Spend the Money

There is an interesting article in the December 2002 911 & Porsche World magazine from the United Kingdom by Paul Davies entitled 'Inside Out'. He describes restoring the interior of his 1969 912. The cost of the work described in the article was $1,600. I was put off by his opening six paragraphs where he explained the dilemma that many people seem to share comparing the value of the car to the of the cost of repairs. I've seen other authors make the same point.

I really don't understand this reasoning. The argument suggests that it does not make sense to spend more on maintenance than you pay for the car.

The cost of a repair has no relation to the value of the car. If it costs $800 to repaint the bumper on my wife's Boxster (it did), should I expect that it should cost $160 to do the same job on my 912 just because it is worth 20% of the other? Of course not.

A new car depreciates. A well maintained 912 increases in value as we make improvements to it. Depreciation on a new car might be 15 pct per year. Interest payments can represent another 6%. Interest cost is confused in these days of poor economic times and is often hidden in lower discounts or inflated prices. Money is not free, you are still paying to use it. It is fair to add that cost to the depreciation cost to know what the new car costs just to own it.

Let's look at the money lost for depreciation and interest on a $25,000 car, ignoring taxes, license and insurance - each with equivalent higher costs. 15% of $25K is $3750. The new value at the beginning of the next year is $21,250. A back of the envelope calculation suggests we are paying 6% on the average value of the car that year which is $23,250 times 6% or $1388. A first year cost of about $5000 should be expected and we know that it drops year by year until maintenance costs start to dominate.

Push the numbers around however you would like, new cars depreciate, old cars have maintenance costs and I have a budget.

Last summer I had some restoration work done for $5800. The expenses for the previous year were very low - I just tried to drive the wheels off it. I cried uncle at that point even though I wanted to have some painting done. For the previous two years I am under budget. This year I have done the painting and have found a second engine. I don't plan to spend any more big ticket items now for a couple of years. I've invested some significant money in my 912, but its condition is significantly better then when I bought the car.

To me the issue of maintenance cost has nothing to do with whatever imaginary price I might put on my car. After all, my car is not for sale. Instead it has to do with establishing a budget for the discretionary part of maintenance.

The valuable idea we get from the cost of depreciation on a new car is to decide a reasonable number to set as a budget for discretionary maintenance and restoration. The numbers above suggest $5000 for the first year and this amount should decrease as you keep the car longer.

Some maintenance is required on any old car. For example, if something breaks, it has to get fixed. The discretionary part is to decide when I might tackle which project. I always have a list of projects. Those decisions are driven by expected results, costs, downtimes, and budgets.

My budget is to spend no more on maintenance and restoration than I would spend on depreciation and interest costs for a new car. That is a substantial budget that can be used to make some real improvements to my 912. Rust damage can be properly fixed with metal not bondo. Paint equivalent to factory quality can be used. I don't have to scrimp just because I drive an inexpensive car. Substantial improvements can be made. My car is significantly better than when I got it.
Last modified: Mon, 17 Oct 2005


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