Old is the New New: Rusty's BMW E39 Economic Lunacy

E39 Story
According to FlightRadar24 (an essential app purchase) last night a 1979 Fairchild Metro II flew over my house. This is an aeroplane which is still in viable revenue-earning status after 35 years of maintenance. I also know that DHL routinely fly thirty-year old 757s out of my local airport. The idea that these old birds are kept running made me wonder, yet again, why doing the same thing with cars seems to be becoming such a minority sport.
So I’ve been having another of my brainwaves. Welcome to the first of my ideas this year for potentially losing a sensational amount of money.

Some people can’t be stopped changing their cars on a seasonal basis according to fashion, boredom or simply the desire to spend all their money as quickly as physically possible. Nothing wrong with that. In fact I’ll say a huge thank you to them for keeping our car industry (and our finance industry) alive. At the other end of the spectrum are those who will move from one old beater to the next, drive them ’til they’re used up and throw them away at the next inspection, never spending a bean apart from on fuel and insurance (and some folk still think this is optional).
I’m somewhere in the middle. I love new cars but the economic model of purchase and depreciation has my inner Scotsman in a cold sweat. If I had to replace my car I would want to buy something that I knew I’d want to keep for a long, long time, so I might as well let somebody wealthier than me absorb that initial cliff-face of depreciation. I’ll buy it at three years old when it’s nicely run in.
Trouble is, the kind of car I want is much older than three years old. In fact, I’m pretty sure that the car I’d want as a nearly-new car is an E39 BMW 5 Series, and the youngest one of those is now eleven years old.
e39 3
And so we move onto my hypothesis, and what could be the acorn from which a mighty oak of financial ruin and despair could grow. Bear with me for a moment and tell me if there’s even a nanopercent of reasonable logic to my rambling.
A new 5 Series starts at $50,000. A very nice, late E39 is probably about $5,000 and is still a really, really good car. But the problem with buying an E39 now is that it could well be beset by all manner of awful hidden woes which have been sidestepped by their most recent custodian. Complexity is the enemy of resilience, and old age withers us all.
So, let’s talk about re-manufacturing. You don’t want a car which keeps eating ball-joints, bearings and bushes. Any E39 will have taken plenty of potholes through its chassis, so lets change them all. Maybe even the dampers and springs. Suspension components aren’t the most expensive things in the world, and they put up with a huge amount of punishment so deserve special attention. We can change the brake pads and discs while we’re at it. By now we’re probably looking at a $2000 bill.
We’ll do a diagnostic test on the engine and transmission and thoroughly check for signs of potential leakage. In fact, we’ll do this first as an opportunity to reject anything which looks like being more trouble than it’s worth. A damn good service with new filters, plugs and oils will be performed so that the car starts its new life on a firm maintenance foundation. Allow for $1000+ worth of repairs as necessary.
A lot of what’s left to do is cosmetic stuff. The interior is likely to be well worn by now, and replacement trim parts will probably be needed, but there are loads of E39s in junkyards from which these can be sourced with relative ease, and there’s always the BMW parts network to fall back on if necessary. By the way, when scouting for potential base cars for this project we’ll try to avoid anything with a sunroof, and steer clear of cars with the factory navigation system. Who wants a fifteen year old satnav? It’s just another thing to go wrong, anyway.
At the end of all this we’ve probably got receipts for over $10,000 including the car. What we now need is somebody willing to buy it for enough money to give us a profit. But, wait, nobody will buy this if all it is is a grotesquely overpriced used car, so it’s going to need a pretty ironclad warranty. So, let’s give it one. We’ll put $3,000 aside, per car, for warranty repairs. We won’t cover wear and tear items, just big stuff. We’ll also write into that warranty that a condition of its issue is that we reserve the right to EXCHANGE the vehicle as we see fit, for equal value of course. That’s up to the buyer’s discretion.
So now, all we need is somebody willing to spend $20,000 to buy a 2003 E39. OK, there’s nobody out there insane enough to do this. In fact anybody who’d even consider it ought to report themselves to the authorities right now to get themselves checked over before they hurt somebody.
e39 cnbc
But what if this was a NEW E39? Well, there’s no such thing, but this is as close as you’ll get. HOW MUCH marketing would it take to convince people that buying a “new” E39 for $20,000 and keeping it for years and years at least as much financial sense as buying a NEW F10 5-Series, losing $20,000 immediately and then having to do exactly the same thing again in three years time? Especially with the aforementioned ironclad warranty that I’m sure will work out brilliantly.
It needn’t even be an E39, I just use that as an example because I’m comfortable with them. Name your car, the principal would be the same. Classic car specialists routinely carry out restoration work and recommissioning when they sell a £300,000 vintage Ferrari, the only difference here is the value of the base car . I’m just applying the same logic to the real world, on a car which will need to be reliable and enjoyable on a daily basis. And a “restored” E39 with a MASSIVE warranty behind it ought to be just the ticket.
I’m floating my business on the stock exchange next Monday.
(All images stolen from various corners of the internet. If you recognise one and want it taken down, please let us know).

