Repair or replace?

An obvious byproduct of the auto industry’s prolonged sales slump is that Americans are holding onto their cars and trucks for longer than ever. According to the market research firm R.L. Polk & Co. in Southfield, Mich., the median age for all passenger cars on the road is now up to 9.4 years, which is a record high. That means many more motorists are paying to keep their existing rides repaired these days than are replacing them.

But at what point does it become more economical to buy a new car instead of continuing to pour money into an old heap? “Repairing major vehicle components such as the transmission or engine can run upwards of $2,000 or more,” says John Nielsen, director, AAA Approved Auto Repair and Auto Buying. “When faced with the decision of whether to invest in the repair of a current vehicle or purchase a newer one, motorists need to consider a number of factors.”

According to Consumer Federation of America spokesperson Jack Gillis, it’s typically less costly to keep an existing car running than to purchase a new one. “Even shelling out for a catastrophic repair, like $5,000 for a new engine, might be wiser than buying another car,” he says. “If you add up a 10 percent down payment on a new vehicle, plus higher insurance and monthly loan payments, it’s very easy to eat up that $5,000 and you’ll see how much more that new car will really cost you.”

Still, AAA’s Nielsen advises motorists consider what he calls “the 50 percent rule” when facing a particularly costly vehicular renovation. By this yardstick, when the cost of a needed repair approaches 50 percent of a model’s estimated resale value it’s probably time to go car shopping.

Consumers should also take into consideration a vehicle’s condition and its history of reliability when deciding whether to repair or replace it, Nielsen says. If a car looks good and has been maintained meticulously, having a mechanical problem fixed now might prolong its life for tens of thousands of miles down the road. “Given proper maintenance and an occasional repair, modern cars are highly reliable and can be safely driven far beyond 100,000 miles,” Nielsen says.

However, if a vehicle has been ill cared-for or has been suffering from chronic mechanical problems, an owner may be throwing good money after bad to keep it limping along until the next repair. Replacing a steady stream of key wear-and-tear items and systems (tires, battery, starter, alternator, exhaust system) might be inevitable on a high-mileage older model, even one that’s otherwise in decent shape. What’s more, one has to consider both the cost and inconvenience of frequent trips to the repair shop, versus the peace of mind driving a presumably trouble-free new model that comes with a full warranty.

A motorist’s lifestyle can likewise affect his or her decision whether to keep or replace a current mode of transport. For example, those who frequently transport clients or business associates might be sensitive about driving a car with well-worn upholstery or one that suffers from exterior cosmetic issues. Someone whose job involves a long-distance commute may not want to take a chance on an older model breaking down while en route. A growing family may find their current compact sedan quickly becoming cramped or may want to seek a new model having added safety features, while recent empty nesters might decide to trade in the minivan or large SUV for a more-economical or sportier ride.

Those deciding whether to repair or replace a car should consider the fact that it’s arguably the best time in recent history to go shopping for a new vehicle. Dealers are willing to give up larger chunks of their markups than normal to help reduce their inventories. Automakers are employing record-high sales incentives to drive traffic into their showrooms.

“Automakers have been pulling out all the stops to keep motivating shoppers during these tough times,” says Jesse Toprak, analyst for Edmunds.com.

But don’t expect such largess to continue over the long term. Virtually all automakers are in the process of cutting their new-model production significantly. This will ultimately result in smaller supplies of unsold cars and, in turn, less urgency to slap huge discounts on the hood to move the metal.