Comments on: Save money on car depreciation

By: Should you buy a used car or new car?

Should you buy a used car or new car? — Tue, 17 Feb 2009 16:05:17 +0000

[...] I started this site I have written a bit about how you can save money by buying used cars and how they affect your financial freedom. But this video (I think from Dave Ramsey’s [...]

By: MrCrumbles

MrCrumbles — Tue, 09 Dec 2008 22:27:21 +0000

Extraneous options can also increase depreciation value. People are willing to pay more money for a used car with desirable options like a moonroof, heated seats, awd, etc. But if you paid extra for a custom color, interior wood trim, or Recaro racing seats, few people will value those things more so they’ll want to pay the same price as the base car.

My car is a wagon (Mazda3 hatchback) which I guess people don’t like. Personally I think it’s much sharper-looking than its sedan counterpart, but that’s me. I’m hoping that with everyone selling their SUV’s and downsizing that people will start to warm up to them. I mean come on, why wouldn’t you want triple the storage space in back?

By: Happy October!

Happy October! — Wed, 01 Oct 2008 17:29:20 +0000

[...] Save money on car depreciation [...]

By: Tim Huegerich

Tim Huegerich — Thu, 17 Jul 2008 05:30:51 +0000

Fair enough, I agree with all your points. A couple things, just for fun:
1) The people I know who buy a new car every couple years are not buying practical Hondas and Toyotas (which I also like) but fancy sports cars or other spectacles. For flashy cars, I would agree that the decrease in value is likely b/c they are no longer the latest thing. But for more ordinary cars, it may be harder to understand the rapid decrease in value.
2) Even if just some of the people who sell their new cars after a short time are unloading lemons that already had a serious problem, that could dramatically lower the price because the sellers with good cars may not be able to distinguish themselves from the lemon sellers.
3) I would expect that as you look at newer and newer cars, the proportion of total sellers who are unloading lemons increases. At least, when you talk about cars 1 month old or “just off the lot”, it’s harder and harder for me to imagine another reason for selling the car. And this could explain the steep drop off in resale prices after a new car leaves the lot.

I guess my point is that as long as you keep your new car for the long run, the rapid initial depreciation doesn’t matter and really isn’t a reason to favor buying a used car. But it’s a good point that you shouldn’t sell a new car after only a short time.

Disclaimer: I have never bought a car nor studied the automotive industry at all. This is more or less speculation (but you could probably already tell that).

By: bob

bob — Tue, 15 Jul 2008 12:49:48 +0000

@Tim
I know some people (everyone probably does) who buy a new car and sell it a year or two later, because they want the latest and greatest thing on the market. For them it has nothing to do with the proper working of the car.

No doubt, there are some people who unload their lemons after a year or two. But I think there are many reasons why people would sell their cars after a year or two.

And actually, my preference to older cars takes into account the “risk” of getting a lemon. I also like to use the statistical proof (Consumer Reports.org) that hondas and toyotas last longer with fewer problems than other cars.

By: Tim Huegerich

Tim Huegerich — Tue, 15 Jul 2008 05:43:58 +0000

I think the key to understanding why observed car prices drop so quickly once they drive off the lot is a Nobel Prize winning economics paper from 1970 that every economics student knows, explained well here: http://www.slate.com/id/2140743/
The key idea is that the observed “price” of a 1-year-old car is not some objective measure of its value but the average price of cars that are sold when they are one year old. And why would anyone sell their car after one year? Well, the suspicion might be that something about it is defective. So most cars that are sold after one year are defective, or sold at a price that takes into account the likelihood they could be.

But if this is the correct explanation for the rapid initial depreciation, it doesn’t mean we shouldn’t buy new cars (because the rapid depreciation in observed prices doesn’t mean *my* new car is actually deteriorating in functionality at all). It only means we shouldn’t try to sell our new cars too soon, because the buyers will suspect our motives. So I can at least agree with the last section of the post.

By: 5th Edition of the Finance Fiesta! | rocket finance

5th Edition of the Finance Fiesta! | rocket finance — Thu, 03 Jul 2008 15:27:34 +0000

[...] teaches us how to make the best of car depreciation. Lots of good info in this article. You really have no reason to buy a new car, do [...]

By: Spike

Spike — Tue, 11 Dec 2007 22:10:51 +0000

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

By: bob

bob — Mon, 26 Nov 2007 22:56:25 +0000

@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.

By: Ernesto

Ernesto — Mon, 26 Nov 2007 21:17:15 +0000

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.