By on February 5, 2012

From the good old days of 2007…

“Is that yours?” Millions of car buyers spend billions of dollars hoping that this statement will be born of admiration rather than pity. When these words come out of a car dealer’s mouth at trade-in time, they can be especially hurtful– even if the salesman is as honest as their spiel is long. That’s the moment when most car buyers finally discover whether or not their automotive “investment” has walked off a cliff and fallen into the financial abyss known as depreciation.

Here’s how to avoid the freefall.

It simply can’t be stressed enough. Depreciation is the mother of all automotive operating costs. Even if gas soars to four bucks a gallon, depreciation STILL represents the biggest hit to the car owner’s wallet.

To wit: The average cost for a new car in these great United States currently hovers around $30k. After seven to eight years–  still a few years less than the ever-increasing average amount of time American new car buyers hold onto their whips– the car’s owner will be looking at a depreciation rate somewhere between 65 percent and 85 percent.

In other words, come trade-in time, they’re facing an average loss between $19,500 and $25,500. That’s before any considering of the “opportunity cost” (i.e. money lost by NOT investing the cash in a house/money market/alpaca farm). Or inflation.

Bottom line: if you want to avoid depreciation, forget about buying a new car… or even a near-new car.  Yes, a new car offers warranty-related peace of mind and late model vehicles can be purchased as certified pre-owned models. . But it’s an extremely expensive security blanket. A carefully-selected used car may need repairs. But in most cases, repairs of those expenses still cost a lot less than depreciation.

If you’re willing to forgo that new(ish) car smell, figuring-out your buying pattern is the next step. There are two basic buying types: Keepers (keep cars for the long haul) and Traders (trade them in after a few years).

Many Keepers are ready, willing and able to enjoy a vehicle for well over a decade. “Keepers” believe their car should be a cruising companion until the point where the perceived risk of owning it (usually the cash outlay for major repairs) outweighs the fact that ownership itself eventually costs them nothing/virtually nothing.

In the automotive world they are what we call “married.”

The key to being a successful Keeper: marry genuine quality, not reputation. Say what you will about “import bigots” and brand loyalty. The automotive market is a place where perceived reputation translates into dollars and cents.

Toyotas and Hondas routinely receive price premiums– even though many of their products fall far short in value and performance as compared to their peers. By the same token, overlooked or unloved models represent an excellent way to keep the hounds of depreciation at bay.

In most cases, car buyers get more bang for their buck (power, features, etc.), lower up-front costs, and lower depreciation costs simply by buying a used example of a less well known/accepted car. Mitsubishi, Suzuki, Buick– there are plenty of brands that sell excellent products that simply fail to capture the public imagination. The fact that these cars take a huge initial hit on depreciation works entirely in your favor, both buying and selling.

For example, if you’re looking at a midsized commuter, a 2004 Buick Century or 2004 Oldsmobile Bravada, both of which finished first in J.D. Power’s dependability study and received strong ownership ratings, will cost thousands less to purchase than a comparable Camry, Accord or Pilot. Remember: badge snobs must pay for the privilege.

The Trader is a different animal. They are looking at a shorter time horizon than the Keeper. They require a different strategy.

To avoid depreciation, Traders are best off buying a carefully vetted seven to nine-year-old car of their choice. At that point, depreciation has exacted the majority of its revenge.

With due diligence, Traders can get a superb return on their money. The average seven-year-old car kept for two years experiences minimal depreciation (20 percent or so). The average nine-year-old car experiences even less, and so on. It’s a simple but highly effective buying pattern.

And then there is the Sage. The Sage can buy nearly anything and make a buck at it. Yours truly has enjoyed hundreds of vehicles over the last few years– and it’s only taken huge chunks of my free time to do it. Mechanics, auto auctioneers, wholesalers, retailers and hobbyists will always have an edge when it comes to depreciation costs. We know what’s hot, and we know plenty of people who appreciate hotness.

Again, wisdom comes at a cost. Sages don’t pay for depreciation (much), but their insight requires years of hard work, money (mistakes are never free) and a feel for the auto biz’ cycles of fashion and fame.

Whether you’re a Keeper, Trader or Sage, remember: a car is an expense. It may excite you or be a daily nuisance, but it is still an expense. By minimizing depreciation you will avoid the single largest cost in the process. With that money you can save the world, buy groceries or save up for your next car.

 

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137 Comments on “Hammer Time Rewind: Depreciation Kills...”


  • avatar
    twotone

    I realized this very early in my 40+ years of (used) car ownership. Right behind depreciation, are much higher insurance and registration costs for new cars. It’s funny to see people buy a brand new Prius solely based on gas mileage and fuel costs. I’d venture to guess that my total per-mile cost on my BMW 328i (bought used at 1/3 MSRP) is lower than any new hybrid. Fun factor of driving a BMW over a Prius — priceless!

    • 0 avatar
      golden2husky

      One thing that a Prius has over a BMW, at least around here, is that you can use the HOV lanes during rush hour with driver only. That alone is enough to justify ownership. 30 minutes saved a day, round trip. Zipping past the traffic is truly priceless…though a Bimmer in the garage for the weekend would really be the icing on the cake…

      • 0 avatar
        28-cars-later

        I’ve heard that about HOV lanes but the highway I used to commute on didn’t have them so I always wondered. Makes me shake my head, do they afford the veggie Benz the same favoritism? Seems as if they are just increasing the *smug* content emitted from the Prius by having such a policy.

    • 0 avatar
      grzydj

      It’s funny you don’t mention sky high repair costs on your BMW in the same sentence of one of Toyota’s most reliable cars in their fleet.

      How’s your balance sheet looking now?

      • 0 avatar
        carguy

        @grzydj: While this has become the standard car forum response for all things BMW, it isn’t entirely true. I have owned a number of used BMW and the independent shop just a few miles away maintained them for not much more than my Mazda. If you insist on taking them to a dealer then you get what you deserve.

      • 0 avatar
        grzydj

        Carguy, maintenance and repair are not the same thing.

      • 0 avatar

        I gotta back up grzydj here, I was picking up (or dropping off, I forget) one of my cars from my mechanic. He had a BMW in the bay. Pointed at it and asked me to guess the parts cost for a new radiator– $800. He said “That’s a 2-thousand dollar radiator job right there.”

        And my mechanic is always VERY reasonable with the price of repairs. When ordinary things go wrong with a BMW, you’re looking at a 4-figure repair bill, and this is saying nothing of the electrical gremlins German cars are known to develop as they age.

      • 0 avatar
        Ubermensch

        A friends BMW recently needed to have it’s water cooled alternator replaced. Over $900 just for the part, $1200 repair bill at an independent mechanic. This same vehicle has been eating through suspension and cooling parts at an alarming rate costing him thousands of dollars over the last couple of years. The parts costs alone on even lowly German brands like VWs is just outrageous in the U.S.

        Sorry, but there is no way it costs even remotely the same to repair a Mazda as it does a BMW. Even the cost of maintenance is debatable as most German brand vehicles require hard to find fluids, synthetic oil, etc…

      • 0 avatar
        Yirmin

        Sadly I’ve had a cousin that owned a Toyota… When I got sucked into helping replace some brake pad on that truck I had sticker shock.

