The following guest post is from one of my favorite writers, Neal Frankle of Wealth Pilgrim. After reading the post, head over to Neal’s site and check out his free subscription options.

Let the Government go bail out somebody else.  It’s too expensive for you.

I’ll admit that I haven’t followed all the ins and outs of this program but I have two good reasons for not doing so:

1. I have a 1995 Camry that I love.  My two eldest daughters used it to get to and from high-school. I still have a ten-year old at home and my ultimate goal is for her to use it to get to high-school 6 years from now.
2. As long as I have a pulse, I will do everything I can to stop anyone I know from buying a new car.  It’s a complete waste of money in most cases.

So why am I bothering to write about this? Well, the subject came up over the weekend.  My daughter is thinking about getting a new car and “taking advantage” of the “Cash for Clunkers” program (with my beloved Camry no less!).  I’m dead set against it.

This program stinks worse than the junk you find when you clean out your trunk for one major reason:

It forces you to get rid of a very inexpensive mode of transportation and burdens you with a very expensive form of transportation.

An automobile is a device we use to move around.  That’s it.  It’s not a social statement or a tool to increase your self-esteem.  It’s a hunk of metal that moves you.

That being said, the question is, how do you get from point A to point B in the safest manner with the least cost. Right?  Am I missing something?

Let’s look at my Camry to illustrate the “virtues” of this program.  You tell me where I’m wrong.

Let’s take the first scenario where you trade in your clunker, receive $4500 and buy a new car.  What does it cost you to own that new car over the next 7 years?

A 2009 Camry (SE) costs a hair over $23,000 if you buy a new one.  Assume you buy it after turning in an old clunker, drive it for 7 years and sell it.  In this case, here’s how your numbers add up:

So, if you buy the new car, it will cost you about $1700 per year to own.  This is without the high cost of insurance you must buy when you own a new car.  It also excludes the jacked up price you paid for the new car because everyone wants one right now and it excludes the maintenance cost.  (I could not find good data on what it costs to maintain a used car.)

Now, lets assume you pass on the cash and drive your clunker.  Here’s what it costs you to own it per year:

This means you could spend up to $1400 per year on repairs and still save money vs owning a new car.  This assumes the car is safe and reliable for your particular needs.  In my case, my 1995 gem is perfect.

By the way, this analysis ignores the low cost for insurance for the used car.  No question about it, the clunker is better than the cash.

Will the clunker last another 7 years? Maybe not.  So let’s consider another alternative.

If and when my good old 1995 Camry dies, I’ll replace it with a 2 or 3 year old car.  It’s still going to be much cheaper than using this program.  Take a look:

I used the Toyota site to determine the new car prices.  I used the Kelly Blue Book site to get residual values. Again, this excludes the higher cost for insuring the new car but the lower maintenance expense. Buying used saves you $600 every year.

The bottom line is even with the clunker cash, it doesn’t make sense to buy a new car.  So just remember this, friends don’t let friends buy new cars.

Additional Reading:

• Cash for Clunkers Taxable?
• Cash for Clunkers Tax Rules

Over the weekend I took some time to complete a few finance tasks that have been stacking up on my to-do list for weeks. One of those tasks was to officially establish a car replacement fund.

Now that we have paid off our car, we recognize that it won’t last forever, so we might as well continue making “payments” to ourselves so we can pay cash for the next one. Since we have been in car debt our entire marriage up to this point, we are used to living without that $300-$400 we were sending to banks and finance companies over the last decade. Continuing to make a “car payment” to savings shouldn’t be that painful.

The Car Replacement Fund

As usual, I turned to ING Direct (read my ING Direct review) to handle my car replacement fund. I could get a slightly better rate with other banks, but the convenience of creating additional “sub-accounts” at ING, and seeing all my targeted savings accounts in one view, is key to my motivation.