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  1. Alff Avatar

    I suspect the model works better if you don't do the suspension and brake work up front and have to charge for it. Your customers are going to be price sensitive. Do the inspection, just r&r the needed items and offer the cars with a warranty. Good idea to focus on a particular model and generation, though. You'll want to keep spares and develop efficiency at the most common repairs.

    1. david42 Avatar

      Agreed, building up volume & expertise will go a long way to making this a less-ruinous proposition.

  2. david42 Avatar

    You know, I've often pondered this for older cars… Broughamtastic Cadillacs and the like. I think that newer cars (like the E39… which I used to own and sorely miss… until I remember my repair bills) have too much potential to spoil the financial math with frightful electronic gremlins. But it might work better with older cars for which the remanufacturing process is simpler and more predictable. And which are robust when in like-new condition… so while I wouldn't do this with a series-whatever Jag XJ6, I think that Volvos from the mid 1970s or earlier, and classic American iron would be good candidates.

  3. neight428 Avatar

    A full restoration of a car back to new is going to have to dive in to obscure things like power seat motors, defroster wiring and headliner adhesive. You're looking at way more than $20k to get back to something that is defensibly new. Ironclad warranties are difficult too. When they are not offered by the manufacturer, the business model is usually something along the lines of "cash the check don't answer the phone". Throw in a rate of return on top of whatever the average repair costs would be during the warranty period and you have the cost of the warranty,and that is not going to be cheap. You're talking about a "certified pre-owned" program for really old cars. The used car market is a fairly rational one, it's economics are what they are for very good reasons and every restoration costs way more than anyone will ever admit.

    1. neight428 Avatar

      But the "how much marketing" question really speaks to what kills the idea. Very few pay for a BMW because it is a good car to drive. They pay for the social status. Is there a market for the folks that don't care about that stuff? Sure, but it is going to be damned small. $20k for a superb driver's car sounds good, but it will still be worth $5k to nearly everyone else. _
      My similar idea is to buy up the tooling for old models such as this and sit on it for a couple of decades until everything is phased out of the current models and you can build a complete car with surplus manufacturing gear that would have been junked anyway. Then, you crank out 1990 Civics all day long and end up with a better car than the Chevy Sonics that cost twice as much. My plan has about 1000 holes in it too. _

      1. skitter Avatar

        If you actually get the tooling…
        and the CAD…
        and the wiring diagrams…
        and the factory calibration programs…
        …then I'm on board to handle legacy support.

        1. neight428 Avatar

          to say nothing of regulatory compliance and investors willing to wait 10 years to see if this whole thing actually works.

  4. neight428 Avatar

    Oh, and goodluck with the whole VANOS thing.

  5. dropgate Avatar

    I've daily-driven an E39 540i for the last 8 years and I'd consider it. I love this f##king car, even if it did eat its alternator on the way home last night.

    1. Rust-MyEnemy Avatar

      I was thinking of going 540 only!

  6. Naengmyeon Avatar

    The E39 should become the Douglas DC-3 of the road. A rebuild, a new powerplant and sticky tires could turn it into something like the Conroy Turbo Three.
    <img src="https://img-fotki.yandex.ru/get/15506/69185483.330/0_116a37_552cd0e5_orig.jpg&quot; width="500" />

  7. Peter Tanshanomi Avatar
    Peter Tanshanomi

    "We won’t cover wear and tear items, just big stuff."
    And that's where your plan goes to crap. In most cases, people don't get new cars because the transmission or engine have ground themselves to dust. It's all the little things that go wrong and turn them off. As I pointed out a year ago, it's not drivetrain and suspension upkeep that's prohibitive on the Town Cow, it's all the little stuff, the "wear and tear items" as you call them. In my car, dash switches are dying one by one. The odometer and tripmeter are both kaput, as are the A/C and two of the power windows (not for the first time). Only three of the element wires in the rear window defroster still work. The engine and transmission are fine, the body is virtually corrosion-free. The suspension and paint are shot, but it would be a fairly practical thing to put new suspension bushings and shocks on it, give it a new coat of paint, and buff everything to a shine. But the little things are what will send this car to the salvage yard. I truly loved driving it, and would be content to drive this same model well into the future, but all the "wear and tear" has soured my driving time.
    Unlike your aircraft analogy, automotive components are not built in such a way to facilitate complete, frequent, repeated tear-downs. Much of a modern car is designed for easy and efficient (i.e., cheap) initial production-line assembly—not subsequent dis-assembly and re-assembly. Furthermore, it makes sense to keep planes a long time because regulators mandate regular, expensive maintenance labor on them whether they are new or old. Also, planes don't get exposed to nearly as much corrosive, caked-on gunk as cars do. A lot of cars simply rot away from road grime. There's no such term as "sky grime."

