How can you afford the cost of a new SUV?

[MajorFatal]

My experience is that owning a Denali XL is pretty reasonable all things considered (new big 4wd rig/warranty coverage etc). Crucially I was fortunate enough to pay cash. Ignores opportunity cost too. My wife is on her 7th rig this century and the last couple of cars cost to me works out like this.

Bought 19 model 9/18 for 71k
Traded it in 9/23 for 41k (65k miles)
Cost/Depreciation Total 30k/60mth = $500/mth

Bought 15 model 2/15 66k
Traded for 19 9/18 36k (80k)
Cost/Deprec 30k/44mth $666/mth

23 buy will cost more bc not buying on invoice/price increase.
Bought 23 9/23 85k
Sold 19 41k
Cost 44k vs 30kish before so hold for 4-5 years ($750-$900/mth)

So new model deprec probably equals interest/some principal cost these days?
Anyone else with examples to add to the sample pool?
Anyway YMMV

 

[swathdiver]

Hi everyone,

Apologies for the sort of asinine question. It's on my mind and this might be more of a way to convince myself to pull the trigger.

I'm looking at an almost brand new Tahoe for my wife and I'm having a hard time pulling the trigger. Outside of it not having captain's chairs (just posted a question regarding that), something else is knawing at me. I've never spent more than $40,000 on a car, and that was for a sports car before I was married and had kids. I know hyper inflation has caused a good bit of the cost, but some of these SUVs are costing 6 figures and I can't pull the trigger for something that costs as much as some people's houses. I make a good wage and I'm well in the middle class area of my income (around 120k). My wife works as well, but it's a negligible amount since it's only once a week typically. I don't want to go into our finances and I suppose I'm getting distracted from the question at this point...

We can 100% afford the car. Sure we'll have to cut down on some other luxuries but I suppose the question is, should we? With the exception of things like old project cars, cars lose their value and it's a quick slope to worthless. I live in a city where morons rule the streets. My car has been hit 4 times and has gone from perfect and superb where I took it to car shows to now, I don't care about it, it gets me from A to B. So I'm asking is spending around $80,000 for a car I know is only going to depreciate over time worth the sticker price.

I don't want to buy used past '21 mostly because I want the 3.0L for economic and maintenance purposes. Plus the used market is insane right now and seems like buying new is a better idea.

The Tahoe could serve your family for 10-15 years or more, it may be one of your children's first car even. Generally speaking, you can afford a car that is about equal to your annual salary. We generally choose to spend more on gas and maintenance with a used vehicles then buying new ones. While more fuel efficient, their monthly cost is so much more. Having said that, the previous K2 generation, while slightly smaller, are more fuel efficient than the new T1s.

Oh, my children do remember our vehicles. That's why I bought the Yukon, to make memories with them and they remember. Many of the fellas here recall their parents' trucks and the memories made with them. They are part of the family.

 

[todayusay]

One question I havent seen asked - what is the price point on the used Tahoe? If you're going to spend that much, have you looked at comparable new ones? $80k for a used Tahoe would be a tough one for me

Everybody has different perspectives most likely ingrained in them by their surroundings. My father in law takes pride in never having bought a new vehicle; even now when used is essentially the same price as a new one and in some cases, actually more. They bought a 2yr old Envoy last year for more than what new ones were selling for.

As far as affording what we drive, we don't take extravagant vacations and with a couple teenagers, pretty much live on the road putting 75k+ miles on 2.5 vehicles annually (Tahoe, accord and dually for hauling) Dually is the half because it may not move for 2 weeks and then we'll put 800-1k miles on it in a weekend.

We've always had the mindset that we were going to spend $500/month on a car payment and that payment would always be there. Just a fixed amount that is always budgeted to be there.

We've tried to keep a few of our vehicles to 200k plus and the next thing we knew, transmission needed to be replaced. Different times call for different approaches, used to be we'd trade every two years and we werent racking up the miles back then. Would usually come out pretty decent with little to nothing down when we trade and would keep the term manageable.

These days you will want to really do your homework on pricing as paying "too much" for one is a lot easier than it used to be.

Don't envy anyone starting out in this market, if you haven't bought anything since covid, the price shock is real.

will add that we also started off with a ford explorer for a couple cycles 20yrs ago and ended up trading into a LS Tahoe back in 04. It's been a tahoe/yukon ever since. Not sure how many more price increases we'll make it through

 

[mountie]

The Tahoe could serve your family for 10-15 years or more, it may be one of your children's first car even. Generally speaking, you can afford a car that is about equal to your annual salary. We generally choose to spend more on gas and maintenance with a used vehicles then buying new ones. While more fuel efficient, their monthly cost is so much more. Having said that, the previous K2 generation, while slightly smaller, are more fuel efficient than the new T1s.

For my wonderful 2005 Yukon XL, if I replace the engine and transmission, ..I just saved $70,000.

 

[martinajm]

The Jeep Cherokee XJ lasted from 1984 through 2001 in America without any major design changes, so no R&D for new parts was needed.

It's economies of scale. After you get done with R&D, then amatorize that over each vehicle. Figure in your fixed costs, and the discount of buying I'm bulk, that's the cost.

