I must say any and all spending on automobiles is frustrating for me.  If we’re not wrestling with high gas prices, something needs repair.  To be frank, automobiles are money traps, in my opinion.  Much of the time, we can’t live with them and we certainly can’t live without them!  Unless you live in a city with widespread public transportation, chances are you have a least one automobile in your family and perhaps two. 

I’ve tried to think about how we can have one less car in our family, but given our particular situation, it just isn’t possible.  Therefore, we’ll continue to buy used and try to implement as many of the below money saving strategies as possible.  So, let’s look at some ways to save money and control spending for the transportation (automobile) category of the budget.

10 Strategies for saving money and controlling spending on transportation (automobiles)

Buy used and resist the temptation to buy new

Certainly, you’ve heard or participated in the debate over used versus new.  The bottom line is buying used is the cheapest of all options per a study at Edmunds.com.  If you’re a money saving soldier, forget about leasing and never buy new.  Studies have proven that used is the cheapest option.  You can find plenty of used, nice, reliable and clean cars.

Don’t lease

To continue the strategy from above, leasing is the path to the most expensive car expense.  I recently wrote about leasing a car and have concluded this is not a wise money saving route to take.  If you’re interested in a monthly car payment (forever!) leasing is going to be for you.  But if you want flexibility, desire to someday pay cash for a car, and want to minimize your car expenses, you will avoid a lease like the plague.

Find a trusted mechanic

I’m car maintenance ignorant!  Okay, not so much as I know my car needs to have a regular oil change., but that’s about it.  :) But if you’re like me, I don’t have a clue when it comes to the technical details of car repair.  All I have going for me when speaking to a mechanic is my tolerance for the price tag of the repair.  My response to a high quote:  will it still run, for how long and is it safe?  Okay, so this is all the more reason to stay away from high priced dealership mechanics and find and build a relationship with a neighborhood mechanic you can trust.

Stay current on oil changes

As I said, I do know my cars need oil changes.  My dad has always told me, “if you do nothing else, make sure you get the oil changed.”  Personally, I don’t change the oil every 3000 miles as some quick services will suggest.  Rather, I change it every 4000-5000.  Write or wrong, I’m changing the oil (as I should) and saving money with less frequent changes.  I suppose it also depends on the purpose for the automobile.   I may choose to have the oil changed sooner than later if we’re going to be traveling out of town or making a long road trip.

Drive a car long after it’s paid off

So, interested in saving big bucks on transportation or automobiles?  By used (rule #1) and then drive it until the wheels fall off (rule #2).  Don’t drive a car when it’s unsafe, but you should drive it until its useful life ends.  I don’t think there is a hard and fast rule of when the useful life ends, but use good judgment.  It boils down to asking yourself whether or not you need a new used car.  As a side note, for big items and small items, ask the question often when considering a purchase.

Purchase high value automobiles

Consumer reports released there annual cars edition.  An article I particularly found interesting had to do with buying the car that provides the most value.  How is value defined?  The lowest purchase priced vehicle doesn’t always provide you the most value.  Essentially, you want to find a car that performs the best for the least amount of money.  One of my favorite cars for high value and moderate cost is the Honda Civic (that’s what I drive).  Check out the issue to learn more.

Don’t finance more than 4 years

If you’re in a situation in which you need to finance a car, certainly, try to find the best deal by shopping around.  CarMaxis a pretty good place to find no haggle reasonable prices on automobiles.  But whatever you do, avoid financing 5-6 years.  Agghh!  What might seem like a great deal at the time, certainly won’t feel like a great deal when you’re still making payments that long.  I’m a strong advocate of buying high value used cars at lower prices and eventually save up to pay cash for newer models.

Shop around for car insurance

Don’t automatically accept the first quote you receive.  Insurance rates differ between providers, so it pays to shop around.  You can also save money by bundling home and auto together.  But consider more than these tips.  My friend PT at ptmoney.com provides 20 tips for a more affordable auto insurance policy.

Consider dropping collision

I picked up an interesting tip from Crown Financial Ministries worth considering.  If you own a car more than 4-5 years old, you might consider dropping the collision coverage. Collision covers damage to your vehicle resulting from a collision with another vehicle or object.  If your car is older, chances are the additional coverage may not be worth paying, if the cost to fix the car is more than the car is actually worth.  Wisebread.com provides a good overview for making the best decision.

Improve your gas mileage by keeping your tires inflated properly

So, an old trick from my dad I try to follow is keeping my tires aired up a little bit more than the minimum.  Honestly, I can’t say whether or not this for sure improves my gas mileage and I’ve never measured the difference.  But, it’s one of those things that has been stressed by dad in the past and I’ve just tried to follow his wise advice. 