We labeled the new account “Car Replacement” and scheduled a monthly transfer from checking for the exact amount of our most recent car payment (roughly $300). In just one year we should have around $3,600, plus a little interest. In two years we should be up around $7,500 – well within the range of replacing our car.

When the time comes we will sell the car via private sale, and put the proceeds with the cash in the car replacement fund. Based on an a depreciation estimate for our current vehicle, and the projected savings balance in two years, that should give us a solid $15,000 to look for a newer, used vehicle.

Over time we will continue this trend of upgrading every few years, but always doing it with cash. The schedule isn’t that much different than someone financing a new car, paying it off over 60 months and then financing a new one. Well, except we won’t be financing it from a bank – we’ll be using our savings.

I’m lucky; I’m not a “car guy.” I don’t drool over showroom models, and with only one exception, I’ve never really cared what I drove (there was that whole Isuzu Rodeo leasing saga). To me a car represents four tires and sheet metal with an engine to get you from point A to point B. It says nothing about who I am, my status, or my personality. Fortunately, my wife feels the same way.

Thanks to this utilitarian approach to car ownership, we simply look for the best value, not the sexiest design. Give me a beat up exterior with a solid engine and low miles any day. And driving that car without dragging a payment makes it just that much sweeter.

The July 1, 2009 edition of Bottom Line Personal, one of my favorite publications, included an excellent column on car maintenance tips. Columnist Eric Peters, author of Automotive Atrocities! The Cars We Love to Hate, shares his tips for maintaining cars and extending their useful life. As the owner of a 19 year-old vehicle, I appreciated the tips, and wondered if my vehicle would be in better shape had I read this several years ago when I first started driving it.

Five Maintenance Tips For Getting To 300,000 Miles

1. Keep your battery charged. This is especially important if you don’t drive your car that often. If you plan to let a vehicle sit for more than a couple weeks, you should invest in a “trickle charger,” or battery tender, which plugs into a regular household outlet and keeps your battery fully charged, automatically. I have a battery tender for my lawn tractor battery for winter months, and it guarantees a strong start in the spring.

2. Keep at least half a tank of gas in the car. Plenty of reasons not to let your car run on fumes, but one I had never considered before reading this article is that an empty gas tank is more prone to rust.  The rust can leach into your fuel and clog filters and fuel lines downstream. Rust could also eventually eat through your gas tank leaving a hole.  At today’s gas prices, who can afford for that to happen!

3. Don’t forget the tires. When you fill up your gas tank, or every couple weeks, whichever happens more frequently, be sure to check your tire pressure. If you drive an older vehicle like me you’ll need to pick up a tire gauge. Look at the label inside the door, or in your owner’s manual, to find the correct tire pressure for your specific model. Low tire pressure causes things like uneven wear on your tires and decreased gas mileage.

4. Change the oil. There is some debate in the frugal car owner world on whether or not you should change your oil as often as prescribed by car manufacturers (and those express oil-changing facilities). I’m no expert, but I think you should stay pretty close to the suggested schedule, only deviating a month or two, or a couple hundred miles. Peters agrees with me. Besides, a $30 oil change is much cheaper than a new engine, and if you are ultra frugal, you can even change your own oil!

5. Be kind to your clutch, and your brakes. If you drive a car with a manual transmission you know at some point you will likely have to replace the clutch. But you can extend the life of your clutch, and your brakes, by not riding either one for long periods of time, and by using your accelerator (or not using your accelerator) to coast a bit as traffic ebbs and flows.

Automobiles are becoming more and more expensive these days. In fact, next to buying a home, it is probably the largest single purchase most people will make in a lifetime. Use the steps above to increase the chances your vehicle will last well beyond your car loan, guaranteeing you many years of debt-free driving.

The House recently passed a Cash for Clunkers bill which aims to increase new car sales while getting older, inefficient ”clunkers” off the road. In exchange, participants can earn up to a $4,500 credit/voucher off the price of a new, more fuel-efficient car. Here’s why I don’t think it will work, and why I don’t plan to participate if it should become law.