For a comparison: through a friend of a manager at the GM plant in Janesville years back (90's), the average cost of a SUV was $4500 to produce. Even back then when they sold for high 20'2 to almost 40k, the profit margin was enormous.

Another fact: BRP sells Evinrude boat motors to dealers for double the cost of manufacturing them. Standard procedure to make 100% profit minimum- circa 2014

I definitely understand the economies of scale and lack of investment, but I don't believe for a minute that you can get all the parts made, to a single location, and assembled for 500 - 750. Tires, Body Panels, Engine, transmission, differential, glass, paint, interior components... Oh, and the UAW wages to actually put them together.

There also is the overhead of operating the facility that all of this happens in

 

[mountie]

....... B-train.................................?

 

[B-train]

Again....this was a few years back, before Covid BS inflation. Let me get some more info to pass on.

But, all in all, companies aren't in business to give you or I a deal.....they are in business for the highest profit margin. There are LOTS of lazy shareholders that need a dividend check because they are entitled to it.....so they need to keep the 80k charade going

 

[Geotrash]

To the OP, you’re raising great questions. I’ve often wondered this myself. I’ll be precise and open about our financial situation to help you assess your own. At 53, retirement isn’t that far off. My wife and I earn $350K/year between us. We’ve been maxing out our 401K’s for many years and hope to retire at 65 with no mortgage or other debt but we have 2 kids to put through college between now and then.

When I was 44, I didn’t sweat spending $55K on a new BMW. It lost $35K in value in 5 years. If I had instead spent $25K on a car, that extra $30K would be worth $78K now based on what I’ve earned on my IRA accounts over that time. And that’s without factoring in the interest I paid on the note, or the higher insurance and property taxes on it in that time. With that, it would be upwards of $90K in my pocket now. Just for the privilege of owning a BMW instead of a Nissan for 5 years.

Now, I drive a 2007 Yukon XL Denali that I bought in 2018 for $9500 out of Arizona. It’s in showroom condition and I maintain it fanatically. I keep records and have spent less than $2000 in parts for repairs to keep it reliable over 40K miles. I do all of my own work on it so there is no labor cost. We take long road trips in it with 4-7 people including our 2 kids several times a year. It’s comfortable and I’d drive it anywhere.

We can technically afford a new Yukon, but in my view, knowing what I know about money now that I didn’t in my 30’s, the cost is far too high to justify. Today, I can haul 6 people and their stuff in comfort and safety with no worries. If I spent $85K on a new one, I could haul 6 people and their stuff in comfort and safety with some worries. The key was separating my sense of identity from what I drive, and reassessing what I need to feel like I’m doing well. That, and no longer comparing what’s in our driveway with what’s in our neighbor’s driveway, or at least looking at it through a different lens.

 

[DarthStig]

Darth,
I have bought plenty of new and used vehicles, with that said I've always put a heavy down payment and only finance for 4 years max. I find it hard to pay bank interest for longer than that when I can keep that $. When it's time for a new vehicle I always sell the old to private parties and have never done a trade in.

I think folks these days finance for 6, 7 or 8 years to be able to afford those $80k plus vehicles. I work in the corporate world for a construction company and see craftsman drive $100k trucks and smh and wonder how they pay for those vehicles. I know craftsman do get alot of overtime but even then why would you give up that hard earned money for that kind of luxury. I would rather spend time with my kids and family than working Saturdays & Sundays just to be like the Joneses.

Thanks for this. That is my rule as well (the large downpayment and no more than 5 years of finance). We could pay for the car outright, it just doesn't make sense to do so because it would hit our nest egg so hard.

 

[DarthStig]

It's a great question actually. Thanks for bringing up what a lot of people think themselves. My first house cost 105k and went up 40k in value. Buying something that depreciates like a rock is a poor investment.

My wife and I budget, pay cash for good used vehicles, and are 100% debt free. I will NEVER go back to payments again.....for anything.

If you're fine with good used and can see the value in a clean, dependable vehicle, there are many options available for 20% of 80k and will do the same stuff.

If you have to keep up with the latest screen size, gizmos, gadgets, dick extenders, etc, then the sensible used market isn't for you.

Theoretical idea: buy a nice used 2015-2020 tahoe, yukon, escalade from a salt free state. Invest $500 into rust proofing at a shop, or do it yourself for $100 and some labor. Take it to a reputable shop for an inspection and address any age/mileage related issues with genuine OEM parts. If it's big ticket items, put in GM remanned parts with a 3 year 100k warranty. You can rebuild a clean, newer used vehicle for a fraction of a new one, have the piece if mind of warranty as well.

Example: I found a 2018 Escalade for 14k. I missed it, but someone picked it up for 14k or less because the owner dumped it because of a lifter failure. A few thousand at a shop and you'd have a nice rig for 1/4 the price of a new one.

OK, I'm done on my soap box. Best of luck, but kudos for listening to your gut in the first place.

I appreciate the advice. I was really interested in the 3.0L diesel specifically for the low maintenance and the low-end pickup for my wife. I wouldn't mind a 6.2 if I could find it for the right price, but nowadays nothing is the right price...

Also, everything I know about the 15-20's the 5.3 was messed with and they're not the best engines with all the econo-gimmicks they added. Plus it's a bit gutless since the burb and tahoes continue to get bigger and heavier.