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Your dilemma classically illustrates why the E39 M5 is so great. For the price of your M5 and M3 you will be able to drive a newer car, but it may not end up being that much of a step up. Our cars really represent a lot of value - you get a lot for the money with a used M5.

When you spend those thousands of dollars more, you might not get thousands of dollars worth of improved driving experience. It is hard to improve by big leaps and bounds on such a nearly perfect car!
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