        Don’t assume Toyotas are cheaper to maintain… Myself I had a Mazda that for years would require air filters and oil filter be purchased from a dealer, no one else made them… they weren’t cheap and those were parts that you have to change on a regular basis.

      • 0 avatar
        sirmonkey

        Bmw’s built after ’02 or ’04 or wait maybe ’06 if its a 3 series, ARE JUNK, all the newest cars will be damn near free in a few years as the control modules fail and car stop passing saftey inspection (failed abs/airbags etc). I have 2 friends that got jobs at the local bmw dealer because they run 18 bays 24/5 (well some are mini’s)

        with that said. the inline-6 bmw’s can’t hardly be killed. 270k on my 80′s 3 series (e30 w/m20, also race an e30 w/s50). Parts for a 90′s 3-series are cheaper than my ’00 Jetta but more than my ’96 honda. If u buy from the right place that is. (aka have the hookup at the dealer or risk online parts) i recently Did a timing CHAIN on a 318(m42) and only spent $600 on parts, thats a chain, 4 gears, 3 guides, like 6 seals/gaskets, tensioner, and some other crap… price out timing chain replacement parts for a honda k-series and let me know how much that costs.

      • 0 avatar
        28-cars-later

        Sir Monkey sounds like you found the better years and maintain them well. I have heard from several people the 06 and newer 3 series are needless headaches, just amazes me the industrious Germans just decided to phone it in and give us the finger. My mechanic retired in 2000 as a Volvo master mechanic, doesn’t care for the newer ones, but keeps the old ones out there more or less indefinitely.

  • avatar
    Flybrian

    My father’s definitely a keeper – paid ~$35,000 for the last ’00 Bonneville SSEi left at the tail end of 2000 and still has it to this day. Loves the car, drives it daily, wouldn’t have anything else.

    Myself? A bit of all three I suppose. Drive daily whatever I feel like that budgets on floorplan and will likely sell prior to curtailment; buy and keep cars I genuinely enjoy. Luckily for me, the types of vehicles I genuinely enjoy are midsize-fullsize B-O-Cs from the late-70s to mid-90s, so price of entry/upkeep is dirt cheap.

    To expand on Mr. Lang’s closing paragraph, cars ARE an expense and a depreciating commodity regardless of ANY factor. So, if an automobile is a quality of life enjoyment vs. a basic need (which I assume describes 100% of the B&B)…DRIVE WHAT YOU LIKE. PERIOD.

    As a side note, I’ve already informed my long-term girlfriend that our children will be driven and retrieved from school in a 80-90% restored GM clamshell wagon, Olds Touring Sedan, LeSabre T-Type, or Allante. In return, she can have any Big Three-badged vehicle she desries, regardless of cost or year.

    Still working on this compromise…

  • avatar
    TonyJZX

    I think this is fine however there are times a new car makes sense.

    eg. I was close to buying a Toyota Corolla.

    It was $20k (for example). Basic model with aircon, alloys, 1.8 four, 6 spd manual and 1.9% interest, 5yrs warranty.

    You’re paying $1.2k interest over the life of the car. Keep the car for 5 years. Treat it as cheap transport. It’s a Corolla. Do minimal maintenance. It has industry leading reliability and resale.

    Problem is you are driving a Corolla. For 5 yrs. I’ll pass.

  • avatar
    chaparral

    My own strategy appears to work well. Call it the “junker”.

    Buy cars that are 11-14 years old and at the very bottom of the depreciation curve. Throw a grand into them as soon as they’re home. Run them for 3 to 5 years then sell them for scrap. Comes out to around $1000/car-year.

    The downside is needing to have enough extended family members sharing a large enough car pool that the concept of a “backup car” isn’t an extravagance.

    The upside – well, ask my beautiful last-of-the-line hot-rod CRX that will get its antique plates in a couple years – sometimes you bring home a keeper.

    • 0 avatar
      golden2husky

      Let me add another way to do what you just said. Substitute buying an 11 year old car to buying a 6 or 7 year old car from a family member at a discount, or barter services (I would do home construction projects) for a lower price.

    • 0 avatar
      FuzzyPlushroom

      Living in a fairly rural area can make multiple ‘beater’ cars a more feasible solution as well. I have a large enough driveway to temporarily justify three cars (two of which are in approximately roadworthy condition and wear plates). The downside is that I drive thirty-three miles each day for work, and no mass transit or carpool solution exists, thus necessitating at least one ‘good’ car… or multiple likely candidates, on a cold morning.

  • avatar
    claytori

    You are preaching to the choir here. My strategy is to purchase cars that have depreciated at least 50%, or anywhere from 3 to 6 years old. Distance is relatively unimportant, as “low miles” cars often have more serious problems than well used and maintained examples. I will buy anything up to about 200,000km. I figure that it costs approximately half what buying new and keeping 5-7 years would cost. I drive them long, at least 300,000 km on the odometer before retirement. I drive them to the wrecking yard. My limit is about 15-16 years old. So I am looking for a replacement every 10 years or so. I have a special savings account that I transfer $100 per month into, and it will have enough to buy a it. My current limit is $10,000 CDN, but this is not cast in stone. The most I have ever paid was $13,200 for a 1984 VW Scirocco (90hp, GTI suspension, new). I don’t care if the car comes with a warranty. After my VW experience, these are of limited value (“you broke our beautiful car!”). I can do whatever I like to the car. I prefer to buy privately, and have found that assessing the previous owner’s personality is a key factor (O-C preferred). I do my own inspections. If the owner checks out, the inspections are fairly basic (look at the oil filler cap, swab the tailpipe, crawl under and look for rust). I bought a NOP car for my son for $1,000 that only needed a battery. It will give him several years of service.

    One of the big cost factors is frequency of transactions. There is a high transaction cost- dealer profit, taxes, inspections, licensing, etc. that needs to be spread out over a period of time and distance to minimize costs.

    When buying used, high depreciation is your friend.

    Edit – I forgot about insurance. The lest your car is worth, the lower will be your collision coverage.

  • avatar
    Conslaw

    These depreciation graphs are a little deceptive because they generally graph depreciation as a percentage of MSRP. Since most people don’t pay list to begin with, the first year’s depreciation is overstated. In my case, between a 4,000 rebate and $2500 discount (a normal deal at the time), I paid way under MSRP for my Dodge minivan. If you look at the standard depreciation graph, it will appear that the Dodge depreciates far faster than the Honda Odyssey, but when you look at prices actually paid, not only are the curves between the two vehicles much more comparable, but it becomes much more defensible to buy new rather than used.

    • 0 avatar
      jmo

      These depreciation graphs are a little deceptive because they generally graph depreciation as a percentage of MSRP

      Exactly! I persuaded a friend to buy new vs. used by directing him to the Edmunds incentive page. He thought he was saving $7k buying used when he was actually savings less than 2k – which wasn’t enough to compensate for the risk and the fact that at 2 years old the car had consumed 15% of it’s useful life.

