Picking up payments

Pickup trucks for the weekend warrior. They sure are popular in today’s economic climate. As I go to the office I see more and more of these fancy toys in the parking lot just like the one pictured here. My neighbor also got one as a third vehicle and the only thing he ever hauls is air. Most of these guys just sit in cubes reading emails instead of using that F-350 diesel for hauling.

Are they a good investment?

Probably not unless you happen to need it to do your job in construction, lawn maintenance, logging, ranching, farming or as a park ranger looking after Yogi Bear and Bubu. Even for those guys the same financial logic applies and they need to thrifty. That means no top of the line luxo barge with heated leather seats and panoramic sunroof. This is a work tool after all that is going to get dirty.

For the rest of you people ask yourself this.

  • Do you really need a pickup day to day?
  • Can you rent one at a rental car place, Zipcar or U Haul type place if you need it occasionally?
  • Are you buying it because you want four wheel drive? There are lots of other more sensible choices with all wheel drive.
  • Do you plan to go off roading? If so, a new pickup may not be the optimal choice. Get a used beater Jeep and trash that out. They rock crawl much better.
  • What do you plan to do with your groceries or luggage when it rains and snows? Remember the bed is open.
  • Will it fit in your parking spot or garage? Check the length first.
  • Are you able to parallel park it in the city or maneuver it in tight parking spaces?
  • Do you have friend or relative that can help you move or lets you borrow his when you need it?

So why am I not a big fan of these vehicles?  High costs of ownership! This is a frugality blog after all.

  • High purchase cost versus other vehicles $40K to $60K versus $25K to $35K means longer payments and more interest paid. That money could be making you money!
  • Higher fuel consumption as in mpg 16 mpg versus 25-30 mpg. What happens if fuel cost goes to $5/gallon? That could be an extra $100 per month or more.
  • Higher insurance costs as the vehicle costs more
  • Higher maintenance costs and parts. If you buy a set of four new tires for a RAV4 that is likely $500. For a pickup that can be $1000 as the tires are bigger. The same applies to other parts like batteries, repair parts etc.
  • Not practical for most people. Your stuff in the back is not secure, meaning someone can take your luggage and it can be wet/snowed on/ bird shit on.

Some more sensible choices

  • An AWD SUV or car like a Subaru, CRV, RAV4, Explorer, Pilot, Highlander etc. Your cargo area is covered and you get better mileage.
  • A used small pickup on which someone else has already paid the depreciation would also cost less but you still have the higher fuel consumption, insurance and maintenance costs. Think Toyota Tacoma, Ford Ranger, GMC Canyon, Chevy Colorado and Nissan Frontier etc.
  • If you want to go off road get a used beat up Jeep, Xterra or 4 Runner on Craigslist or Auto Trader. Those are more nimble on the trails.

Example 1: Pauly Pauper

Pauly is enamored with the Ford F-150 Raptor. He has seen them on the street and in the car magazines. He goes to his local dealer. While the vehicle starts at $53K they mostly have the limited variant which costs $67K. Pauly likes those leather seats so gets that one.

  • Cost of Ford Raptor 4*4 with tax and title $71K
  • Financing at 5% via Ford Credit
  • Term 8 years
  • Payment $899 per month over 8 years. Payment over five years $1339/ month

Pauly decides he really wants the truck. However he cannot afford the monthly payment over five years of $1339/month. So the dealer suggests he stretch the payments over eight years to bring the payment down to $899/month. This is seems more manageable to Pauly.

Unfortunately due to this expensive truck Pauly also has insurance go up by $1200 per year. So his monthly payment is now $1439. Due this high monthly outflow Pauly cuts his 401K contribution from 15% to 5% and stops saving. This is a very poor decision and short sighted as he needs money to retire and to save for a new house down payment of 20%.

Pauly continues to live at his apartment complex while the landlord raises the rent by 5% per year. He has no equity and limited retirement savings. This is bad.

On top of that Pauly is paying a lot of interest on the vehicle. A whopping $15,304 in interest due to the long term of the loan.

Even worse Pauly is afraid to take the vehicle off road much for fear off damaging it. His friend Freddie Fourwheeler has no such qualms. He bought a used Nissan Xterra on Craigslist for $4000 cash and enjoys hitting the trails without care.

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