I will also mention tire replacement can be quite expensive depending on the type of vehicle you drive.  It’s known that lower pressure in tires wears tires out faster.  So, in my mind, this is all the more reason to check your tires regularly and keep them a little bit above the minimum requirements.

Final thought

Probably the biggest way in my mind in avoiding large automobile expenses is to look at other opportunities for transportation such as using public transportation.  While this may not be an option for everyone, public transportation, if availble, can provide big money and time savers. 

As I mentioned, I’m far from an automobile expert.  What do you think of these money making strategies and do you have any other ideas you can share to save money and control spending in this area?

Rather, the question we might consider asking is which option is a wiser decision from that of a financial steward’s perspective?  This perspective is focused on managing that which belongs to God wisely.  In this case, the resources being managed is the money required to meet the costs for a car or transportation.

We can answer the question better if we look at the pros and cons of both approaches and consider them next to each other.  Then, we’ll look at a summary from the results of analysis conducted by Edmunds.com.

Pros of leasing versus buying a car

Less cash

There is typically less money tied up in a lease.  You typically only need cash to pay the leasing fees.  Whereas buying a car typically requires a larger cash outlay for a down payment.

Depreciating asset

Leasing provides protection against a depreciating asset.  When you buy a car you own a depreciating asset which loses it’s value over time.

Lower payments

Sometimes there are lower monthly payments depending on which type of car you choose to lease.  Buying a new car is typically more expensive each month because of the payments and finance charges.

Cons of leasing versus buying car

Fees (early termination)

You may receive early termination fees if you decide to turn your car in before the lease ends.  When you buy, it’s your car until you decide to sell it.

More fees (wear and tear)

You have to pay fees for excess mileage or wear fees when you lease.  These can add up depending on how well you take care of your cars.  Obviously, you don’t have to worry about these extra fees when you buy a car.

Car payments forever

You’ll always have a car payment when you lease.  At the end of your car loan, however, you’ll be able to do with the vehicle as you wish.  You can continue to drive it or resell it.  With savings and what you receive from your car, you may eventually be able to work up to buying a car with cash.

Equity

Once a lease has run it’s course, you’re not left with any equity.  In buying a car, it will most likely have some value when you’re done with making all the payments.

Which approach saves more money?

If you’re interested in saving money, buying a car is definitely the best option.  According to an analysis at Edmunds.com, buying a car whether it is new or used  is more economical than leasing a car.

They did an interesting study in comparing the costs associated with buying a new car, used car, or leasing.  The used car scenario looked to be the best, leasing came in second  and buying a new car appeared to be the most expensive initially.

But, the study points out the people who bought cars own them and can benefit from the value in their cars.  They can benefit by continuing to drive them or reselling them. The person who leased the car had no equity. So, once they figured the value of the cars back into the new and used car costs, a different result was revealed.  Leasing became the most expensive in the long-run!

Final thoughts

In my opinion, deciding to lease versus buy boils down to whether you’re interested in saving money, or  focusing on managing your resources as wisely.

But some will still argue they want to lease because they enjoy driving new cars, they will just plan or budget a car payment forever, or they don’t have to worry about car maintenance.  These are silly reasons to lease considering the amount of money lost over time.

Many people are looking to minimize the money they spend on cars each month to contribute towards their financial goals.  Believe me, it is a great feeling to pay off a car loan and know that you can repurpose that money to save towards emergencies or build a car fund to one day purchase a car with cash.

What do you think about leasing versus buying a car?

The press release from the Department of Transportation touts the success of a program that stayed within budget, took fuel inefficient vehicles off roads and stimulated the auto industry with new car sales.

The CARS program came to a close Tuesday night with nearly 700,000 clunkers taken off the roads, replaced by far more fuel efficient vehicles. Rebate applications worth $2.877 billion were submitted by the 8 p.m. deadline, under the $3 billion provided by Congress to run the program.

This is a win for the economy, a win for the environment and a win for American consumers, Secretary LaHood said.

Final rankings for Cash for Clunkers

The final rankings from the program were also released with Toyota Corolla and Honda Civic leading the pack in new cars purchased.  Pickup trucks and SUVs led the list of trade-ins.

Top 10 New Vehicles Purchased

1. Toyota Corolla
2. Honda Civic
3. Toyota Camry
4. Ford Focus FWD
5. Hyundai Elantra
6. Nissan Versa
7. Toyota Prius
8. Honda Accord
9. Honda Fit
10. Ford Escape FWD

Top 10 Trade-in Vehicles

1. Ford Explorer 4WD
2. Ford F150 Pickup 2WD
3. Jeep Grand Cherokee 4WD
4. Ford Explorer 2WD
5. Dodge Caravan/Grand Caravan 2WD
6. Jeep Cherokee 4WD
7. Chevrolet Blazer 4WD
8. Chevrolet C1500 Pickup 2WD
9. Ford F150 Pickup 4WD
10. Ford Windstar FWD Van

Debt stimulated by the program

Financial gurus like Dave Ramsey are less pleased with the results.  There is concern because of debt stimulated by the program for people who can’t afford a new car loans and the program will have to be funded by the American taxpayer.  Here are some of Dave’s final thoughts.

