Auto Trader

Taking stock of "rolling" stock.

Like many investors, I've been drubbed in the stock market over the last year and half. My particular poisons: a fondness for financial stocks that paid (or used to pay) dividends, and a tendency to be a "homer" and invest in Memphis-based companies such as FedEx that are sensitive to fuel prices and currently out of favor.

My stocks are down, and the publishing business is also in a slump. But my rolling stock, consisting of four well-used cars for me and my family of four, is doing just fine and helping us keep our heads above water.

Good thing, because after the home mortgage and health insurance, cars – including maintenance, insurance, gas, and either purchase price or financing – are our family's biggest expense. A reliable car or truck can save thousands of dollars over the life of the vehicle. Multiply that by four, and it can offset losses in investments that, hopefully, will come back over time.

With car dealers offering big incentives on 2008 trucks and SUVs in particular, I'm reevaluating this part of my investment strategy. I recently spent two weekends haggling with sellers and shopping car lots, newspaper ads, and Craigslist. This is what I've learned.

Incentives are the real deal, but you have to be selective. I found a new 2008 model eight-cylinder Dodge Ram truck for $16,500 and a 2008 six-cylinder Chevy Silverado for $15,600, with no haggling. Both prices were at least $6,000 below the sticker price. There's no catch, the salesman said, and he was right. Chrysler and GM are losing money and desperate to unload trucks that get only 14 miles-per-gallon (mpg) around town and 19 mpg on the highway.

But the incentives didn't apply to smaller trucks with better gas mileage. So it's a matter of calculating how much you drive and spend on gas each year. At 10,000 miles a year, an improvement of 5 mpg works out to approximately 160 fewer gallons of gas. At $4 a gallon, that's $640 a year. It would take ten years to equal the savings from the incentives unless gas prices double again.

Still, $16,000, which is more like $18,000 after taxes and fees, is a lot of money if you're keeping four cars on the road and paying college tuition. That's why I'm partial to used cars, and I do mean used. Unless I spring for that new truck, I won't own a vehicle built in this millennium. The current family fleet accumulated over the last five years includes a 1996 Mercedes for $9,000, a 1996 Ford Explorer for $7,800, a 1998 Chevy Blazer for $9,000, and a 1995 Saturn for $4,500. Total odometer mileage, 600,000 plus. Total outlay, $30,300, or less than the price of a new Toyota Camry. And no major maintenance, so far, on any of them.

Three rules have served me well as a used-car investor:

First, shop the owner as well as the car. Rich is good, because wealthy people tend to trade cars frequently and don't worry too much if they "lose" thousands of dollars on the trade-in. And they often have heated garages and keep their cars in them, and they can afford to service them regularly.

Second, as the legendary investors Warren Buffett and Peter Lynch say about stocks, know what you're investing in. I've bought two cars from the same salesman at a high-end dealership because he promptly produced ownership and maintenance records. Each car had one previous owner – a local jeweler and a local female college student, both non-smokers, both fiends for maintenance, as confirmed by a test drive with a friend of mine who is a mechanic.

Third, disclose everything when you resell, and you'll be pleasantly surprised. A car that runs, period, is probably worth $1,500. For better or worse, there are plenty of bottom-feeders in Memphis desperate for a car. I have seen wrecks on wheels go for $1,900 cash at the city's weekly auction of impounded vehicles. One of my greatest investments ever was a 1986 Volvo purchased from a neighbor for $1,000 and known in its golden years as "the duct tape car." It provided my children four years driving-to-school service and got me my money back. I would bet a share of First Horizon stock, currently worth $10, that, somewhere, it is still on the road. 

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