      • 0 avatar
        carbiz

        $7K is a useful working number. At the dealer I used to work, there generally was a $7k spread between a current model year ‘daily rental’ Malibu or Impala, for example, versus the transaction cost of a new one. That assumes a cash purchase (and REAL cash, not against a line of credit!) With wildly subvented leasing and purchase rates back in the glory days of 2001-2008, it was pretty confusing to work out the better ‘deal’ when you could get 0% financing for 72 months.
        Of course, the more conservative Toyota buyers would pay ‘cash’ for their Corolla (what, those GICs weren’t earning you a penny?), then take it up the you know what on quarterly maintenance over at our sister store.
        Transaction prices, maintenance costs and insurance – those are the 3 most important factors and the most difficult to quantify accurately, but any time I bothered when I was in the ‘biz, a current GM product won over the import every time.

    • 0 avatar
      redav

      The plots are also deceptive because a significant part of depreciation is just the difference between trade-in value and retail value. There can easily be a $4k difference between what you could trade it for and what you’d have to pay–on the same car.

  • avatar
    Davekaybsc

    For the smart luxury buyer, I think the four year old CPO makes the most sense. You get roughly half off MSRP. $10K worth of options becomes a $1K premium. You get a 2 year, roughly 60K mile warranty, plenty of time to figure out whether the car is likely to be a lemon or not. If it is, sell when the warranty is up. If not keep it until the troubles start or you tire of it. The strategy has been pretty successful for me. For the same 20 grand as that new Corolla 4cyl 4spd penalty box, I got a twin Turbo A6.

    • 0 avatar
      Dan

      Luxury brands are first and foremost selling image, that image falls apart far faster than the physical car – even German physical cars.

      That said, a 4 year old CPO A6 in no way costs the same as a Corolla. A Corolla is 17K and the next 10 years will cost you nothing but fluid changes and $400 sets of tires. If you can get the A6 for 25K you’re already doing pretty well and even with a powertrain warranty you’re looking at at least a grand a year in uncovered maintenance.

      • 0 avatar
        slance66

        This is silly. My CPO BMW 328xi has cost me zero in annual maintenance. I’m about to take it for a voluntary half-way oil change, my first expense. So for the cost of 25-17 = 8 grand, I can drive a nearly new luxury sport sedan instead of a stripper level Corolla? That’s the no-brainer of a lifetime. By the way, mine was $25k, and had a full three years of warranty, with a longer mileage warranty than I would have received with a new Toyota. Oh, and BMW had .9% financing.

      • 0 avatar
        carbiz

        LMAO. If you want to see a Taj Mahal of the auto industry, google Inn on the Park, Toronto, or Toyota on the Park and see what Toyota dealers can afford today. (Missing from their glorious website is that, in fact, this and other crystal palace import dealers were bought and paid for by 2 decades of selling Oldsmobiles and Chevrolets in the city.)
        Believe me, if they could afford to tear down a Holiday Inn, plus sit on an empty Four Seasons Hotel tower for a decade, they are not exactly losing money. Even in Canada, the margins on Lexus are not that great. No, no, you have to visit the palatial service area (truly a breathtaking experience) to truly appreciate where your money goes. I have yet to see that service area empty.
        So, my fine indoctrinated friend, either Toyota is lying about their vaunted quality, or their customers are empty their accounts for ‘maintenance,’ but SOMEBODY is paying for those white gloves and mints.

      • 0 avatar
        Dan

        “This is silly. My CPO BMW 328xi has cost me zero in annual maintenance. I’m about to take it for a voluntary half-way oil change, my first expense. ”

        Which means you’ve owned it for what, all of 5,000 miles? lol.

        Pro tip: an entry level BMW isn’t a midlevel Audi.

      • 0 avatar
        krhodes1

        But you would be driving a Corolla. Which is fine if you view cars the way most folks view refrigerators. But I happen to greatly enjoy driving. So for me the added cost of a nice car is a small price to pay.

        BUT, I say this from the vantage point of one who can very comfortably drop $40K on a new car without thinking about it too hard (and I STILL thought about it pretty hard before I did it – old habits die hard). It would have been a different story if this was 15 years ago, when I was making 1/3 as much and saving up for a house. I probably could have stretched and leased a new BMW back then, but it would have been stupid.

        So it all boils down to “can you comfortably afford it?”.

    • 0 avatar
      Japanese Buick

      Yup, that’s exactly what I did when I bought my 1998 LS 400 in 2001. 3-4 years old CPO with 48k miles and warranty out to 100K. Still driving it today (219k miles now). Turns out CPO was a mistake but only because the car has been so reliable I only had to use the warranty once, for a $200 repair.

      • 0 avatar
        28-cars-later

        LS400 is a heck of a ride, the only Toyota I would ever consider beyond maybe a late 80s Cressida (loved that one too). When I was still in college I worked for a small time dealer, whose strategy was to keep a few newish Lexi and Acuras on the lot to lure in the local diversity in order to sell them the older/beat buy-here pay-here Caddy/Lex/Infiniti/Acura of the day. Drove several newer RX300s of varying miles, a few ES300s (an ’02 I distinctly remember for its 20K miles and CLOTH (yes) seats) and they all made me feel like ‘are they serious, this is what took Detroit’s market share?’. But the black on black mid 90s LS400 (maybe 75K) really convinced me Japan was serious, gosh what a ride. That one really looked good on the spinning platform and certainly brought in a lot of potential customers, I wish I could remember what it sold for… I would say maybe 12-15K, maybe it was closer to 20 (this was in 2006).

  • avatar
    GS650G

    I buy a new car about every 10 years. And keep them that long. I’m not concerned with depreciation, it’s just the cost of doing business

    • 0 avatar
      Brian P

      The ’06 Jetta TDI that I have now, is the first new car I ever bought. Sold my previous TDI at 462,000 km at the time, figured on getting 400,000 km out of this one and it’s almost there (361,4xx on it now). At this point, I’m not all that concerned about what it’s worth.

      • 0 avatar
        SuperACG

        You should be in the event of a total loss. With your odometer, even a fender-bender will total the car out, even worse if you still owe money on the car. Luckily you have a TDI and they hold their value pretty well. I post from experience. My TDI was totaled at 8 years of age and 130,000 miles. I still owed $3000…

      • 0 avatar
        carbiz

        Depreciation only matters to the Japanese apologists and the me-me-generation that is entitled to flip their vehicle every 3 or 4 years. The difference between a similarly equipped and mileaged 10 year old Camry versus Impala is not enough to make a dent in a car payment. They are both worth nothing.
        I cannot speak for the United States, but in Ontario, insurance and banks use what is called Red Book. Believe me, with most POS, you’d be happy to total the vehicle! In 2000, I bought an ’87 K-car for $300, paid another $600 to ‘safety it,’ and drove it for 3 months before I was rear-ended by a new Audi. (BTW, the Audi had to be towed from the scene while I drove the K-car for another week waiting for the adjustor to show up.) Since the body had bent from the C-pilar, the vehicle was deemed unsafe to drive and I got $2,300 for my troubles. Red book!
        In 1997, I totaled my ’91 Caprice wagon on black ice. The car had 240k km on it (about 145k miles) My insurance gave me the option of repairing it (I had spun and hit 3 corners of the car against the guardrail but it was all cosmetic damage) or they would give me $7,100. There is such a thing as a car that has been TOO GOOD. This Caprice was it. Six Canadian winters, 150,000 miles and everything was original except the brakes, tires, a/c condensor and starter. I loved this car but knew its trade value was about $4,500 and that I would be facing serious repair bills in the next year because everything was still original. I took the money and ran.
        Depreciation does not matter if you buy the right car and plan to keep it. Of course, if you buy what CR tells you to and hate the vehicle, that is another story.