The Cash for Clunkers program was designed exactly for people who should not take advantage of the program. You trade your $2,000 clunker in for a brand-new, shiny $20,000 car, and the only way you can afford it is with a high-interest payment. That just means you really couldn’t afford it to begin with. Doesn’t this sound like the sub-prime mortgage problem all over again?

Another bad thing about this program is that we, the taxpayers, are paying for the new cars! It’s morally wrong of the government to take money away from us—against our will—in the form of taxes and give that money to someone else to buy a stupid car they can’t afford in the first place! This is theft, plain and simple.

Cash for Clunkers is a program that redistributes wealth in the name of the environment, and it’s going to be a curse on the car dealer and the manufacturer that carries the paper. It’s going to hurt the broke person who bought a car he couldn’t afford. And it’s already a problem for our country, because it’s adding dollars to the national debt.

I think Dave Ramsey’s words accurately describe my final thoughts as well.  I knew I couldn’t be a fan when I first learned about the program. 

The economic recession has been difficult for many Americans.  Not having cash emergency savings and debt have compounded the problem.  I can’t understand how a program that stimulates more debt for Americans and our government can be a good thing.  As personal money managers, we need to look at these programs wisely (there will be more) and apply a simple litmus test of debt or no debt before deciding to press forward.  Our government, should do the same.

What are your final thoughts on the Cash for Clunkers program?

Not sure, but I think most dealerships are closed on Sundays (maybe some are open for this deal?), so that only leaves Monday.  I’m sure today was a huge day for the program with everyone quickly evaluating their car against the criteria for trade in. 

And how many auto sells are reported from the Cash for Clunkers program? 

Last I saw there have been 457,000 dealer transactions ($1.9 billion in rebates) and that was from an article on Friday.  It’s great auto sales are back up which obviously means production must increase to keep up with the demand.  What happens when the supply is less than demand (at least for an interim period)?  Yes, the price of vehicles climbs up as well. So be careful you last minute shoppers and determine if that new car you’ve been considering has gone up in price.  Your cash for clunker rebate may not stretch quite as far.

Downsides to the Cash for Clunkers program

With any program there are some downsides.  Again, happy to see some boost in this area of the economy as has been reported, but with a lot of dealer transactions, there must be a lot of new car debt.  So another thing to consider is the debt that comes with owning a new car.  You may have been driving a clunker, but did your clunker come with a monthly car payment?  Sure, clunkers come with a price.  They have maintenance, but in the end, I guess you have to decide how the price of maintenance (when broken down each month) on a clunker compares with carrying new car debt. 

Here’s a good read on the subect.  Christian PF posted When should you replace your old car?

What do you think of the Cash for Clunkers program?

Side benefits to Cash for Clunkers

Most of us have been focused on the news around trading in clunkers and the auto sales industry, but interestingly enough others are benefiting from the clunker program.  The clunkers are required by the government to be disposed of after the trade, so the inefficient vehicles are kept off the road.  How might this occur?  Apparently, sodium silicate is an approved chemical used to destroy car engines. 

Sodium silicate is the designated agent of death for cars surrendered under the federal cash-for-clunkers program. To receive government reimbursement, auto dealers who offer rebates on new cars in exchange for so-called clunkers must agree to “kill” the old models, using a method the government outlines in great detail in its 136-page manual for dealers: Drain the engine of oil and replace it with two quarts of a sodium-silicate solution.

The heat of the operating engine then dehydrates the solution leaving solid sodium silicate distributed throughout the engine’s oiled surfaces and moving parts, says the National Highway Traffic Safety Administration publication. These solids quickly abrade the bearings causing the engine to seize while damaging the moving parts of the engine and coating all of the oil passages.

Learn something everyday, huh?  One man reported he typically sells 200 gallons per week, however, last week he sold 15,000 gallons.  It’s amazing how this program, or any for that matter, can spark other areas of business and spending. 

Anyone thinking about going into the sodium silicate business?  Seriously, if you watch markets and pay close attention, the next opportunity may just be around the corner to use your talents and serve others in some area of need.

WASHINGTON (AP) — The House of Representatives voted Friday to rush $2 billion into the popular but financially strapped “cash for clunkers” car purchase program, heeding calls from U.S. consumers who hope to keep taking advantage of the trade-in incentives.

