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The Debt-Free Car Project Chapter 8: Wrap-Up

Final Fixes, Selling the Car and Measuring Success

One year ago, we set out to test a theory: Could a person with limited funds and poor credit avoid a "Buy Here, Pay Here" car dealership by purchasing an inexpensive but reliable car outright? We set a price point of $3,500, figuring that someone could reasonably save up that amount. But this meant we would have to buy an older car than would ordinarily have been sold at a "Buy Here, Pay Here" dealership.

We chose a well-maintained 1996 Lexus ES 300 in Classic Green Pearl, with chrome wheels and the then-popular Gold package. It was like a time capsule from the '90s, but we liked the styling and the price was within our budget ($3,800 after tax and title). Also, Lexus is a brand known for its reliability.

We drove the Lexus a total of 18,394 miles, far more than the 15,000 we had originally set for our goal.

We drove the Lexus a total of 18,394 miles, far more than the 15,000 we had originally set for our goal.

Time, however, takes its toll on everything. And despite the Lexus being relatively reliable (it left us stranded twice in just over a year) there were a number of costly and unavoidable issues and repairs. We sorted out most of these over the course of the year, but those instances resulted in higher maintenance costs than we had anticipated.

In this chapter, we take care of some final repairs on the Lexus, sell it and determine whether we'd proved our theory of the Debt-Free Car.

Final Repairs

The Lexus ES 300 was in Death Valley, California, on its last road trip, when Senior Consumer Advice Editor Phil Reed noticed that the driver-side door wouldn't open from the outside. There was also a loud rattle coming from inside the door panel. Reed's first response was to spray WD-40 on the door latch mechanism, but that yielded no results.

Reed took the car to a body shop near his home. The culprit was a broken plastic clip, hidden deep inside the door panel. It was a quick fix and the car was ready the same day. Total cost: $100.

Coincidentally, the "Check Engine" light came on during the same Death Valley trip. Reed took the Lexus to Pep Boys and used its code reader to diagnose the problem, free of charge. The diagnostic code, "P0135," meant that there was a faulty oxygen sensor on "Bank 1" of the engine.

We took the car to an independent garage to keep costs down, but oxygen sensors are a relatively expensive part. The total cost for the fix, with parts and labor: $272.

In February we fixed a problem that we had thought we could ignore... until it started getting worse. The gauge cluster light bulbs had burned out to the point where we couldn't see the speed we were driving until the 80 mph mark. This bulb burnout was a common issue on Lexus ES 300s of our vintage, but it turned out to be a more specialized repair than we had anticipated.

Our usual shop wasn't able to fix it, so we called on a person who has a network of mechanics and was happy to refer us. He recommended a shop a few miles from the Edmunds offices. Within a few hours, the gauge lights were fixed. The bulk of the total bill went to labor, as it was a fairly time-consuming job: $112.

Later in February, the "Check Engine" light made a surprise reappearance. It turned out to be a minor repair, and our mechanic didn't charge us since we were repeat customers.

We took care of two final items not out of necessity, but for the purposes of selling the car. We knew that some Edmunds employees were interested in purchasing the Lexus, so we decided to get the oil and air filter changed: something you'd do as a courtesy for a member of the family. We took the car to Jiffy Lube and had a surprisingly positive experience. The cost of this minor maintenance: $51.

After the oil change, we took the car to get a smog inspection. In California, it is the seller's responsibility to ensure that the vehicle passes a smog test. We'll confess to being slightly nervous about whether the Lexus would pass, given the recurring "Check Engine" light issues, but the Debt-Free car passed with flying colors. Cost of the smog inspection: $71.

In-House Sale

When March rolled around, the Lexus had been in the fleet one year and it was time to sell it. We typically give Edmunds employees first crack at buying a car before we turn to CarMax or a private-party sale. To avoid any perception that we play favorites with employees, we offer cars to them at a "no-haggle" Edmunds private-party TMV® price. We listed the Lexus internally at $2,668.

About five people responded to the listing, but in the end it came down to two employees: Bob and Blake. Edmunds policy states that when there is more than one employee who wants to buy the car, the matter will be decided by a random drawing.

We dusted off an old raffle cage used for events at the office and called in the VP of HR to supervise the proceedings. She put six crushed pieces of paper in the cage: three for Bob and three for Blake. After a couple of spins, we had a winner: Bob.

Bob was looking for an inexpensive daily driver that would replace a Honda Civic in his garage. His main car is a gas-guzzling sport sedan. The Lexus would serve as a fuel-efficient daily driver.