      • 0 avatar
        28-cars-later

        Carbiz it sounds like you make depreciation pay! Don’t know many people who can significantly profit from two diff accidents, sounds like I need some Red Book lol.

  • avatar
    kvndoom

    I have never kept a car more than 3 years… that’s pretty sad. Then again, money used to grow on trees at my job and gas was cheap and rent was low. I miss those days! Now every penny counts. My base salary is higher but I work less overtime and the cost of living is INSANE these days. Depreciation only matters on a car if you don’t keep it. I don’t see myself getting rid of present car for a long, long time.

  • avatar
    Dimwit

    I think the whole concept of depreciation is overrated. Almost everything that we buy “depreciates”. It becomes used. Less valuable than new. So? Even the much vaunted house has shown in the last 4 years that it’s not above the trend though for different reasons of course.
    Nobody expects “long term value” out of their flatscreen TV’s. It’s all about the use thereof. Will it work the way I want it to? Will it cause me problems? Does it have the features I want at a price that I’m willing to pay? Are cars any different? I submit to you that they are not.

    • 0 avatar
      Pch101

      “Are cars any different?”

      New cars don’t cost $700.

      • 0 avatar
        carbiz

        … and I’ve seen people blow that amount in a single year by shopping at the fancy new mega-grocery store with the in-house butcher and string players in the balcony. I’d rather put up with the indifferent service, tired looking grapefruit and traditional costumes at the local discount grocery store (owned by the same company that flaunts a string quartet!) then spend 30% more for a bag of milk. These losses are tangible and easily demonstrated by leaving your cart in the aisle and crossing the street. Losing an ‘extra’ thousand dollars a year in depreciation or blowing a thousand dollars on groceries because the checkout girls are hotter, is the same thing, except one is immediate and tangible, while the other is not.
        Buying a car is a necessarily (and unnecessarily) complicated process. Short of having to subpoena all the dealership records across North America to PROVE their claims about lowest depreciation or lowest transaction prices, this aspect of car buying will always be a mystery and keep many 3rd party agents rich.

  • avatar
    Mark_Miata

    The one assumption that Steve makes here that I am uncomfortable with is the notion that older cars are essentially the same as newer ones. When it comes to comfort and features and getting from place to place, that may be true, but it is often not true when it comes to safety features, something very important to me and my wife.

    Newer cars are just better when it comes to crash safety (airbags and other passive features) and crash avoidance (stability control and the like). No matter how good a driver you are (and I’m not very good), there is always that other idiot on the road who is out to kill you.

    I used to be a trader but at the bottom end of the market – the most recent car I bought is the only one that I have ever paid more than $2,000 for in inflation adjusted 1982 dollars. I had to do that because I couldn’t afford better, and now I don’t anymore because I value my life more than my money. How much would you pay to be less likely to die in an accident? Makes a few extra thousand dollars a year seem pretty cheap insurance.

    • 0 avatar
      carbiz

      This is the same lack of logic that makes the owner of a 2010 Accord loudly proclaim his car is better than the POS 1987 Ford that he traded in. Of course, said Accord owner probably can’t even remember the model of the Ford he had. It was just a Ford.
      I’d wager that a 2010 Hyundai is better than a 1987 Rolls Royce in most respects. Do not attempt to debate a person clutching their Consumer’s Reports in one hand and their rosary beads in the other…

      • 0 avatar
        28-cars-later

        I can’t remember if Rolls were junk in the 80s or not, and I think that’s the real trick… for all we know Hyundai could have let itself go in 2010 and the models will start blowing up in a year or two, while the 87MY Rolls could be known as bulletproof.

    • 0 avatar
      Alexdi

      This. Even if you end up with a medical problem that can be fixed, the cost of care in this country would easily eat multiples of the car savings. Airbags and high-strength steel are worth something.

  • avatar
    Volt 230

    Used car prices are as high as ever, this makes no sense if the depreciation story is true. right now it’s a seller’s market for used since new cars are so damn expensive and the used car supply is low.

  • avatar
    Volt 230

    You did not mention the small car field, here the story is different you’d better go for a Honda, Toyota or Nissan rather than an American brand since most of them are way inferior to the Asian brands, besides Hyundai and Kia were not quite up there in the quality dept just yet.

    • 0 avatar
      Steven Lang

      Sorry… but no…

      I have seen plenty of Focii and Cavaliers exceed the 300k mark. Along with Neons, SLs, Sunfires & Tracers.

      I even bought my wife a two year old Escort back in 1999. 60k miles + 0 problems = $2000 in depreciation over 3 & 1/2 years.

      GM has cremated Toyota in the small market for most of the last 30 years. Nissan, Toyota & Honda do make good subcompacts for the most part. But when you get to a used car, the quarterback/pitcher/ captain of the ship is truly the person who maintained it.

      So the short answer to your general statement is, No. Although my wife did drive a perfectly good Honda Civic for another 3 & 1/2 years as well.

      Unfortunately the prior owner put over $5k into the thing before dumping it.

      • 0 avatar

        >>>GM has cremated Toyota in the small market for most of the last 30 years.

        ???! GM cars definitely got somewhat better in the’90s, but most of them were crap throughout the ’80s. My parents had an ’80 Citation which was worn out at 100k. (Their ’70 Valiant was still going after the Citation had gone to the junk yard.) A friend had a Pontiac J Car which was equally bad. My brother had an ’87 Celebrity which was nickel and diming him to death by 100k.

        The quality of prior maintenance is certainly important in a used car, but so is the quality of the build.

      • 0 avatar
        carbiz

        OMG – are we really going to go all the way back to the Citation – AGAIN???
        My first wife had an ’81 Tercel and the rear wheels literally became part of the luggage. The shock mounts rotted right through the trunk.
        The difference is, GM sold 400k Citations and Toyota sold 30 or 40k Tercels. (I am too tired of this argument to bother looking it up, but I am sure those numbers are pretty close.)
        Thirty years later, the bars are still full of cranky old guys bitching about their 1981 Citation, while nobody in the room even remembers the self-recycling Civics or dissolving Tercels of the day.

      • 0 avatar
        Jellodyne

        Carbiz, I’d wager good money there are more ’81 Corollas on the road today than ’81 Citations. Obviously, this would primarily be in Areas that Rust Forgot, but still. The 80′s Japanese cars were the natural prey of the rust monster, but they were superior mechanically to what the Big Three were putting out and way more entertaining to drive.

      • 0 avatar
        geozinger

        @Jellodyne: Even in the land where rust is forgotten, there’s precious few 30+ year old cars on the road daily.

        And outside of maybe a few Hondas, the Japanese cars of that time were no great rides, either.