The bill was approved on a vote of 316-109. House members acted within hours of learning from Transportation Secretary Ray LaHood that the program was running out of money.

Where does the $2 billion come from to accelerate this plan again?

House Majority Leader Steny Hoyer said the new money for the program would come from funds approved earlier in the year as part of an economic stimulus bill.

What’s next?

The Senate was not scheduled to vote on Friday but lawmakers hoped to win approval for additional funding next week.

Sen. Carl Levin, a leading Democrat, said the administration assured lawmakers that “deals will be honored until otherwise noted by the White House.” But he suggested that “people ought to get in and buy their cars.”

Update: 

I learned on CNN news this morning (8/1) car buyers are being advised not to close anymore deals until the fate of the program can be decided next week.  The government is denying claims the program ran out of money.

I’ll try to keep the post updates going as I learn more.

It appears the Cash for Clunkers program is hitting the brakes just after a few days.  Reportedly, the program has run out of money because of so many people trading in their clunkers for cash.

Cash for Clunkers in the Wall Street Journal

White House officials and lawmakers were studying late Thursday how to keep alive the government’s cash-for-clunkers incentive program because of concerns the program’s $1 billion budget may have been exhausted after just one week.

Obama administration officials warned congressional leaders Thursday it planned to suspend the program at midnight. But the White House released a statement late Thursday saying that completed deals would be honored and the program is still under review.

A White House official said, “We are working tonight to assess the situation facing what is obviously an incredibly popular program. Auto dealers and consumers should have confidence that all valid [cash-for-clunker] transactions that have taken place to-date will be honored.”

But the program’s unexpected success also will put Congress and the Obama administration in a bind. With deficits soaring, lawmakers are increasingly reluctant to spend additional billions they don’t have.

On the other hand, they are sure to face a consumer and industry backlash if they end a popular program midstream, especially as dealerships across the country are in the middle of a huge advertising campaign to tout the program.

I understand It’s a plan to accelerate the economic recovery, reduce inefficient cars on the road, and provide incentive to buy efficient cars.  In case you don’t know about it, the plan pays consumers $3500 or $4500 vouchers for trading in their car (clunker) for a new car.

Does the clunker qualify?

• Must have been manufactured less than 25 years before the date you trade it in
• Must have a combined city/highway fuel economy of 18 miles per gallon or less
• Must be drivable



• Must have been owned and insured for the past year

How much is the voucher?

• New car must be at least 4 miles per gallon (MPG) more efficient than the clunker.  If the MPG difference is between 4 and 10, the government rebate is $3500
• If the difference is more than 10 MPG, the rebate is $4,500

What the media is saying about Cash for Clunkers

Some media, is saying the program is helpful while some say it will do little good to stimulate the economy.

WFAA TV in Dallas -

Finally, a federal bailout that can really help the average guy — at least the motorist who is driving an aging gas guzzler.

An article in Business week (July 13 & 20 issue), ”Cash For Clunkers Looks Like a Lemon”, has a different take.

Most cars on the road get more than 18 mpg so they won’t qualify.

If a customer can sell the old car for more than what the government will pay, there’s no reason to take advantage of the bill.

There are plenty of old cars that do qualify.  But many are 10 years old or more, says Edmunds.com CEO Jeremby Anwyl.  People driving cars that ancient often buy used, and even with a $4500 discount, they probably won’t want to take on new car payments during a time of economic hardship.

My thoughts on the Cash for Clunkers law

While some may be excited about the possibility of this new law stimulating the economy through new car sales as well as putting money in their pocket, I’m not seeing much benefit.

1.  If you read the Business Week article you’ll find their are limited funds available, at least until November 1 when the law is reviewed again, to really make a sizeable impact on new car sales.

2.  I’m in the live debt free camp, so our family is working to eliminate car payments now and avoid them forever into the future.  I’m sure there are many who will qualify and be enticed to claim their $3500 – $4500.   My concern is that this law will motivate some to take on new car debt and in some cases take on more car than they can afford.

Should you cash in on your clunker?

Giving this some thought and considering what I’ve learned about avoiding debt, I would look to work through the below decisions before signing up.

1.  If the car is still reliable and safe, I would continue to drive it and enjoy not having a car payment (assuming it’s paid off).

2.  If the car isn’t reliable or safe, or I can’t get more for it than what the government will pay, the ideal situation (in my opinion) would be to take the voucher, add cash savings and purchase another car without financing.

However, it’s not uncommon to not have car cash savings.  But if you want to remain car payment free, I would look to find a reliable clunker with my new found cash until I could save enough money to upgrade.

What do you think about the law?  Is it good for the average guy, or not?

Other Resources

• Government program offers cash for clunkers
• Cash for clunkers FAQ
• Car Allowance Rebate System