It Finally Happened. We Bought a New Car.
Some things are noted for their rarity. The return of Halley’s comet. The Chicago Cubs winning the World Series. Joshua Kennon and Aaron Green buying a car. After years and years of discussing our search for our next car, the bargain we had been waiting for finally presented itself.
I know the latter shouldn’t be the case given our diversified sources of income and our net worth – we could buy a new car whenever we wanted from my copyright income alone for heaven’s sake – but it’s not exactly a secret if you’ve read my writings for the past fifteen or more years that I generally tend to hate purchasing depreciating assets. We worked hard to create those copyrights. We worked hard to build the sporting goods business. We worked hard to accumulate our portfolio. With Aaron and I having amassed everything we own from nothing, every penny we used on an asset that lost value was a penny we couldn’t use to buy more dividends, interest, rents, and royalties. This was especially true when we were teenagers and in our twenties because, assuming an ordinary life expectancy, the opportunity cost was staggering. That’s the reason we spent so many years driving Aaron’s 1993 Ford Escort, which eventually had no heat or air conditioning; a car that was wonderful in its affordability but that shook on the highway whenever we were driving between 55 and 60 miles per hour. To demonstrate what I mean, consider a 20-year old who compounds his or her money at a rate equal to the long-term average equity returns generated by the domestic stock market between 1926 and the present, which is around ten percent according to Ibbotson Associates. By 30, every $1.00 put to work becomes $2.59. By 40, it becomes $6.73. By 50, it becomes $17.44. By 60 it becomes $45.26. By 70 it becomes $117.39. By 80, it becomes $304.48.
Living in a household with two savers aware of the power of compounding, it takes a special alignment of the stars to spend money on things that don’t provide a financial return. When we do, though, we tend to focus on quality and then working to get the best deal we can within reason and that is fair to everyone involved all circumstances considered. In other words, we may be frugal but we are definitely not cheap.
After graduating from college, we both relented a bit and eventually bought cars. The first and, up until today, only car I’ve ever purchased for myself was a 2004 Jaguar that I bought modestly used in 2006. I got a fantastic deal on it, picking it up after it had been divested by a leasing company that sold it to a local dealer at auction and most of the early-years’ depreciation had been taken out of it. At the time I bit the proverbial bullet, I calculated what I was giving up in terms of Berkshire Hathaway Class B shares. I drove it for what is now the past going-on 11 years, amortizing the total expense so that it was almost nothing on a per annum basis. In the summers we’d take it into a great local shop that looked everything over, maintained it, and took care of any normal maintenance issues that arose from ordinary wear and tear. I can’t even tell you how many annual reports and books I read in the passenger’s seat during long road trips while Aaron drove and we discussed whatever was on my lap, usually a pen and paper nearby so we could write down our thoughts and observations. For awhile, we also had another car for Aaron before realizing it was redundant given that our work schedules were identical so we were almost always traveling together.
Back in 2012, we looked at replacing that car because it was approaching an age when it needed some overhauls to keep it in good working condition. I used it as an example to show how the future value of money could be combined with a tool called a decision tree to determine which trade-offs would help you maximize your personal happiness, publishing a blog post called The Opportunity Cost of the Car You Drive Is One of the Biggest Financial Decisions You’ll Ever Make. Ultimately, we decided to choose the route that maximized our compounding and repaired and upgraded that vehicle, extending the life. As of even two years ago, I had hoped to go even further than originally planned and make it to at least 2018, squeezing even more utility out of that initial outlay. There was both an emotional and intellectual satisfaction out of it; of knowing that every passing day we were able to put off getting a new car, that original outlay generated a higher and higher return. It became sort of like a game. However, as we approach 2017, the time was right for a reevaluation of the car decision tree for various reasons. One of those reasons, I’ll explain in a future post and involves us accelerating our timeline to leave Missouri for greener pastures, pulling up the drawbridge behind us. Suffice it to say, we were going to have to buy something, though we weren’t sure what that was going to be.