    • 0 avatar
      gslippy

      I bought our 01 Elantra for $1750 in 2009, with 138k miles on it; today it has 170k miles.

      It is clearly a beater car, and it has required several repairs, but it appears to be settled now for another long haul (hopefully).

      Even with my expenses on it, I’m way ahead compared to buying new.

  • avatar
    Sundowner

    the chart only assumes MSRP. Has anyone here here paid MSRP for a new car? I know I haven’t.
    The car I hated most in life, a 2010 JSW wagon, I bought new for $25k, all in with taxes and fees. the .gov gave me $2500 for buying a diesel car. I sold the car 10 months later for $22k with 11k miles on it. kinda bucks the concept in this article.

    I replaced that massive crapwagon with a brand new car that I bought brand new for 20% off of MSRP. But I live in a world where what I bill for my time in a day exceeds what my monthly car payment is. If I lose a day of work because I didn’t make it to a meeting, then I lose a lot more than I’ve got into the car. The economics just don’t work for me otherwise, and I’m not willing to gamble with my client’s time.

    Unfortunately, this site has a very limited view of what is financially responsible. Must be all the free time internet bloggers enjoy. The rest of us have to work. And you’re welcome for my generation of another used car for your use.

    • 0 avatar
      Kendahl

      Assuming you own a house, I’ll bet you hire someone to do your yard work. It would make sense since you can make more working than you pay the yard guy. That’s not true for most people. Minimizing cash out of pocket, which they don’t have much of, is their top priority.

    • 0 avatar
      joeaverage

      Okay tell me what you hated about the JSW ’cause its on my buy list near the top next time ’round. Was it styling or reliability or the dealer or???

      I make more than the lawn guy AND I do my own lawn work. Why give up $50 when I can do it myself in an hour or two? I can spend that $50 somewhere else.

  • avatar
    Mandalorian

    I buy a new car and keep it 10-20 years. I would rather have something a little nicer than I originally intended, if I have it for a long time.

    Has whoever wrote this seen the price of a used car lately? They are more expensive than new in many cases.

    • 0 avatar
      Steven Lang

      Manda… I live it.

    • 0 avatar
      highdesertcat

      That’s all I buy now too, new cars and trucks, after having been severely punished for buying used because that’s all I could afford in my younger days.

      I kept my 1988 Silverado until Jan 2011, and kept my wife’s 1992 Towncar until 2008. Both were bought new. But starting in 2008 I have resolved to keep our new cars for only the length of the warranty overage, and so it was that in Nov 2011 I bought my wife a new 2012 Jeep Grand Cherokee Overland Summit 4X4 V6.

      But I kept the 2008 Highlander as a spare car and will sell it in due time. Like Steve Lang I am always in the market for a good used car and have found some decent ones on the Lemon Lot at the nearby airbase over the years.

      I have picked up some excellent used cars and have successfully turned them. Chevy pickup trucks are especially favored by the migrant Mexican workers that transit New Mexico.

      At one time I had 11 of my own old cars parked on my property behind the house but I was able to sell all of them in running condition after my wife laid down the law when I bought my 2011 Tundra 5.7. Now we just have three cars, until I find a deal I simply can’t refuse.

      Depreciation is troublesome only if you trade or otherwise have to divest yourself of that car. But buying used vehicles brings on unintended expenses and consequences of their own, as I experienced first hand, at a time when I could least afford it.

    • 0 avatar
      DC Bruce

      Since I follow more or less the same strategy, I don’t think your plan gets enough cred! Here’s the deal: if you’re bottom-fishing in the used car market, what you’re buying is how the car has been maintained. And the problem is, if you’re buying an 8-10 year old car (or even a 6-8 year old car), it’s probably had at least two owners, and the most recent owner (who bought the car cheap) is likely to have done the least maintenance. At some point, all that catches up on you — and you may be the guy who’s stuck with the bill.

      It seems to me that, if you buy a car new or nearly new, and then keep it a long time, you are the one maintaining it; and so, by the time it’s ten years old, you know how well it’s been cared for, because you are the person who’s been caring for it.

      Obviously, this strategy requires a sufficient amount of upfront money (or credit) to swing the cost of a new or nearly new car; and it requires the discipline to maintain that car correctly.

      But when the 6, 8 or 10 year old car you own is the one you have been maintaining, then you’ve eliminated two of the big uncertainties of older used car ownership: how it’s been maintained and how it’s been driven.

      This strategy does not allow you to own a BMW for the price of a Ford, since the BMW will always be more expensive to maintain than the Ford (if only because of higher parts costs and mechanic hourly rates); but it does, I think, allow you to own whatever car you want to own in the most economical way.

      • 0 avatar
        joeaverage

        Exactly. +1

        I do it the same way. At one time I bought cars, fixed them up and sold them within a year. I drove basically for free but I was always fixing up a car. Great fun when I was a single guy. As I got older I had less and less time to fix up cars. In fact I have a couple I’d like to restore given the time.

        I went to buy a two-three year old car back in ’99 and found that for what I wanted the new cars were only $3K or so more. So I bought new and now we’re on the other end of the ownership period and the car is still troublefree at 200K+ miles. Our other car was a two owner car and indeed the first owner might have taken care of it but the second one just used it up so that during my 75K mile ownership it’s had alot of little things come along. Nothing expensive but requiring work to maintain. Also the leather seats wore out so I’ve sourced newer cloth seats from the same kind of car. Our 200K+ car? Perfect interior…

        That hassle factor of buying and selling and fixing that which the previous owner or two neglected has a cost too. Admittedly our second car cost much less and has dropped 50% in value and that is much less depreciation than the first car however I’ve still been more satisfied with the first car purchase b/c it was new and we’ve taken care of it. Add up though the number of used cars people in our social and family circle have bought and sold during the same period and we’re ahead of the averages.

        I’d argue that our 1st car (that we bought new) has more value to us than the Blue Book says it is worth. I’d value it at about 40% more than they say it is worth b/c this car has alot of life left in it – moreso than the average 200K+ vehicle b/c we have taken good care of it.

  • avatar
    Joss

    Okay so lets live like Cuba..

  • avatar
    krhodes1

    I see depreciation as the cost of getting EXACTLY what I want, as well as peace-of-mind. More-or-less without compromise. Certainly this time around I special ordered EXACTLY what I wanted. I’ll never buy off the rack again for cars.

    But I have been pretty lucky with my new car purchases so far. I have bought three – first was an ’02 Golf TDI. Paid $20K for it, which was MSRP (I was young and stupid), kept it for two years, and sold it for $17500. In the meantime I had billed 20K miles to my employer at $.3X/mile. Second was an ’08 Saab 9-3 bought in ’09 for $23.9K, sold last spring at 30K miles for $17.5K. Not as good as the Golf, obviously but not awful. Also billed plenty of those 30K miles to my currently employer, at $.505/mile. Last is my current 328i Wagon, paid about $6K under US MSRP (and got 1.9% on the loan), have no intention of selling it anytime soon. Only reason I sold the Saab was the intersection of see the writing on the wall for the demise of Saab, and BMW saying no more wagons. Otherwise I would have kept it for at least another several years. So I agree, you usually cannot go by MSRP when discussing depreciation.

