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I have a teenage daughter who just got her permit, and I've been going through the same thought process.
Mine plays large and bulky musical instruments, so a wagon would probably be best for her.
If your daughter plays the flute, a wagon may not be necessary.
If the 940 is naturally aspirated, I'd probably avoid it. They're slugs. A few extra HP would be particularly nice and safer when an 18-wheeler is bearing down on her in an acceleration ramp, so if I was looking for a 940, I'd look for a 940 turbo .
A 5-speed naturally aspirated 850 is actually quicker than a 940 Turbo.
A '97 850 also has side airbags.
An 850 manual sedan is probably a lot more fun to drive than a 940 automatic wagon.
In terms of reliability, both the 940 and 850 seem to have about the same number of black dots (bad) in the Consumer Reports frequency of repair charts.
A '97 is likely to be less trouble than a '94, simply because of it's age. The Consumer Reports charts show more red (="few problems" =good) dots for the '97 850 than for the '94 940.
So my answer is: if the manual '97 850 has as good maintainance records as the '94 940, I'd buy the 850 for my own kid! It might cost a little bit more to keep running, being FWD, but there are other advantages, like safety.
My $0.02......
-Uncle Olaf
'98 V70T5M 52k mi, IPD stabilizer bars, Volvo strut tower brace and skidplate, V-1, Dunlop SP8000s
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