November 15, 2007
Save money on car depreciation
How to save money on car depreciation
Cars are terrible investments. In their most basic form, they are merely a tool to get us from A to B. In their most elaborate form they can be a “shiny” tool that gets us from A to B, but with more luxuries. But either way, they are not likely to be much of a financial benefit. Everyone has heard that a brand new car goes down hundreds or even thousands of dollars the minute you drive it off the dealer’s lot.
This is just the beginning. Over the first year some cars depreciate as much as 35%. KBB.com says that the average car loses 65% of its value in the first 5 years. Add on maintenance, repairs, interest on the loan, and insurance and you can quickly see that automobiles can have quite a large negative effect on our finances. We dump all this money into our cars and what do we have to show for it? An asset that just continues to go down in value and still becomes LESS reliable. So, if we are not likely to benefit financially from our cars, how can we minimize the damage?
Minimize depreciation loss by buying used cars
I have always heard (and I agree) that a two year old car is a good age to buy, because you are still getting a fairly new car that is likely to have some amount of manufacturer warranty remaining, but yet a huge chunk of depreciation is knocked off.
SafeCarGuide.com says, “A stabilized rate of depreciation (7% - 12% per year) makes used cars a better value than new ones. New vehicles lose an average of 20% of their value the instant they are driven away from the dealership. When coupled to the average yearly depreciation of 7% to 12%, your first year’s loss is anywhere from 25% to 35%. That translates to a first year $6,000 to $8,000 loss on a $22,500 new vehicle, or a $10,000 to $15,000 loss on a $40,000 one. And that’s for a vehicle only driven the average 13,500 miles. If you drive more than that, your depreciation will be greater (35% to 50% for the first year).”
For more information, Bankrate.com has a good article about the basics of depreciation and although I am not sure how accurate it is, you can also try this car depreciation calculator.
A good way to find a reliable used cars is by checking Consumer reports. They are a Not-For-Profit organization that reviews thousands of products to help consumers get the most for their money. They have a very thorough and detailed list about the reliability of various different makes and model. Since they do no advertising (which helps them stay unbiased) they do charge for the service. They offer a one-month online subscription for $6.00 and a one year for $26.00. If you are in the market for a car, this would be a few bucks well spent.
If you buy a new car, plan on keeping it for a long time If you do buy new, plan on keeping it a long time. This is one of the best ways to get your money’s worth out of a new car. On the other hand buying a new car and trading in the “old” one every two years is one of the worst financial moves you can make. This seems to be what many Americans are doing these days as they try to keep up with the Joneses. As mentioned earlier, it is the first two years in the life of a car that are the most expensive. So why would you want to own the car only on the most expensive years?
One of the advantages of buying new is being able to break the car in properly and having the assurance that you know how the car was cared for all of its life. If you take care of your car and stay on top of your car maintenance, many cars these days can last 200,000 miles. I recently drove past a Toyota dealership that had an old Corolla that had been driven over 500,000 miles. I need to get hold of the owner and find out what he did to keep it running that long. I will let you know 
Feel free to leave me some comments and let me know how you save money on your cars…
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Filed under Strategies to Save Money by bob
Comments on Save money on car depreciation »
Minimum Wage @ 8:56 am
Buy from a car depreciation discounter or wait for a sale on depreciation!
My Cars and My Life | Moolanomy @ 10:47 am
[…] Save money on car depreciation @ ChristianPF […]
Becky @ 12:41 pm
So, if a two-year-old car is the best age to buy a car at, when is the best time to sell? My husband and I have a 1998 Honda Accord and a 2000 Mustang and just had a large repair on each. That got us thinking about how long we should keep these cars. We will probably start a family in the next 2-3 years, so my car, the Mustang, will probably get traded in at that time. What about the Honda? We’ve heard varying recommendations, from “Sell it at the 10 year mark before it nickel and dimes you” to “Keep it till it dies”. Any thoughts?
Money Blue Book @ 4:07 pm
You know, I’ve been pondering something….do car dealerships offer display model discounts? Some big stores like Best Buy offer discounts off of their display models since they have been handled frequently by customers. Do dealerships offer a similar thing? Might be a good deal though. Just an idea.