If we had sold the Lexus on Auto Trader, we would have likely listed it for about $4,000. We're fairly confident we would have ended up accepting an offer somewhere around $3,300. It would have been nice to come close to breaking even on the price of the car, but we're glad the ES 300 has found a home.

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Final Stats

Miles Driven:

We drove the Lexus a total of 18,394 miles: far more than the 15,000 we had originally set for our goal, and likely more than the average driver would put on a basic transportation car in a year.

Fuel Economy:

The Lexus ES 300 proved to be more fuel-efficient than we had anticipated. We ran it almost exclusively on regular unleaded fuel, except for one month when we were testing if premium would make a difference (it didn't). The Lexus averaged 24.9 mpg over the course of 70 fill-ups. For reference, the EPA rated this car at an estimated 18 city/26 highway and 21 mpg in combined driving. The best mpg was 33.4, set during the Lexus' cross-country trip. The worst tank was 16.5 mpg, which likely occurred after driving in L.A. trafic. The average tank of gas cost us roughly $43.16, with an average fuel price of $4.08 per gallon. This translates to a cost of 16 cents per mile to drive.

Maintenance Costs:

We spent a total of $3,286 in maintenance over the course of 13 months. Coincidentally, that was the exact price of the car before tax and title.

At the beginning of the project, we established a monthly maintenance budget of $365. Our theory was that the buyer of a debt-free car could use the money he'd ordinarily have spent as a car payment for car upkeep. We used the $365 figure because it was the average monthly used-car payment for someone with poor credit in 2012, according to Experian Automotive. Our maintenance spending averaged about $253 per month. We went into the red a couple times, but for the most part, our repair and maintenance expenses fit well within this budget.

We committed one budget bust intentionally, in the first three months of ownership. (You can read about this in more detail in Chapter 6. The car was about to take a cross-country trip, and we wanted to make sure that we took care of several items beforehand. Most car owners would likely have waited on some of these repairs, so the costs would have been more evenly spread across a year of ownership.

The Lexus was in the black every month until January, when it went over by just $7. By the end of the ownership year, we had a budget surplus of $1,459. A disciplined car owner would set aside that monthly surplus, maybe as the beginnings of a substantial down payment on another car, as a starter budget for second-year maintenance costs, or better yet, to fully fund the next debt-free car purchase.

We were curious about what those second-year costs would look like. We took care of several big-ticket items in the first three months of ownership: new tires, battery, control arm bushings and brake rotors. Those costs would not be repeated in a second year of ownership. To get a preview of second-year maintenance, we subtracted those items from our first-year spending and did some math. We estimate that our monthly maintenance budget during the Lexus' second year would have been around $120. But since our long-term cars are one-year snapshots of ownership, we won't have the chance to test that part of the theory.

The True Cost of Buy Here, Pay Here Cars

We now know what our Debt-Free Car cost us to own and operate for just over a year. But how would a car buyer have fared if he had gone to a "Buy Here, Pay Here" dealership, rather than buying a car outright? A critic of our project gave us a good basis for comparison.

A few months after our project launched, Peter Salinas, managing editor of Dealer Business Journal, a publication for "Buy Here, Pay Here" dealers, took issue with several points in our premise and said our project was "Fundamentally Flawed."

The biggest issue, he said, was that people with poor credit do not have $3,500 to buy a car outright, nor would it be feasible for them to save up that amount without it negatively impacting their lives.

He proposed that a 10-year-old Ford Taurus or Buick Century from a "Buy Here, Pay Here" dealer would be a more reasonable selection for such a buyer. Salinas said that those vehicles run from $4,500-$5,500 at auction, which is where car dealers often get their cars. He chose a midpoint value, $5,000, and proceeded to illustrate how the numbers would shake out at a "Buy Here, Pay Here" dealership:

  • $5,000 for the vehicle the dealer bought at auction
  • $600 to recondition it
  • $2,000 for dealer overhead costs (i.e., building and lot expenses, insurance, personnel and employee benefits)

We are at $7,600 so far. Next is the dealer mark-up. This is how car dealers stay in business. However, Salinas didn't provide that information. We turned to's senior pricing analyst, Richard Arca, to help fill in the figures. He said that for a 10-year-old vehicle, the average mark-up is about 40 percent from auction to retail purchase price. That would be $2,000 for the car in this example. The $5,000 Taurus will now be listed for about $9,600.

