This question in particular refers to the U.S. It has always baffled me and I am looking for diverse viewpoints to help understand the issue.
Every day as I drive to work I see lots of new cars. US automakers regularly report bumper sales. Even Mall parking are packed with new (1-3 years old) cars.
I believe the ballpark estimate is that 90-95% of Americans use auto loans to finance car purchases.
I also estimate new cars cost on average $20-25K. Depending on loan term, I would estimate average payment (after all fees, interest, etc) at around $300-400/mo. I would estimate around $300/mo in gas.
Factoring in license/registration, oil changes, other occasional maintenance you are out at least $5K/yr. And you don't even own it until it's paid off. And it's guaranteed to be worth a lot less by then because of depreciation. How is that a smart investment or use of debt financing?
In contrast, suppose you buy a 5-year old compact sedan with about 60K miles for around $8-9K. Assuming similar annual financial outlay, you would pay it off in about 2-2.5 years. After that you are free and clear for the rest of the car's life. That's reasonably 20 years. If you buy a new car as soon as you pay off the old one, that's $100K over 20 years.
Considering this math, I am wondering why isn't it a norm in the U.S. to buy used cars and drive them to death for 20-25 years? Why doesn't the overwhelming majority of the U.S. population subscribe to a frugal mindset of using a car only as a means of basic transportation from point A to point B. Why are people willing to take out car loans that are easily 50%-75% of their take-home net annual pay?
Does everybody know something that I am missing? It would be great to hear a few perspectives.