    I will say, that while in my state there is certainly big savings in registration (excise tax) costs for older cars, the difference in insurance is pretty small. My BMW costs me ~$60/mo for full coverage with decent limits, and my old ’93 Volvo costs me ~$40/month for liability and comprehensive only. It’s good to live in a low insurance cost state, be approaching middle-age, and have a clean license.

    I have mostly bought well-used cars over the years. The vast majority under $5K, and just a couple approaching $10K. As I have gotten older, make more money, and have less free time, I would rather spend that free time wrenching on my toy cars, and not my daily driver. So I write the big check every month. Well worth it.

  • avatar
    Zackman

    OR…Buy an out-dated (perceived, at least) Impala new for fairly cheap and drive it forever. That’s what I did because I could afford it and 8 years later it’s the only car (so far) I have ever owned that I love just as much today as the day I drove it home in May, 2004. Perhaps I’ve just been fortunate, and I have no idea what my next car will be if I buy another new car.

    It is true those early-mid 2000′s Buick Centurys and Regals are all over the place and are very good cars – we had a rental in 2004 and it was a great car.

    • 0 avatar
      geozinger

      @Zackman: Here I go again, commenting on your comment.

      The main reason why I recommend a Buick Century, Regal or LeSabre to folks who are looking for cheap wheels, is because they’re generally well taken care of by the first and second owners. A lot of that may apply to Impy’s too. The owners tend to be older and a LOT more careful about how they treat their cars.

      OTOH, my Sunfire GT (which was intended to be a project car, not a daily driver, had seen a pretty harsh life with cheapo repairs exacted upon it by the previous three owners. I’ve fixed numerous things on this car, with good results, as the car is a good runner now.

      All of this tends to reinforce Mr. Lang’s comments earlier, about the previous owner’s treatment of the car. I re-learned that the hard way, with the project car. I’m thinking my next car will be a nice sedate one-owner Malibu…

    • 0 avatar
      Tree Trunk

      Sure the Impala could be had for cheap new or used, but after spending a couple of weeks with one as a rental I am not sure I would be up for a LTR.

      I rather like the looks of it, it rode fine, got an OK mileage (aprx 26 mpg easy highway driving) but there are several things that would drive me nuts over the long hall.

      The seats were very soft and with out much support, usable space compared to the size of the car was rather limited, but the worst thing was the automatic transmission.

      Hit the gas to accelerate, nothing happens, floor it and the car suddenly jerks forward waking the kiddo in the back every time.

      The engine was plenty powerful but that all or nothing acceleration would be a deal breaker for me even if the ergonomics of the car were taken care of.

    • 0 avatar
      joeaverage

      I know I’m splitting hairs but how could you know from a rental experience that a car is a great car? You mean you liked it? I’ve driven alot of cars that would be terrible to own (repairs, maintenance) that were great to drive for a short time. Not trying to be rude but that statement really caught my eye.

      My grandmother had one of these cars. By 60K it had a laundry list of issues and was a very lightly used car. Needed shocks, intake gasket, and a/c compressor among others.

  • avatar
    samthedog

    Ah yes, depreciation hell…I have many years in the buy/sell game, and its interesting the relative “value” sported by some vehicles vs others..When I was a kid, I bought and sold piles of cars to get throughout school and have spending money. In the eighties in Vancouverstan, imports that were available were a minimum of a G note. And that was for crap…Hondas, Toyotas, etc were big dough for a rusty oil burning POS. American sleds however, I could buy for $100 from the back of the dealers. And thank you Oh Sweet Patron Saint of Depreciation…a buff, a set of plug wires…cha-ching…So what has changed? I’ve owned new, mostly through the voyeur seat of a company car, but I just try to surf the sweet wave of driving joy vs depreciation/maintenance and nickel and dime repairs. I still see great values out there, but just not in a Honda, Toyota etc…In a related matter, I will own a VW again only on the pain of watching IDOL. Not been burned drinking the Volkswagen KoolAid mind you, just not felt the sweet caress of low cost motoring with them.

  • avatar
    Hildy Johnson

    This is a strange-looking chart. Why is it that the x-axis labels are away from the ticks, such that 1 is really at 0.5, and the curve starts at 1 instead of 0? One really can’t be sure what’s what here.

  • avatar
    AoLetsGo

    There are many ways to skin a cat and all of the above comments sound like that work for each persons lifestyle. My approach lately is if I am going to buy it has to be a pickup — not luxed out but not a base work model either. These trucks have held up a strong resale value on the market. My cars have been leased, but only the really sweetheart deals that they are trying to move.

  • avatar
    Dynamic88

    It’s more complicated than that.

    First, most people are financing, whether new or used, and that’s eating up a certain portion of their paycheck. If they buy a 7 or 9 year old car that means they will -probably w/o much warning- need to come up with $ for repairs. A lot, a litte? No way for most people to know. And most people can’t do much of their own work these days.

    It’s sensible to set aside $ in a repair/buy a car fund, but it’s also sensible to exercise and watch your diet. IOWs, the money won’t be there when it’s needed, and that means putting hundreds of dollars on the “emergency” credit card, and paying the ridiculous interest rates.

    Buying new is an easier way to budget for many people. There will be no unexpected repair costs for 5-10 years (depending on manufacturer) just normal wear and tear items. With proper maintenance you can probably run the car out to 10 years -at least- with only a few repairs that I would not consider “major” -e.g. timing belt, water pump, CV joints, a brake job or two, and of course a few sets of tires, over the decade. While these repairs need to be budgeted for as well, they are pretty much “known” to be coming up. With used, you don’t know what’s coming, or when, because you don’t know what’s actually been fixed and how the car has been cared for.

    Of course, everyone (who doesn’t know much about cars) should pay a mechanic to look at a used car before buying, but how many people do? That’s money out of pocket too, even if you decide not to buy.

    I do like the idea of saving to buy a car w/o financing. But for most people, that simply isn’t going to happen. They’ll find another “need”.

    I like buying new/near new and amortizing the depreciation over a decade and a half, or longer.

    Take my ’98 Ranger as an example. I bought it two years old. The first owner took a bath on depreciation. I also took a bath on depreciation for several years -on paper. It’s now 14 model years old, and most of it’s depreciation is over. It’s still my daily driver, and will be for another 5 years at least.

    Our ’04 CR-V has lost half it’s value by now, but at the rate we put miles on it (8K a year) it’s got easily 15 years of life left in it. At that point it will be more than 20 years old. How bad does depreciation really hurt us?

    I’ll grant you that buying something 7-9 years old and driving it 4 years or so would be cheaper, but it would be more hassle, and it’s not really that much cheaper. If you keep for 15-20 years, depreciation isn’t really that much.

    • 0 avatar
      Pch101

      “How bad does depreciation really hurt us?”

      Depreciation is expensive, no doubt. It is usually, by far, the greatest expense of car ownership.

      But I don’t buy my clothes at thrift stores, even though they’re cheaper.

      I don’t live in a ghetto, even though my housing costs would be lower.

