It is so easy to be at a fork in the road with a money pit. Whether it\’s a property, vehicle, or large appliance, we\’ve experienced putting seemingly endless funds into maintaining and keeping something running when we should be evaluating whether it\’s worth repairing or letting go. Sometimes it is tough to distinguish between the original investment and ultimate sunk cost and whether you are just one fix away from that asset being an asset or another step toward another repair.
Now, depending on how you got the car, how long you have had it, what you originally paid, and how much you\’ve had to invest in it, this may be an emotional decision.
Remember that it\’s just a car at the end of the day.
When evaluating whether to hold on, scrap, or sell, I typically follow a series of questions that then helps to define the decision.
These questions will help you figure out what the vehicle is currently worth and determine whether the repair would increase the value, maintain it, or make it worth less. Ideally, you would only put the money into the vehicle if the repair increases the value or keeps the vehicle on the road longer, allowing you to extend the useful life.
Now, let\’s jump into these seven questions.
Seven Key Questions To Figure Out Whether Your Vehicle Is Worth Keeping
- Sunk Cost: Did you buy the vehicle/asset new? Now, if you purchased the vehicle new or if there is some sentimental value associated with it, it may not be so easy to determine this. How much have you spent to keep it up and running until this point?
- Useful Life: The average age of a vehicle on the road today is about 11 years. How long have you owned the vehicle? Has it been helpful and fulfilling its purposes?
- Technology: Technology is constantly changing. But since you acquired the vehicle, have there been any significant changes in technology, build quality, or safety to consider?
- Salvage Value: If you were to scrap the broken vehicle, what would its value be to a junkyard or someone who may be able to rebuild it?
- Repair Cost: What is the issue with the vehicle that is causing it to be non-functional, unreliable, or simply not driveable otherwise? Will the repair add enough value to the asset to make the repair worth it? Not liking the vehicle is not an issue.
- Current Value: What is the vehicle\’s current value versus the repaired value? Take a look at a resource like Kelley Blue Book or NADA for the book value and the different sales platforms for the market value. Doing so will help give you an idea.
- Sentimental Value: Is there any sentimental value to the vehicle for you or your family?
Now, using these filters, let me give an example. When I was in college, I bought an Acura CL Type-S. I loved that car. However, it had one major issue—a blown engine. The engine was blown when I bought it, so the vehicle\’s useful life with a blown engine was nearly null and void unless I could figure out how to repair the car.
I purchased the car for $900. I could either sell the car for $500 to a junkyard or about $1,100 to an individual also looking to fix it. Instead, I purchased a crate engine from eBay for $800 and had my mechanic install it. The total cost came to about $1,550 with labor. So, I was sitting around $2,450 with the purchase and repair costs.
Now the book value of this car was still strong at anywhere between $6-8k.
I sold the car for just shy of $7k when it was all said and done.
The vehicle had no sentimental value, but I knew it had value in the marketplace. Taking the risk to fix that car prevented me from losing a few hundred dollars if I had scrapped it. However, that one move put an extra $4k in my pocket on the upside.
Run It Through The Filters!
When evaluating whether to buy, hold, scrap, or sell, mitigate your risk by running it through a series of filters to give you a logical resolution to the issue at hand. You may be surprised how much this set of decision-making skills will benefit you throughout life.
We typically get distracted by the sunk-cost bias, which tells us that the time, effort, and resources that we have put into something can get in the way of what it returns at the end of the day. So be sure that if the vehicle is not worth fixing, don\’t hold onto it just because of what you have invested.
Call To Action
Determine whether you are keeping your car only because of what it is worth compared to what you bought it for, how much time you spent repairing it that you can\’t get back, or how much you\’ve paid to keep it on the road above and beyond what it is worth.
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