-Raymond
bob @ 4:46 pm
@Becky
You know I am going to be facing the same question shortly, my one car is almost 10 years old. But, I think I disagree with the advice of selling it at the 10 year mark - the main reason being that there is not a direct connection between 10 years and cars being worn out. Some cars nickel and dime you at the 5 year mark and some maybe not until the 15 year mark. We got rid of our last car when the transmission went out, everything working on the car it would have been worth about $2500, so at that point the $2000 estimate to replace the transmission was enough to say bye-bye. But without a major issue like that it is a tough decision - that probably can only be answered on a case-by-case basis.
Thryah @ 10:59 pm
@Raymond
Don’t know about that, but I do know that they sometimes have dealer cars with a few thousand miles on them for a discounted rate, that’s how my mother got her last car.
The Friday Gathering For 11/16/2007 | Gather Little By Little @ 9:54 am
[…] ChristianPF - Save money on car depreciation […]
Tristan @ 6:21 pm
Thanks for the post, Bob. I’ve said that I will be driving my car into the ground. It’s a ‘95 Toyota Tercel that’s worth about $500 right now. My girlfriend says I should get a new one. What do you think, bro?
bob @ 7:22 am
@Tristan
Well, I am into the idea of driving a car into the ground - as long as your aren’t getting nickel and dimed by repairs every month. But, if you think in terms of money saved by NOT having a car payment, you can afford some repairs - cause paying an average of $50 a month on repairs is obviously better than a $250 a month car payment.
Bottom line, it is personal preference. If I were in your situation, I think I would keep driving it as long as the average monthly cost of repairs didn’t exceed what I expected my next car payment to be. Unless I was trying to impress a girl
- then I would probably sell everything I owned, take a $70,000 loan and buy a NEW BMW M5 
{kidding, for those who can’t tell}
Weekly Roundup - Contests and Cars Edition | Cash Money Life @ 9:20 am
[…] Christian Personal Finance (M): Save money on car depreciation. […]
amy @ 8:50 pm
I’m still driving my 1989 Toyota Tercel….it’s been
a great car but it’s time to part with it…too much
rust on it now. Darn thing still drives great though.
Bought it new and I guess you could say I got my $$$
worth!
bob @ 10:43 pm
@Amy
Wow!! that is impressive!! You are right, that is the way to get your money’s worth out of a new car. That is what I want to do, I will let you know in 18 years if I made it!!
Minimum Wage @ 11:48 pm
I just saved a bunch of money on car depreciation by buying a totaled car from GEICO!
My Evolution From the “New” to “Used”… Car, That Is | I've Paid For This Twice Already... @ 9:32 am
[…] Christian PF: Save Money on Car Depreciation […]
Ernesto @ 3:17 pm
I usually take a two pronged approach..find a fast-depreciating car with a decent used-car rating from the Consumers Union. I’ve had good luck buying late model ‘American’ cars then diving them forever.
My last purchase I got a 18 month old PT Cruiser ( ‘American’ sort of, made in Mexico) with 17K miles and paid around 50% of sticker price of new car. Very happy with the purchase.
bob @ 4:56 pm
@Ernesto
Great idea! my first thought is that there probably is a reason it is a fast depreciating car, but if you investigate it and find the best rated quick depreciating ones then it may work out well. If you can buy at 50% of the sticker at 1.5 years, that is impressive.
Spike @ 4:10 pm
My current car is a 10 Y/O Wrangler I bought for $8K, three years and 30K miles ago. I’ve consistently averaged $2K/year in repairs, so for the $14K invested, I could’ve almost bought a brand-new one instead.
Luckily I’ll still get $4-6K out of it when I sell it, but I’m looking forward to a warranty and reduced gas costs when I get my new Scion xB. Having always owned trucks and vans, I can tell you, the way to save money on upkeep of a used truck is to buy a used car instead (if you can). I recommend the smallest station wagon or hatchback you can get away with. Here’s why:
Staion wagons depreciate like crazy, because they “uncool”. Trucks’ weight and high center of gravity wears out suspension, brakes, tranny and engine much more quickly, and the parts are more expensive. Vans and minivans also tend to make design compromises that make them difficult and expensive to work on and buy replacement parts for. 4WD and AWD vehicles also have a whole bunch of other stuff that breaks. And uhh….duh, gas milage.
The xB is still a truck (sort of) because I need the room to haul stuff, and my wife has the much smaller xA. Obviously, we’ll drive the smaller, cheaper, less-thirsty car when we can. Also, Scions have very low depreciation rates, should I decide not to drive it completely into the ground. Also, there’s nothing else that compares to an xB as far as fuel economy, price, room and stock features. And it seems like everyone’s ancient Tercels are still on the road; that’s a good sign!
My $.02