While we had always been looking, we began studying the market intensely several months ago, even going so far as to stop by some car dealerships to look at models. We looked at four-door sedans, SUVs, Crossovers, and even briefly considered pickup trucks like the Ford F150. However, we were busy so it was pushed to the back of our agenda time and time again. Finally, on Thursday afternoon, we decided it was time to come back to it and get it done. I called a local car dealership while Aaron was taking care of something else, gave them a list of specific VINs that interested us, and asked that they send us a list of their bottom-line prices; that we would not counter or negotiate because we didn’t have the time. Rather, if the price was good enough, we’d come in and buy the car, if it wasn’t, we wouldn’t even bother returning their call. Within ten or fifteen minutes, the gentleman who had given us his card during one of our test drive trips called us back and gave a list of bullet points, model by model. We appreciated that tremendously. The most attractive: They had several current-year, brand new, Jaguar XJL AWD Portfolio Editions with all sorts of bells and whistles that they wanted to sell to make room for the models that will be arriving next year. To free up capital and space, they offered to slash a staggering amount off their advertised price, effectively absorbing a lot of the depreciation leaving a lower asset base to be amortized over the 10 to 15 years we would expect to drive the car. It was a huge discount; enormous enough that it made me feel good about the cost. It also came with a 5-year, 60,000 mile warranty with service upkeep so we don’t have to do anything on the car for awhile.
I said I’d get back to them after talking with Aaron. We ended up getting caught up with work until around 3:30 a.m., at which point we decided to go over the details before going to bed for a few hours to get whatever sleep we could. A few calculations later – to be specific, I looked at Aaron and asked, “Would you rather have this or more shares of something like Coca-Cola? Which would give you more utility right now?” – we agreed we’d buy the car given the massive size of the discount and the overall expected costs of purchase and ownership over the next 10 to 15 years relative to what we were receiving. We called the direct office line of the sales representative who gave us the figures. To our shock, he answered like it was the middle of the day (it turns out, he has his phone line forward to his cell phone). After apologizing profusely for bothering him in the middle of the night, we told him we had a deal. We explained that our morning was booked with meetings but we could swing by in the early afternoon to pick up the car. He offered to have everything ready for us so we could avoid spending much time in the dealership since we had to get back to work. After we hung up and before we fell asleep, almost everything was hammered out over a few text messages that made the process practically effortless. He was on top of it so we could focus on more important matters, even taking the old Jaguar as a trade-in so we didn’t have to deal with it, handling everything involved while I read a 10-K on the iPad and discussed it with Aaron. The whole thing was just easy.
Funnily enough, we didn’t set out to buy another Jaguar. Neither Aaron nor I were intent on staying within the Jaguar family after I got rid of the older model but this hit on so many of our checkboxes, from design to features and at a price that was fantastic, that’s how it happened. Less than 48 hours later, we can say, without reservation, it is one of the best purchases we have ever made. The conveniences are incredible. We can remotely monitor various aspects of the car from our cell phone; e.g., if we’re in a meeting and it’s frigidly cold, we can remotely activate it to a specific temperature, check the gas levels, tire pressure, etc. It has multiple suspensions for different driving conditions. Everything is automatic from the heated windshield when it snows to the headlights automatically brightening and dimming. If Aaron and I needed to travel, we could work without missing a beat from the road as the car can transform into a hotspot and conversations with the integrated phone capabilities while driving are completely natural given the quality of the sound system. It’s also large enough in the back that we won’t have any problem accommodating two car seats when we have kids. If we’re ever traveling on business and need to pick someone up, we can easily accommodate three adults in the backseat. I wish I could adequately convey how happy we are with it. To be blunt, if we had needed two cars, we’d have considered buying two in different color combinations because it’s that well done. The jump in quality is so massive that I’ve only calculated the compounded value of the trade-off three times in my head and each time felt like we got way more than we gave up in future additional wealth. We’d do it again in a heartbeat. (After driving it, my mom put it best when she said, “It’s so you.” It’s seriously as if Aaron and I had designed a car that looks like our life; our home, our aesthetic, how we want things to be nice but somewhat understated – this isn’t a car that people tend to notice right away, which is how we like it – the emphasis on quality in even the smallest details but in a way where it is internally focused and not necessarily something the world needs to see when you’re pulled up next to them at a stoplight.)
While I can’t say we are car people, I can say there is a degree of emotional satisfaction in not only driving this particular car but being done with the car selection process so we don’t have to think about it again for a decade or longer. It’s one more thing we don’t have to worry about so we can focus on more important matters.
While this whole operation was much more straightforward, the takeaways and reinforcements for me are:
- If you are patient, you can save tremendous amounts of money. Those of you who read that earlier article know we started looking for a replacement car back in 2012. If we hadn’t found a deal like this, we’d still be looking most likely. Don’t let the presence of a time crunch cause you to enter into less-than-favorable transactions. Make decisions before external pressures force you to make decisions. That ability and willingness to choose your moment when it’s most advantageous to you can let you get significantly more than you pay for in the transaction.
