Buying a Car for B-School

For those who needs a car. Nissan is offering employee pricing on a couple of models, and great discount on others for graduate students. The offer lasts until June 30th, 2015. Graduate students are eligible for the program.

https://www.nissancollegegrad.com/nissan/

It's an affordable option for a warrantied vehicle. Great to have that peace of mind while at school.

It definitely does not matter what kind of car you have in business school. In fact, it never matters what kind of car you are driving! Consider this one of your first lessons in financial management. A car is a depreciating investment. My tip for buying a car. Buy something cheap, used, reliable, cheap to insure and pay in cash. No loans, no lease, nothing but cash. In fact, you might want to just invest in a bus pass to get around campus. You'll be moving after two years and a car is one less thing to worry about.

Well that's just not true. You can look at it from an economical standpoint or practical or what you want. Does it matter what laptop you have? Sure it does. Will it be fast enough to run the applications that are out today? Can you carry it around? Is it reliable? Same with a car. We have different needs and wants. If you follow this advice, you would always buy a Toyota Corolla that is 3 years old with less than 50k miles on it. But hey, the economics can work out in a variety of ways. You can buy a brand new one and get the extra use out of it from not having bought used. Because those miles not on odometer are worth something because it is more driving for you. And with all car manufacturers going with certified pre-owned programs and the uncertainty of buying from a private party, you can sometimes come out ahead by buying a new car as well if you know what you are doing and when to buy. Hint: March, November, December.
For example, here is a simple example. I bought a brand new car this year at $18k. I made sure to find every incentive and average discount. I got the lowest model on a sedan. A used car, same model, 3 years older, listed at $14k with 45,000 miles at the same dealer too. Is a new car, that I can drive an extra 45k miles work that difference of $4k? If I went with used I would essentially say that I am ok giving up those 45k miles for $11.25 a mile. That doesn't seem to add up. used cars are more profitable than new cars. New cars sell so low because dealers care about # of cars sold because of kickbacks from the manufacturers. Used cars is where the real money hides. A dealer is more willing to take a loss on a new car and will rarely take a loss on a used car.
Cars are depreciating assets. This is true. But do we look at everything in life that way? We want a shiny new car, we want new clothes, a new watch, a new TV. All these things depreciate. Should we buy everything used? Should we let new innovations pass us by? Of course cars are a lot more money than the previous examples but they are something we use and spend a lot of time in and so why not spend on yourself? Cars can be looked at by some as something to enjoy. To some it is their hobby, or their baby, or their present for their hard work.
Do you want to be comfortable? Sometimes being cramped is not fun and different cars feel different to everyone. I would be quite annoyed if I was in a car where I could not plug in my phone for my music/podcasts.
Do you want it to be safe? Newer cars have more safety features and are better for collisions. A bigger car will be safer. Do you feel safe in a Smart FourTwo? Many luxury cars have collisions detection standard now that will apply the brakes for you.
So I would say, consider reliable brands. Buy a Toyota, don't buy a Dodge and never buy a Land Rover. A lot of times luxury cars are about the brand because you can load up another car and still not come close to the cost of a Mercedes Benz.
In the end, you worked hard for something and if you want it, why not? Other wise you might as well go buy clothes from the co-op for your interview and eat McDonalds every day just because it is economical.
This comes from someone who used to sell cars. You learn a lot about the economics and misconceptions people have.

One thing to add is that depending on the cycle in the economy, used cars go up and down in price. Sometimes they are much cheaper than new ones, and sometimes, it is ridiculous (it also depends on the make and model - you can often find a used one that's a few years old at a significant discount because the body style or model style has changed).

The smart economics book I read said that the best (i.e. most economical investment is a brand new car with as few options as possible - such as Toyota Corolla, Honda Civic, etc for example). The logic was that it is the most economic option in the long run:
1. It has warranty so you are not going out of pocket for any break/fix
2. No tires will be needed for at least 2-3 years
3. You hare reliability so you won't be missing anything or paying for tow trucks
4. If you don't have a lot of options, it keeps the upfront costs low, allowing you to pay less and keep it way past the time you pay it off.

That sounded great in practice but in reality not everyone wants to to drive those types of cars with manual seats, manual doors/windows, and cloth seats. We as humans tend to splurge or want to get something fancier.

One thing about business school is that you won't likely put a lot of miles on your car - you will love close to school and unless you are planning to drive it cross-country for breaks or weekends, your mileage will be pretty low. Buying a new Toyota Corolla will be a tempoporary measure unless it is your dream car and you want to keep it for 10 years (unlikely). You are going to put 5K miles a year on it and it will take some abuse being on campus and rushing around, so you will take some value out of it. While the dealer may be able to sell a used car for $14K while listing a new one at $18, a private party is likely to fetch less (due to the risk you outlined and thus a trade in is likely to be less as well - perhaps $12K?). So the cost for you ends up being $6K over a 3-year period.

I don't know what current prices are for used cars - they keep moving around but there is a case for buying something used. Perhaps 3-years or perhaps 6. Make sure you get a carfax report and don't get an old cab or something like that. However, my suggestion would be not getting another loan for your car.

P.S. I did not have much money while at school, so I went the risky route - I bought a private party 10 year-old luxury car. Could not resist the allure and cheapness of it (Luxury cars really depreciate as the costs of repair are high). It ended up working out and I drove that car for 5 more years (it cost me less than 10% of the original purchase price and I did not have to put much money into it at all - the previous single owner took a great care of it and had all service records - an important indicator of maintenance and attitude people take towards their cars).

There are some strategies but they involve a certain degree of risk and trade offs.

Other options could include going with Uber, carpool, or car rentals. It would save you one more thing to worry about, and may also help you get more tips about the area, as these are also added opportunities to chat with locals.

Look forward to hearing what you went with. All the best!