    1. skitter Avatar

      Aircraft, spacecraft, and military gear are the only equipment that comes close to being properly engineered, properly tested, and properly maintained. Everything else has a large degree of good'nuff.

      1. danleym Avatar

        Ever been in the military? Yeah, there's a large degree of good'nuff there, too.

      2. Vairship Avatar

        More importantly, aircraft, spacecraft,and military gear spend way more time in maintenance/repair than in actual use. If you did the same thing on a car, it'd last forever too. But of course maintenance costs would start approaching that of said aircraft/spacecraft/military gear…

    2. Rust-MyEnemy Avatar

      Oh, I agree. It's a terrible, contemptible plan, but I wish it wasn't. The great thing about cars vs. planes, aside from less need to overcome gravity, is the non-essential nature of plants. Most electronic circuits on a 'plane are pretty critical, junkyard spares are pretty unwise. On the other hand, if I was going to corner the market on "good as new" E39s I would have marauded every scrapyard under the sun to get my hands on those spare switchpacks and modules that BMW would charge a fortune for. Test them on a "laboratory" car and then either junk or OK. Then it's good to go.
      My main reason for the E39 choice is that it's just about modern enough to have the safety and convenience that people need, without being overloaded with the bloat that has accumulated over the last dozen years. And, though they'll rot if you let 'em, they're nowhere near as prone as other stuff I could mention.
      By the way, the Vickers Valiant did rot away from air grime….!!

  8. Steven Avatar

    My friend's dad just bought a 2003 E39 540i for $15k. There are people out there…

  9. Alan Cesar Avatar
    Alan Cesar

    Three words:
    Certified Previously Owned.

  10. nanoop Avatar

    When I started with my project car ('83 944) I was honestly surprised how vivid the shop ecosystem was. There are even people you can describe what you want, what your budget is, and they'll provide you with whatever trailer queen/rallye homage beater you'd like – according to your budget.
    I am convinced that this kind of dedication exists for more than only one car model.
    You only have to be willing to invest more than getting another one would currently cost. In the long run, fixing one properly may come cheaper than hopping to the next beater.

  11. mdharrell Avatar

    "You don’t want a car which keeps eating ball-joints, bearings and bushes."
    That sounds like a reasonable assertion but all of the evidence in my life suggests otherwise.

  12. wunno sev Avatar
    wunno sev

    a friend's dad has an E39 528i wagon, bought CPO and cared for religiously – religiously – since then. it's a great car to look at, ride in, and drive, and it probably averages $2000-4000 in repairs each year.
    now, that may be at dealer prices, but consider the catastrophic failures it's experienced in the last few years: air suspension, clutch, VANOS vvt system.
    luxury cars tend to be fussy, and i feel like restoring them to "new" condition for reliability's sake is kind of throwing a lot of good money at a just-okay result, especially when you're providing some sort of warranty. i don't mean to disparage luxury cars; like i said, that E39 is a wonderful car to drive. but it seems more prudent to both buyer and seller to chase down gremlins as they appear, rather than trying to evict them from their homeland.

  13. dimpl09b Avatar

    <img src="http://i.auto-bild.de/ir_img/1/2/3/7/3/6/2/BMW-525-TDS-E39-zerlegt-AUTO-BILD-Test-1200×800-bcbcee3ecdc9e188.jpg&quot; width="600">
    Exchanging the worn-out parts of a BMWE39 will cost you exactly $4000. This is the result of a long-term test of an E39 made by "Autobild.de" (sort of german version of CarAndDriver) after riding an E39 for 1 million kilometers ( or 620.000 mls). Lest I forget: Odometer conked out at 999.999 kilometers. BMW could not deliver a solution for this very special problem.
    I hope image link works. Otherwise here is the whole story (unfortunately only in german language): http://www.autobild.de/artikel/gebrauchtwagen-tes

    1. 1977chevytruck Avatar

      Can I buy it like that? Seriously, if they sold unassembled new cars at a cheap enough price, I would definitely/probably/maybe consider buying one.

  14. El_Martillo Avatar

    Lets not forget construction equipment. Small machines like backhoes, fork lifts, skid steers, etc. are designed with one life cycle in mind. With proper maintenance these can go from 5-10k hours before the costs make it difficult to generate profit. If we look at anything larger than a mid size wheel loader, mid size dozer, or mining truck then we often have up to 3 life cycles engineered in. Certified rebuilds with warranty often mean machines with up to 50k hours before they are exported to developing countries.

