Ode to a Civic

Isaac Cathey

CONVENTIONAL WISDOM posits that a car is a poor investment, at least from a financial standpoint. It’s extraordinarily difficult to turn a profit, especially over the long term.

According to Carfax, the owner of a new car can expect the vehicle to lose 20% of its value in the first year and 10% annually thereafter. Beyond depreciation, owning a car involves fuel and maintenance costs, insurance premiums, parking fees, registration fees, tolls, sales tax, opportunity cost and—for most people—paying loan interest.

By virtue of its negative expected return, a car is a poor investment. But it is, alas, also a necessity for many people who live outside of major urban centers. The upshot: My philosophy is to make this investment as infrequently as possible and in a dollar amount that’s as small as practical.

Enter my beautiful 2003 Honda Civic LX. Boasting a 1.7-liter engine and a five-speed manual transmission, this lovely old car has served me well for more than a dozen years. I purchased it in 2008 for $8,000, only 40% of its original sticker price. In doing so, I escaped more than half of the depreciation. It was a bit of a high mileage car when I bought it, with nearly 90,000 miles on the odometer.

In the years since, I’ve added another 150,000 miles, burning a gallon of regular unleaded gas every 36 miles or so. Given the vehicle’s low retail value, I dropped comprehensive coverage years ago, making the insurance premiums very affordable. I’ve taken road trips all over North America in the Civic, took my wife on our first date in it, brought home each of my newborn children from the hospital in it and personally performed all the maintenance on it.

Clearly, I have an emotional attachment to what ought to be nothing more than a utilitarian tool. As such, it’s with heavy heart that I’ve confronted a sad reality: It is time to bid farewell to the Civic. I recently received a new long-term work assignment overseas and can take only one vehicle. In the years since I purchased the Honda, my family has grown beyond the car’s capacity. It seems the responsible thing is to take my larger vehicle, a Toyota Highlander, so that I have enough seatbelts for the entire family.

Given that the Civic is now worth only a tiny fraction of what I paid for it, I can’t say that it was a good investment, at least not in the conventional sense. Assuming the vehicle’s fair market resale value is $1,000, it has lost almost 88% of my purchase price. While this is an annualized loss of around 16%, we’re only talking about $583 a year of depreciation. Here’s how that stacks up against the alternatives:

  • Under Carfax’s assumptions, a $30,000 new car would be worth just $7,531 after 12 years, a depreciation rate of $1,833 a year.
  • Using those same assumptions, but repeating the purchase of a $30,000 vehicle every four years, would result in an annual depreciation of $3,126, plus all the transaction costs associated with multiple purchases.
  • What if I’d leased? In that scenario, a worst-case depreciation amount would have been built into the payment, along with financing costs and taxes.

Where I really lucked out: My period of ownership coincided with an incredible bull market. From the lows of the 2009 market crash—about nine months after I bought the car—the annualized return of the S&P 500 has been more than 17%. Relative to the most favorable alternative listed above, which was a new car purchased for $30,000 and held for 12 years, the Civic saved me $1,250 a year, which I have consequently been able to invest for a gain of more than $48,000. Compared to the more “normal” example of purchasing a new vehicle every four years, my annual savings have been $2,543. Investing those savings has resulted in around $98,000 extra. This market performance is perhaps once in a lifetime, and I can’t help but attribute some of my luck to the old car.

A more holistic examination of the Civic’s total cost would certainly bolster its standing as an excellent, cost-effective means of safe, reliable transportation, especially when compared to most alternatives. Yes, as I’ve already admitted, I’m perhaps overly attached to the car. That’s usually a handicap to sound investment decision-making. But in this particular case, it’s served me well.

Isaac Cathey is a public sector employee and professional pilot. The bulk of his financial knowledge comes from books by the likes of John Bogle and JL Collins. He spends his free time running, swimming, hiking, camping, biking with his children and doing DIY projects. His previous articles were Debtors’ Prison and Crash Test.

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