      I don’t eat at McDonald’s, even though it’s a fair bit cheaper than the alternatives that I choose.

      There is a reason why well-used cars are substantially cheaper than are new cars — they are usually far less desirable to own. The issue isn’t whether depreciation is prudent, but whether the experience of ownership is worth it.

      I can tell you from first hand experience that the experience of the first 10,000 miles is usually better than are the 10,000 miles driven when there are 150,000 miles on the clock. All things being equal, there aren’t too many exceptions to this.

      • 0 avatar
        Dynamic88

        No doubt depreciation is still my biggest expense, but it’s quite manageable when spread over say 15 years.

        I agree about the driving experience, but I find that if I put the 150K on the clock, then next 10K aren’t bad compared to a situation where someone else put the first 150K on it.

  • avatar
    ZoomZoom

    I know a lady who shops at thrift stores.

    She’s choosy so she always looks like she’s wearing new clothing and she always looks fantastic. Who cares if the blouse was $5 or three for $7?

    I was recently in line at the grocery store behind a couple who had a shopping cart full of stuff. It took 5-7 minutes to ring up their goods, and it took twice as long for the cashier to scan all their coupons. Their bill without coupons would have been just under $300 US. After the coupon and 2-for-1 discounts, they paid $89.

    I have been seriously considering a used car as a 2nd driver or maybe a complete replacement for my current ride. Used, but not old. I cannot (yet) bring myself to seriously consider a 10 year old car.

    There’s a term to describe the coupon example above: “Extreme Couponing”. Could you do it? I am not yet there…

    • 0 avatar
      jmo

      There’s a term to describe the coupon example above: “Extreme Couponing”. Could you do it?

      Sure, if you buy what you don’t want or need. That’s as silly as your wife saying she saved you $400 at Nordstroms. How? She bought $800 worth of stuff at 50%. Honey, you really didn’t save me any money.

      • 0 avatar
        Pch101

        “There’s a term to describe the coupon example above: “Extreme Couponing”. Could you do it?”

        I don’t consume nearly enough processed food to use that many coupons. Buying bad food at a discount isn’t a selling point for me.

  • avatar
    Bill Wade

    My 05 4Runner has almost 300k miles. I bought it new and am suffering less than $.10 per mile in depreciation, a negligible part of the TCO.

    When repair expenses get too high I’ll give it to one of the neighbor kids and buy another new car.

  • avatar
    APaGttH

    Good read full of great common sense advice.

    I would toss out that there are a handful of outliers to rules out there. I know back in 2008-09 the belief was come 2010 you’d be able to buy a G8 at a 50% discount. The reality is a clean four-year old 6-cylinder base model is selling for $18K to $21K, they stickered $27K to $29K new. Certainly great math for four years.

    In my experience fullsize trucks seem to hold their value better than cars in general, and 4WD get a better premium – but no implications made, they still depreciate like a rock when you take them off the lot.

  • avatar
    ciddyguy

    If you tend to sell every 3 years or so, yes, I would agree that depreciation is something to consider when you buy a car, especially if new but if you are a keeper, ie, 7-10 years or more,it’s a moot point as by then, you’ve either used the car up or you’ve hit its bottom depreciation #’s and thus it won’t go down much, if at all after that, as long as it’s running.

    I’m also of the belief that sometimes, it’s FAR better to have a car payment than it is to always be replacing older, very high mileage cars every 2-3 years as in the end, I think you end up with more money invested than you would if you bought a GOOD used or even new car and kept it for a longer period and maintained it. While that’s not always true as some new(er) cars are NOT reliable, no matter how well maintained, but the chances are probably FAR better that they are reliable though.

    I find it’s futile to keep putting money into a very old car that’s obviously at or near end of natural life without intending to totally rebuild the motor and/or transmission etc, especially if said repairs are way more than the car is worth while running. I had to recently make that decision with my previous set of wheels. I had been driving a ’92 Ford Ranger that had been slowly dying for months and 2 weeks ago, the air idle controller valve decided to go on the fritz and I knew it was going through 2 Qts of oil every 2 weeks and perhaps had leaks in the cooling system, but didn’t know about the loose wheel bearing, a loose U-Joint and then have the bushings in the shifter go bad on top of that at 236K+ miles (most of that substantiated, thanks to Midas when I had them check out the throttle issue) so began to look at replacing the truck, which had been nearly flawless in being reliable in nearly 6 years of ownership. In the end, bought a 2003 Mazda Protege5 in near cherry condition with 110K+ miles on it, including everything but sunroof, side airbags and ABS and the upholstery is black leather. I bought it at a new car dealer with everything, including the timing belt, oil and filter and has like new tires on it too and it drives like new still.

    Since this is my one and only daily driver, I wanted something that was fun to drive (it is very much so), practical (it’s a hatchback), small (easy to park in the city) and reasonably economical on gas. My insurance, which is comprehensive, collision etc won’t be too much more than I was paying for just liability on the truck, which I have to take off of the insurance tomorrow as I kept it on one additional week so I could safely drive it to the dealer to trade in last Friday.

    In this case, I didn’t have much time to look and didn’t want/need to deal with trying to get rid of the truck and I didn’t have to invest anything into the car to start with so in the end, the avenue I choose was I think the best choice for me at this time and yet, I can keep this car for the longer haul if I want as it still has plenty of life left in it.

    I hadn’t intended to keep the truck almost 6 years but I did and it served me well but in the end, I plum wore it out.

  • avatar
    nikitarama

    or you could look at car payments as the monthly recurring price of being able to drive instead of walk and continue to buy and enjoy nice new cars

  • avatar
    tekdemon

    I find it very bizarre and plainly nonsensical that you suggest avoiding Honda/Toyota because their residuals are higher. The reality is that a used Honda/Toyota actually often continues depreciate less even against cars that have taken massive hits already so if one of the major operating costs is depreciation I don’t see how it would make sense to ignore Honda/Toyota in the used car marketplace.

    Go look it up and you’ll see that a used Mazda 6 continues to depreciate worse than a used Toyota Camry, and the repair bills tend to be higher as well. The only thing that’s in it’s favor is that insurance is slightly cheaper because the car is less valuable but they’re basically in a dead heat in terms of cost of ownership so I don’t see why you’d purposely pick the car that will likely require slightly more maintenance and depreciate more.

    • 0 avatar
      PenguinBoy

      I think Steve Lang’s logic is sound, as usual.

      His post is for people who simply want transportation at the lowest possible price. To these people, the brand of the car is immaterial – they just want low ownership cost.

      If someone wants cheap transportation, it makes sense to pay cash for a low cost car with plenty of useable life left in it, maintain it well, and drive it until the wheels fall off.

      The average $5k Cobalt has more useable life in it than the average $5k Corolla. Both are solid, reliable, but boring cars. The Corolla commands a premium in the market because of it’s good reputation, so a Corolla at the same price as a Cobalt will be more used up.

      I went through this a while ago with my niece. She had $5k for a car, I found a mechanically solid Pontiac Sunfire for $5k private sale, Civics of that vintage were better cars, but far more used up at that price point with over twice the miles.

