Buying an SUV? New, Used, or Not at All?

Abstract
Purchasing a vehicle is the second largest purchase a household can make. There are so many questions to ask and variables to consider. Both quantitative and qualitative variables should be researched. Making the wrong choice can be a costly mistake. The Fields’ household has decided to look into purchasing a small SUV. They have narrowed it down to a new (2015) or used (2012) Chevrolet Equinox verses a new (2015) or used (2012) Ford Escape. Then again, depending on budgets, payments, and other multiple variables – they may not buy at all. The Fields’ are thinking of upgrading to a larger vehicle from very small, low miles per gallon, high cost to insure, but paid off 2007 Ford Mustang. Just a few of the variables they must consider are cost of the vehicle (monthly payments), depreciation, cost of insurance, gas mileage, safety features, and style.
They must also consider the best fit for the family. Some of these variables will be more qualitative measures. They have a teenage son who plays basketball. He is very tall and needs to fit comfortably in the SUV. He also needs the extra room in the back to haul all of his basketball gear. Not to mention, he wants to look cool being dropped off at school. They also have a daughter who is in college. She likes the extra room to haul her friends around, and of course she wants a good-looking vehicle as well. Both Mr. and Mrs. Fields need the extra room for luggage for their weekend trips. Overall the Fields want a safe, sporty, and reliable vehicle with good gas mileage that will last 8 years or more.

Buying New or Used?
Figure 1
Figure 1
The Fields have to decide are they going to buy new or used? A 2015 Ford Escape costs $22,610 to buy new or $15,300 to buy a 2012 used. A 2015 Chevrolet Equinox costs $24,520 new and a 2012 is $17,601 used. At 2.39% interest for 60 months, the payments on the new Escape (including fees and finance charges) would be $424 per month or $271 for the 2012 (Ford.com). The new Equinox would be $477 per month, while the used would be $312 (Chevrolet.com). The budgeted payment for the Fields’ household is $400 per month, so it seems that the used vehicles would be more affordable. See the decision tree below (Figure 1).
When considering whether to buy a new or used vehicle, the Fields also have to weigh the cost of depreciation. According to Edmunds.com, there is over $5,000 in depreciation in the first year for the Chevrolet Equinox and over $4,500 in depreciation on the Ford Escape. Over a five year period, the Ford Escape loses about $10,500 in depreciation while the Chevrolet Equinox loses over $13,000. Since the Fields’ family intends on keeping the car for 8 years or more, we have estimated the depreciation for years 6, 7, and 8 (see Figures 8-11 on pages 9-12). We used the trend line forecast, the moving average forecast, and the weighted average forecast methods to make predictions. In our regression analysis and depreciation comparison, we have opted to begin analyzing data in year two. Year one’s depreciation is accelerated (since you lose thousands of dollars by driving the car off the lot) and we have not allowed it to skew the remaining years’ data. According to Edmunds.com, the depreciation drops off a little by year three which is why the Fields’ are looking at the 2012 models if they choose to buy a used SUV. Starting in year three, both vehicles only lose around $1500 - $2000 per year due to depreciation. If the decision was based just on price (monthly payment and depreciation), the leading purchase would be the 2012 Ford Escape. Insurance Costs

There are still so many other factors to consider. New vehicle insurance costs are not significantly more than used, especially when money is owed on the vehicle. When payments are being made, the bank requires the insured to carry both comprehensive and collision in order to protect the collateralized asset. According to insurance quotes on Travelers.com, the cost of insuring a 2015 Chevrolet Equinox is $313 every six months. The cost of insuring a 2015 Ford Escape is $265 every six months. When it comes to used vehicles, the premium for a 2012 Chevy Equinox is $287 and the premium for a 2012 Ford Escape is $250 every six months. The premium difference of $37 - $50 is not significant when thinking about buying new or used. Either of these premiums are much better than the $585 every six months that the Fields are currently paying on a much older and smaller 2007 Ford Mustang. See the chart below (Figure 2).
Figure 2
Figure 2