- If you are flexible and willing to go wherever the bargains are, you can save tremendous amounts of money. This doesn’t mean necessarily giving up what you want but, rather, being aware of which things are really deal-breakers. One of the things I would have enjoyed was a wooden steering wheel because our old model had one and I liked how it looked and felt. However, to get it with all of the other options, I’d have had to order a new Jaguar entirely rather than picking one off the lot, which would have resulted in paying probably $25,000 or more in addition to what we paid by the time most things were said and done due to the deal we negotiated. No thank you. I’d rather have more capital to invest because no steering wheel on the planet is worth that kind of money. I’d have been more likely to buy shares of something and give them away to younger family members than do that.
- Don’t let people tell you what you should like. We were open to almost anything and everything. We looked at everything from Kia and Ford to Maserati and Mercedes. For the utility trade off, I gladly would have chosen a mid-tier Ford Explorer over a top-of-the-line Maserati because, despite loving the exterior of the latter, I didn’t like the interior. Neither did Aaron. (Though, if that ever changes and the interior matches the exterior, I could see being tempted. The outside of those cars are beautiful to both of us.) The cost simply wouldn’t have been worth it. Know yourself. Focus on that sweet spot where the cost-benefit lines meet and don’t let peer pressure influence you. If you want to bicycle to work rather than drive and, instead, use your money to take a couple of extra vacations a year or to collect original mint condition comic books, do it. There are no rules. It’s your life. The trick is making sure the decisions are intelligent when compared to your stated goals; e.g., if a 25-year old making $60,000 a year said they wanted financial independence and bought a car like this one, that’s a foolish way to behave as it’s self-defeating. It would be a dumb. Yet, if you develop and own hotels, are 45 years old, and make $1,200,000 a year, it’s a non-event over the period during which you’ll be driving the vehicle.
- I am thoroughly convinced, as I’ve written many times in the past, that those of us who had to make everything ourselves get a permanent happiness boost when we actually outlay capital compared to those who didn’t the same way certain characters in video games have stronger starting base stats. We’ll always appreciate it. There’s a contrast principle in our head; in this case, it’s knowing what it is like to be shivering in the cold as you see your breath and the car shakes around you because you’d rather buy more shares of AutoZone or Berkshire Hathaway or whatever it is that interests you at the moment than you would buy a new car. It’s also a physical manifestation of intelligent behavior; a real-world example of how prudent decisions, and trying to look for intelligent things to do, is not just an academic activity that makes numbers grow on a page or spreadsheet. Those numbers are real purchasing power than can be exchanged for tangible goods and services. That’s something I’ve always needed to be reminded about because, all else equal, I almost always prefer to buy more ownership of things than stuff. In fact, when we were driving off the lot, the dealership had placed a bottle of Jaguar-engraved red wine in a gift box in the back seat. Aaron looked over and joked – but at the same time was completely serious – “They should have made it a share of Coca-Cola. That really would have sold the experience.”
- We worry about our future kids because, as we grow older and our opportunity trade-offs modify due to a combination of coming closer to mortality based on average life expectancy and our personal net worth expanding over time, we’re likely to loosen the purse strings somewhat. That means our children, by the time they are in their teenage years, are probably not going to have any memory whatsoever of what our life was like; the journey, the sacrifices, the days where all you get is 3 hours of sleep because you’re constantly pouring yourself into your businesses. Trying to find that balance between doing what is right for them by providing them all of the advantages and privileges that can get them ahead in the world while still making sure, to the extent we can, that they turn out to be good human beings with the right values … in the coming years, it’s safe to say this is going to be something that takes up a lot of late night conversations, essays, and thought time.
- One thing I like doing is following the Alexander Hamilton strategy of tying specific income streams to specific purchases. For example, I mentioned our copyright income earlier and that is because Aaron and I tend to pay for nearly all of our personal household expenditures out of our copyright income so we never have to spend the earnings of our private businesses or investments. There may be times we make exceptions but it strikes us an intelligent way to behave.
As I’ve gotten older, I do understand, at least to some degree, why some men and women love cars so much. I don’t think they’ll ever tempt me as much as a blue chip stock or an attractive piece of real estate but I can at least appreciate the passion they have for them.