbly looking recent models. So that left Mercedes and Audi. Some of my best friends drive Mercedes though, and I didn't want to seem to compete with them by buying a slightly better or similar - or lesser - model of that car.

So Audi was the finalist, by elimination of all other options. No one I know has one, they are nice but relatively rare/unique, and I figured I could find a slightly used one in my price range. I'd feel comfortable pulling up anywhere in it, and it would last for years.

How I Picked a Car
So my mom and I drove over to the Audi Dallas dealer on the third day. We HAD to buy a car that day (we had a full schedule for her last day), and I was panicked that I wouldn't find anything I liked, that I'd worn out all my negotiating skills with my old and new employer, that I wasn't nearly informed enough to buy a car yet, and that I'd regret my eventual purchase.

My mom was cheerful and confident and told me if I was anything like her that I'd buy a car in 45 minutes and then we could make it back over to the furniture store to pick out a rug before lunch. I rambled anxiously about what an important decision this was - how you really make or break your finances with these big purchases, how this single decision was more important than years of trying to minimize smaller budget categories such as dining out and shopping.

She agreed of course, but as I was explaining how much depreciation you save by buying even a slightly used car, she mused that "there was just something about" having a new car. I slumped in my seat and sighed.

We arrived at the Audi dealer and slowly circled the lot, getting the lay of the land. I couldn't even tell which row was new and which was used, but luckily we ended up stopping in the used area. The sedans seemed quite small and plain (though gorgeous of course), and nothing had price tag stickers. Looking at the small row of coupes next to the sedans, I was drawn to the coupes - particularly one metallic grey one. It seemed more spacious, oddly, as the body was nearly as large as the sedans'. And it was SO streamlined and pretty and sporty. The sedan looked like a Honda with an Audi label stuck on it. I dreaded spending so much money on that car just for those four intertwined circles on the back.

I expected a salesman to come rushing out to us as we peered into the windows and circled the car, but we had to go inside to inquire for service.

The Rest Was History
Let me stop here and acknowledge that I know - and knew - that I was going about this purchase ALL WRONG. I was getting swept up, wasn't asking all the right questions, hadn't considered all the options, should have put the Audi dealers up against each other and spent weeks test driving and researching, and so on. Truly I was open and ready to just get sold.

And so I did. The salesman really did seem genuine and honest and non-salesy (he had just had a new baby and I think he was sleep deprived and a bit rusty, which was just fine with me). He followed us out to their small lot and over to the coupe I'd identified, repeating which model was which as I inquired down the row. Even he had to look up which car was what year since the body styles stay so similar. When I expressed a surprising fondness for the coupe he suggested I hop in and take it for a spin, and so I tentatively did. He brushed me off when I asked if he needed my license or insurance or me to sign anything; we just hopped in and drove. He explained the features as I floated around town, by my house, and back to the dealership.

I was very surprised when he said the price was around $53K - for a 2009?! I told him if I was going to spend that kind of money then I'd want to buy new. He went into some details about how Audi controls supply so that there really isn't much depreciation on their models, so that they really retain their value over time. I debated him a bit on that point, but it did seem true enough based on my internet research and the prices of their used cars. And I really did love that car.

Then he decided to mention that I'd selected and been test driving the Performance series coupe - a suped up version with the same body style as the A series but with a much higher performance engine. They run about $25k more than the A series coupes even though they look the same - and the insurance and gas is much more expensive too. Well that was welcome news. I didn't need or even want high performance.

The problem is they didn't HAVE any used A5 coupes. They are scarce. He said they were desperate to have more pre-owned vehicles but that even when leases were up lately, people have loved them so much that they are tending to refinance their leases with Audi - which is very unusual. Of course I recognized this as sales-speak on some level, but what he said is more or less true.

They did have a couple of brand new ones at $47,500 - which was significantly less than the 2009 one I'd been eyeing. But they only had white. I explained that was the only color I really didn't want, so we went inside to see if other dealers might have one.

He scoured the entire south and southwest region and came up with 3 other A5s - all in a different color than white and all also right at $47,500. He said honestly there wasn't really wiggle room in the prices on the new ones, especially since they were transporting them in from other dealers and because there were so few available. He also said it really didn't matter if we paid cash or financed because they get paid in cash within a day or so either way.

I chose the one with fancier tires and a better sound system (there were only a few differences between the 3 cars, such as interior color and seat shape). He got the order in just before they were cutting off dealer transports for the remainder of the year, he got me the paperwork to sign, and he told me to come back the very next day to pick up my brand new car. So technically I bought it sight unseen. And technically I never even test drove the model I purchased. And technically I paid full price without even attempting to negotiate.

And yet I walked out of there beaming, thrilled with my decision.

I rationalized that I'd rather spend $50K on a car that I LOVE than $40K on a car that is simply filling a basic need. That's my story and I'm sticking to it.

PS - I debated whether to pay cash or finance it, but I went ahead and financed $35K of the price at 3.5% so that I can wait until all the dust settles for me financially. In other words I wanted to collect my severance check, start my new job, and deposit the gift from my mother/grandfather which wasn't yet in the bank.

I was planning to just pay it off within the next few months, but now I'm wondering if I should use my cash to pay down some other debt at higher interest rates instead (like one of my rental mortgages). After all 3.5% is pretty good as far as rates go, and I have mortgage loans which vary from 4.75% to 6.8%. We'll see; I'm not going to worry about it for now.

But it is really weird to have a car payment of over $700 a month - which happens to be more than $100 more than my homestead mortgage payment!

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