Dear Liz: The conventional wisdom is that you save money by hanging on to your old car; the longer you keep it, the more money you supposedly save. But the longer you wait to replace your old car, the more prices for new and used cars will rise due to inflation. Since you eventually have to replace your car, at some point will you lose money by waiting too long to replace it? How do you figure out where that point is?
Answer: Predicting future inflation is pretty tough and depends on a number of factors. Right now, for example, many used-car models are fetching significantly higher prices than in the past because of the sharp decline in sales of new models during the recession (leading to fewer available used cars now) and the fact that many owners are hanging on to their cars longer to save money. The production slowdown in Japan after its recent disasters is also affecting used-car prices.
Since predicting inflation is tough, you’d be smarter to focus on the factors you can more easily control: your savings and the condition of your current car. With proper maintenance, today’s vehicles can notch well over 200,000 miles. Owning a car for 10 years or more gives you plenty of time to save up cash to buy your next vehicle.