  15. Scoff Law Avatar
    Scoff Law

    I never could get into the idea of paying $20-30k (or more) for a car and watching it depreciate 10-40% just by the mere act of driving it off the lot, especially when there are plenty of other people who are more than willing to take it in the shorts on that front and then sell it to someone like me 4 or 5 years later for 25-30% of it's original MSRP; and if I could I would keep my Lincoln LS until hell froze over but unlike DHL (et al) and their airplanes my car only generates expenses not profits, so while they can afford to give their planes what is essentially a near rotisserie restoration every 5-10 years I am not so fortunate.

  16. Lokki Avatar

    My wife drives a 1998 BMW 328I that we purchased new for her. She had a short commute to work (and covered parking there as well as at home) so the car currently has 69,000 miles on it. Never 'raced or wrecked', the car is averaging about $1,500 a year to keep it in 'as new' condition. On top of the regular oil/coolant/brake fluid changes, weird little things happen – the aux cooling fan failed in the on position, which killed the battery. The fan itself was about $100 bucks, but the whole nose of the car has to be disassembled to get to it. The plastic top of the radiator cracked. A dried-out speaker cone cracked, requiring replacement (only 9 more to go!). The trunk struts failed. I certainly have no complaints on the reliability or quality of the car, but these are the things that would eat you up in warranty claims.
    My wife loves the thing, and refuses to replace it. Since she's no longer working and probably only putting a few K miles a year on the thing, this works for me. However, I can't see your proposal as a successful business model since unless you maintain the quirky little stuff, it soon becomes just another old car.

  17. pavel Avatar

    I think the difference is in the original price range of the car you're looking it – Audi A8/S8 is a great example over a car that's over engineered / and overspec'd for very long life cycle and empirically they all hit several hundred thousand miles before anything cost prohibitive puts them out of service.
    The other point is you only repair stuff that needs to be repaired – blown ball joints rather than all ball joints because it will make you feel happy.

  18. Preludacris Avatar

    I like the way you think, but the amount of LABOUR it takes to make an old car like new is prohibitive.
    Take it from a guy who drove a Honda Prelude (reasonably well built) from 330,000 to 400,000 km, then despite being irrationally fond of the thing, let it go because everything was breaking faster then I could keep up. Replace the exhaust? Alternator fails. Replace that? Get a coolant leak. Replace every 25-year-old hose on the engine, wheel bearing goes out. And so on.
    Buying all the replacement parts was way cheaper than making new-car payments, but I just didn't have enough time to do all the work required. I can't imagine that replacing all those things at once would be time-efficient enough to turn a profit on one car, let alone keeping up with warranties on a fleet of old cars you've already sold.
    I really want to like this idea though!

  19. r henry Avatar
    r henry

    Bad idea. Every older car I have rehabbed has exceeded budget by a factor of three. —and my projects have been simple American iron with parts readily available at my local Pep Boys. A more complex German car? Never gonna happen…

  20. Sjalabais Avatar

    I'll just say: Go older and cheaper. Ignoring the fact that these cars would have trouble with security and emissions guidelines, a new Volvo 240 for 15000$ or a new SAAB 900 Turbo for 20000$ would find some buyers. Viable? I don't get how car manufacturers actually earn money …
    On a relevant side note: Dacia is sort-of doing your work. They give old Renaults a new face, do some lifting, squeezing and marketing, and end up selling mediocre, but simple cars in great numbers. I remember your Logan-review and know that you get it…

  21. MrBlah Avatar

    I just "downgraded" to a 2000 540i I love this car, it is more fun than anything I've drove from bmw made in the past few years

  22. danleym Avatar

    look up a company called Wagon Masters. They take old Jeep Wagoneers, spend a ton of cash and time on them, and turn around and sell a "new" 30 year old truck. For a lot of money. It's a niche market for sure, but people buy them. I'm sure the same could be done for just about any vehicle that at one point had an enthusiast following. All those guys who bought themselves a BMW for their fresh out of law school present to themselves- they have fond memories, and they're junior partner or better now, with all the cash that comes with it.

  23. Slow_Joe_Crow Avatar

    Sound like a revival of AIR from the 80s. This was a company in New Jersey that did full restos of BMW 2002s and Volvo 122s. AFAIK they were out of business by the early 90s.

  24. Rover_1 Avatar

    I'm trying this process myself but not with an E39.
    My choice of car for this procedure is the Mercedes Benz W124 (or 3 variants of it )
    At 350000 km on the main one, an '88 300E sedan ball joints, driveshaft flexible coupling and two speakers are now requiring replacement. And thanks to a stupid 'traffic calming device' and four people on board the exhaust needs a little welding.
    The other two a C124 and a wagon aren't getting used as much but I want to keep the mileage down on them.
    I think that this process will work with my CX Citroen which by modern car standards is quite a simple car but I have to get rid of the rust and repaint first.

  25. B0YC0TT Avatar

    Someone is doing roughly this: http://jaguardaimler.co.uk