Photo courtesy of dave 7

First of all, I think it is a mistake to create artificial demand for new cars by borrowing from taxpayers. I would much rather see the four billion dollars this program will likely cost be used to pay down some of our national debt, and let the creation of buyer’s incentives be left up to car manufacturers.

With unemployment still hovering around double digits (real unemployment is actually much higher), I doubt many people are going to rush out to buy a new car simply because the government is offering cash for clunkers. Environmental concerns aside, we’d be better off financially, continuing to drive our clunkers.

What if your so-called “clunker” is worth more than the value of the voucher? You might be able to get more from a straight-up trade in, or selling your vehicle private sale, than taking advantage of the cash for clunker offer. Of course, that option does not get the cars off the road, which is a close second objective of this bill–the first is to stimulate new car sales.

If you are on the fence about the cash for clunker program, perhaps the ever-increasing gas prices this summer will help change your mind. Do you think it is a coincidence prices are quickly approaching $3.00 per gallon?

This all reminds me of the $600 tax rebate checks, which had little effect (temporary, at best) on stimulating spending. When people are worried about losing their jobs, and already deep in debt, they are usually not in a spending mood. Any additional cash will be saved or used to pay down debt. I plan on keeping my clunkers, thank you very much.

Read more about the Cash for Clunkers program:

• Clunkers for Cash: Is It Even Worth It?
• 2009 Cash for Clunkers Program: Trade In Your Old Junker for Money
• Cash for Clunkers Taxable?
  

Here lately I have become a real road warrior.  It is rare for me to hit the road this frequently, but with my mom’s hospitalization I find myself traveling back and forth a few times a week to visit.  Thank goodness gas prices came down when they did! While burning up the interstate back and forth I found myself switching to cruise control during open stretches, and wondered if I was saving gas in the process.

Does Cruise Control Save Gas?

Because I am not the most mechanically inclined person alive, I turned to a popular, well-regarded source for automobile information.  The Internet.  Seriously, what can’t you learn about on the Web these days!  A quick search of Google yielded a few promising results, but one in particular stuck out.  Edmunds.com, the popular website for automotive consumers, had this to say in an article on tips for improving fuel efficiency:

“Using cruise control can improve your gas mileage by helping you maintain a steady speed, but only if you are driving on mostly flat roads. If you are driving in hilly terrain, using cruise control typically causes your vehicle to speed up faster (to maintain the preset speed) than it would if you were operating the accelerator yourself. Before you push that cruise control button, think about the terrain ahead.”

Makes sense to me.  In fact, one of the things I noticed when pulling the few hills I encountered along the way was the car held back a little on the downhill and lost momentum,  requiring more gas to pull up the hill that followed.  Had I disabled the cruise control I could have simply allowed the car to gain some speed and then coasted up the first half of the next hill.  Careful, a speeding ticket here will wipe out any potential savings!

Putting the Theory to the Test

Using a highly unscientific test, I filled up the gas tank and traveled my normal route maintaining about the same speed (65mph) all the way, but leaving the cruise control off.  When I arrived home I made a mental note of how much gas I had consumed–about 1/3 of a tank.  A week later I filled up again before setting off on another trip and set the cruise control to the same speed I had maintained manually.  When I returned home I had used just over 1/4 of a tank.

What does this prove? Well, without running more tests, I doubt very much, but it is interesting that I appeared to use up less gas when running with the cruise control on.  Of course there are several variables to consider such as traffic, weather (was I running the AC, or driving with windows down), wind conditions (a strong headwind could cause additional drag), speed (65mph was probably a little high for optimal fuel efficiency), tire condition, etc.  In the future I will probably take Edmund’s advice and use the cruise control feature during long, flat stretches of road.

I’d love to hear from someone who knows more about cars than I do.  Does using cruise control really reduce gas consumption?