Miles per Gallon

The Fields only drive about 14 miles each way to work, but they have several relatives who live out of town. Therefore, they take frequent weekend trips. This is why gas mileage becomes a huge factor in which vehicle they decide to purchase. The 2015 Chevy Equinox gets 22 city (C)/32 highway (H) miles per gallon while the 2015 Ford Escape gets 23C/32H. The 2012 model of each vehicle gets 22C/32H mpg for the Chevrolet Equinox while the Ford Escape gets 21C/28H mpg (KelleyBlueBook.com). With gas prices averaging $3.19 per gallon and the Fields driving about 1600 miles per month, these figures are very significant when deciding which vehicle to purchase. See the chart and graph below (Figures 3 & 4).
Figure 3
Figure 3

Figure 4
Figure 4

Safety Ratings

When choosing a vehicle, the Fields also need to keep safety in mind. The safety rating on the Chevrolet Equinox is four stars over all according to the National Highway Traffic Safety Administration. The Equinox received five stars in the side crash test and four stars in the front crash and roll over tests. Standard safety equipment includes six standard air bags, antilock brakes, and electronic stability control. The safety rating on the Ford Escape is also four stars over all from the National Highway Traffic Safety Administration. The Ford Escape received three stars in the side crash test, four stars in the front crash and four stars in rollover tests. Standard safety equipment includes six standard air bags, antilock brakes, electronic stability control, traction control, brake assist, and child safety locks. Overall the safety ratings were very close. There was not enough difference to solely base or change a decision in buying. See chart and graph below (Figures 5 & 6).

Figure 5
Figure 5
Figure 6
Figure 6

Qualitative Variables

Some other qualitative statistics for all four vehicles being considered include style, ease of handling, interior and exterior vanity features, warranty options/exclusions, and color. All of these are additional variables that the Fields should weigh. In both new and used SUV’s, there is ample legroom in the front and back seats for the tall men in the Fields family. Both also have a large amount of trunk space in the back to carry items for hobbies and sports. Each vehicle has a stylish interior and exterior - which makes it nice to drive at any age. Additionally, the warranty offerings, color, and standard features are fairly comparable in both models. Since the qualitative statistics are so close, the Fields will have to make their final decision based on analyzing quantitative data that has been researched.
Conclusion

The Fields family has decided to buy an SUV. Although taking on a car payment is not ideal, it is necessary. Through quantitative analysis, they have come to the conclusion that buying a 2012 Ford Escape will save them money on gas and insurance. It will also provide the necessary space needed for the family’s hobbies and travels. Looking at the different options through a variety of quantitative methods provided the Fields with well-rounded research. They now know what to expect as far as expenses but they are also educated on depreciation and safety. The Fields household is looking forward to their new purchase and they are very confident that they made the best decision. See the chart below (Figure 7).

And the winner is…
Figure 7
Figure 7

The 2012 Ford Escape!

Figure 8
Figure 8

Figure 9
Figure 9

Figure 10
Figure 10

Figure 11
Figure 11

Work Cited

Chevrolet Cars, Trucks, SUVs, Crossovers and Vans. (2014). Retrieved from www.chevrolet.com

Consumer Reports Online. (2014). Retrieved from http://www.consumerreports.org Edmunds Price Promise New Cars, Used Cars, Car Reviews and Pricing. (2014). Retrieved from www.edmunds.com

Ford New Cars, Trucks, SUVs, Hybrids & Crossovers. (2014). Retrieved from www.ford.com Kelley Blue Book New Car and Used Car Prices and Values. (2014). Retrieved from http://www.kelleybluebook.com National Highway Traffic and Safety Administration. (2014). Retrieved from http://www.nhtsa.gov/Research Render, B., Stair, R., Hanna, M., & Hale, T. (2015). Quantitative analysis for management (Twelfth ed.). Upper Saddle River: Pearson Education.

Travelers Insurance Auto Insurance Quotes | Car Insurance Rates | Travelers Insurance Auto Insurance Quotes | Car Insurance Rates. (2014). Retrieved from
http://www.travelers.com/personal-insurance/auto-insurance/index.aspx