Next come the tax and title fees. We used a 2003 Ford Taurus (a 10-year-old car) as the basis for calculating the fees on our finance calculator. The sales tax and registration would be about $1,056 for this car in Santa Monica, where the Edmunds offices are located. The total so far is $10,656 but that still doesn't include financing costs.

We used the following stats to populate our finance calculator: A $792 down payment (the average down payment at a "Buy Here, Pay Here" dealership in 2012), a 17.7 percent interest rate (the average interest rate for a deep subprime consumer, according to Experian Automotive) and a 36-month loan (the length of the average "Buy Here, Pay Here" loan). This adds up to $2,920 worth of finance charges on the Taurus.

The grand total of the "Buy Here, Pay Here" loan would be $12,784, with a monthly payment of $355 per month. So it would have taken only an $800 down payment to get the immediate gratification of getting a car at a "Buy Here, Pay Here" lot. But in the long run, the buyer would have paid $8,984 more than we paid for our Lexus ES 300.

Further, a "Buy Here, Pay Here" purchaser can't sell the car without going deeper in debt. If he falls behind in payments, he faces the possibility of repossession. And there's still the cost of maintenance and repairs to pay for, in addition to the $355 monthly payment. Is a 10-year-old Taurus more reliable than a 17-year-old Lexus? Maybe. But it still will cost some money to keep up.

Our Debt-Free car buyer and his family, on the other hand, have the freedom to sell the car whenever they want. They are not in debt, and they don't have to worry about making car payments every month. They only make "payments" to themselves for maintenance. And if they lapse on one of those payments, their car doesn't get repossessed. At worst, they just have to put off repairs for awhile.

Success or Failure?

Would our imaginary owners have been happy after a year with the Debt-Free Car? We have mixed feelings about this.

On the plus side, we ended with a surplus in our maintenance budget. The car got good gas mileage. It was comfortable and had a reasonable number of amenities. And when you look at the total costs compared to a "Buy Here, Pay Here" car, the Lexus shines even brighter: Even counting our costs of maintenance and repairs, the Debt-Free Car buyer would have been $5,698 ahead.

But the Lexus did leave us stranded twice. It required a number of trips to the repair shop. We used resources that everyone has access to (word-of-mouth references, online forums, Yelp, YouTube, Google Search), but it took some time to sift through all that and find a good shop and decide what parts to buy. We took care of some fixes ourselves and others we left to the experts.

Would our Debt-Free Car buyer and family have been discouraged by that kind of ownership experience? Would they have had the time, patience or willingness to do some DIY repairs? Some of our readers argued that people buying in this price range most often perform most of the repairs themselves, but we know that a lot of people just want reliable, hassle-free cars. Would our Debt-Free Car have been too much trouble for them?

If someone were to ask us if they should follow in the footsteps of the Debt-Free Car, we would tell them yes, but with a disclaimer: In this price range, you will drive a car that will have repair issues. If you have a trusted mechanic, or if you are capable of doing the repairs on your own, then by all means, give it a shot.

But if you get overwhelmed dealing with mechanics and repair shops, or will worry excessively about potential breakdowns, you may want to find a newer (and more expensive) car. But bear in mind that there's no guarantee that a newer car won't break down either.

Breaking the Cycle

Financial guru Dave Ramsey has a great quote: "If you will live like no one else, then later you get to LIVE like no one else!"

It means that if you make financial sacrifices now, you will reap the rewards later. It isn't easy to save money, but at some point, people with troubled credit must break free of the cycle of debt to have any hope of improving their financial futures.

If you're ready to join them, we would encourage you to try cutting back on unnecessary expenses to save up for a car. And once you have enough money, keep up that pattern of savings to give yourself a maintenance budget. Self-discipline, planning and knowledge: the real secrets to owning a debt-free car.

Related Articles:

The Debt-Free Car Project Chapter 1: Finding and Buying an Affordable Used Car
The Debt-Free Car Project Chapter 2: Preventive Car Maintenance
The Debt-Free Car Project Chapter 3: Curbstoners and Internet Scams
The Debt-Free Car Project Chapter 4: Dealing With Repairs
The Debt-Free Car Project Chapter 5: Driving Cross-Country in a 1996 Lexus ES 300
The Debt-Free Car Project Chapter 6: Midyear Check-In
The Debt-Free Car Project Chapter 7: Sailing Past 150,000 Miles
The Debt-Free Car Project Chapter 8: Wrap-Up

1996 Lexus ES 300 Long-Term Road Test