Upside Down in Our Assets

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Last night, I talked with my dad about the current mortgage crisis and how many people owe more on their homes than they could sell them for. He pointed out that almost everyone is upside down in their car, so this should come as no surprise for folks. However, this morning I read an article about the value of small cars, where the author predicated his point of view on the Edmunds/Bluebook valuation of his car. Cars are not assets; they are tools. I posted the following in rebuttal:

Bluebook value is only one way to value a car, and for my own part the least useful.

Seeing as how I never plan on trading in a car since I usually drive them into the ground, my 1995 Saturn SL1 is fully depreciated to where it’s of negligible monetary value as a resale or tradein. However, compared to other cars, it has great value to me.

I’ve owned the car outright for years, meaning that I do not make regular obligatory payments every month. While it may cost me $200/month here and there in repairs, every month I don’t expend money in repairs is money in my pocket. Even with a new(er) car, periodic repairs and maintenance are often not factored in to cost of ownership or relative residual value compared to new.

My car nets me a whopping 40mpg fuel economy. In order to match that, I’d have to spend $20K on a new car to replace it. To beat that economy, I’d have to spend thousands more.

As my Saturn is fully depreciated, I pay the absolute minimum registration ($40/year in NV) and my insurance costs are also low, since even if I did wreck the thing it’s not worth very much. I have full coverage because it only costs me $5/month more and replacing the windshield (which I’ve done three times) costs $400-500 (very poor design).

I do my own car maintenance, and given that there are 20 Saturns at PickNPull, I have plenty to choose from when I need replacement parts. Plus, the modular nature of this particular model means replacement parts should be available until I retire from the military.

Finally, but not least, my car is ugly. You may not see that as an asset, but I do. Nobody wants to ding or dent it, and it has enough of those already that I don’t stress out if someone scratches it like I did with my Dodge Ram (sold it years ago). I am also proud of my passive anti-theft device: manual transmission, AMFM Stereo Cassette, manual windows, doors, etc., and peeling paint. The car is simple to repair, easy to operate and cheap to own, and I don’t feel bad about the environment either with 40MPG, although I think that argument relies mostly on conjecture than anything else.

Almost everyone is bottom up in their car. Remember that as you hear about people who are bottom up in their homes. The best you can do, unless your car is a 1942 Rolls Royce Phantom II or similar collectible, is break even.