      She drove the Sunfire for four years, and the only expenses were gas, oil, itres, brakes, and a water pump. It was reliable and good on gas. She sold it last week for $3200, as she now needs a larger vehicle – but you certainly can’t complain about her cost per mile for the past few years…

  • avatar
    Alwaysinthecar

    There’s also this group: those who don’t give a rat’s ass about the depreciation of the cars they buy. They buy them solely because of the enjoyment and performance factor. Sorry, but appliance cars aren’t for everybody. Some people buy fussy performance cars because they’re fun to drive.

    And some people spend thousands of dollars a year just on coffee alone. So what. For them it’s worth it. So why not the same for car enthusiasts? I personally don’t care if I’m spending $15k plus a year in depreciation. I knew that going in. It’s part of the cost. It’s the old ‘pay to play’ factor. Some people spend as much on eating out and buying liquor. It’s the same thing. It just ends up going down the toilet. But so what.

    Pick your poison. And enjoy it while you’re here. Don’t be reckless with your money but don’t feel bad about using it on things that can give you honest enjoyment. And if you just need a car to get you to work on time, then only buy something you feel comfortable spending your money on. If cars aren’t really a big interest to you, then there’s no reason spending money on them. And you’ll be spending that money on whatever other vices you have anyway.

    • 0 avatar
      Dan

      Exactly the responsible attitude which led to 8,000 foreclosures a day the minute that the great money spigot in the sky tightened up a little bit.

      She wasted thousands eating out, he wasted thousands on liquor, justifying your budget against the mistakes of your peers just means you’ll have company your own age when you’re still working until you die.

      • 0 avatar
        rodface

        I don’t think this attitude is irresponsible at all. Note how he talks about, “spending your money.” As long as you don’t spend the bank’s loaned money like it’s your own hard cash, there’s nothing wrong with enjoying what you’ve earned in whatever way floats your boat.

        Of course there was a financial crisis and a credit crunch. Few will turn down the opportunity to quadruple-leverage their salaries into payments on as many happiness-bringing possessions as they can think of. Many will diminish or dismiss the possibility of losing their job, or the need to save cash for a rainy day. You can dismiss reality all you want, but it will still come back to bite. 8,000 people a day found this out the hard way.

        Surprising as it may seem, I’ve found that even the most frugal savers are often spending big bucks somewhere in their lives. I’ll wager that many of the commenters on this post who take pride in their skill at owning decades-old cars for pennies per mile, spend every saved dollar on some esoteric dalliance or obsession they enjoy entertaining (probably a hobby 99% of people have never even heard of). Or perhaps—like my parents—they’re obsessed with saving every last cent so they can provide for a son’s education, their elderly parents, and their own peace of mind. Either way, even if the money’s not going into the car, it sure is going somewhere.

        So how about this: don’t spend money that *isn’t* yours, and if you can’t help that, don’t *waste* money that isn’t yours on things that won’t help you make your own money, and spend *your* money on whatever makes you enjoy your life, while setting aside enough to lessen or eliminate the likelihood of having to use money that isn’t yours.

      • 0 avatar
        Alwaysinthecar

        Dan,

        I worked my butt off all my life. I own my houses (two of them; one I rent out.) I have no debt, I have plenty of ‘bad weather’ money in the bank, retirement funds, and investments which give me a pretty decent return. I don’t finance my cars, I pay cash. So I’m not sure what my “attitude” has to do with home foreclosures and people spending money they don’t have. I clearly said “don’t be reckless with your money.”

        I also have no children and my spouse makes lots of money in the music industry (she’s able to take care of her own needs.) And my point was that there are plenty of (responsible) people who are car enthusiasts and really don’t care about the depreciation. Just like some folks are hooked on Starbucks, we’re hooked on cars. So paying the piper is worth it. I know about depreciation going into the game, and so for me it’s all worthwhile. We all have our vices. But the key is to not let any vice take you down. Nevertheless, don’t assume everyone is in debt. And not all debt is bad. When you borrow money to make money, it is good!

    • 0 avatar
      PenguinBoy

      No problem at all – as long as they can genuinely afford it…

    • 0 avatar
      Dynamic88

      +1

  • avatar
    sadicnd

    Steve,
    would you mind providing a short list of cars that you prefer in the used car market, besides the common ones that most people go for (corolla, civic, accord, etc.). As you posted a few days ago, let’s say around $5000?

    • 0 avatar
      Ubermensch

      Steve can chime in with his answer but I know what he is going to say because he has been giving the same advice for a long time now. His preferred cars on the used market are ones that have been maintained well, regardless of brand.

      • 0 avatar
        Steven Lang

        He nailed it. If you want to look deeper than research carsurvey, edumnds, msn, aol, truedelta, etc. and find out what actual owners have to say about the vehicles.

        Visit the enthusiast forums for those brands as well. That array of information will give you a far more comprehensive view of the strengths and weaknesses of particular models.

        Good luck!

  • avatar
    AMC_CJ

    We got six cars; I won’t count two of them as they’re just toys.

    Me, I like to have one newer car for longer trips. Sometimes my company sends me away for a week, other times I’m visiting family, or just plain vacationing. For this purpose I have a 06 Liberty CRD, bought with 24k on the clock in 09;, back when you could get a slightly used car for a good deal.

    We live in a rural-ish area, so my commute is 50miles round trip. For going to work, the city, or just bumming around in general, I have a 78′ Malibu sedan I bought for $2k with 99k on the clock about 2 years ago. The car is mechanically decent, and very solid all the way around. Paint is rough, but that keeps the crack heads away in the Upstanding (or not) part of town I work in. This car saves me around 12k miles I would otherwise put on my new Jeep, which already receives about $10k a year. So my $2k cheap-as-hell to keep running beater (I’m a Diesel tech, so do all my own work) Keeps my $20k Jeep lasting twice as long.

    The wife has a 01 Jetta with 234k miles on it. We just got her a 2012 Mustang. Same concept, except the Jetta isn’t running half the time (“German Quality” get’s beaten hands down by a 34-yo Detroit product).

  • avatar
    slance66

    Look, life is too short to spend much of it in a 2004 Buick Century. So while these plans make sense, they ignore certain realities. That 7-9 year old car will not have the same safety equipment as a newer car. That off-brand unloved model was probably unloved for a reason, and will have a less appealing interior, or performance or noise related issues compared to its more popular alternative. Reducing cost is not the only consideration in buying a car, or anything else for that matter. Buying a car you hate and being forced to flip it, that will kill you.

    However, that doesn’t mean you need to be reckless. I looked at resale and longevity numbers considerably before buying a used RX350. Got it with 26.5k. At 67k almost three years later, the average used price is almost exactly what I paid for it. Depreciation of close to zero.

  • avatar
    Dr. Kenneth Noisewater

    I’d be curious to see a post-cash-for-clunkers/credit-seizeup postscript to this piece, as the chart covers years that had an awful lot of housing bubble money in them..

  • avatar
    Conslaw

    We’re still riding the tail of a trend where used car prices spiked, and the conventional wisdom of “used is cheaper than new” is still less true than it has been historically. I just looked at a 2008 Toyota Prius that they wanted $12,500 for. That’s probably just under half its original price. The catch is that the car had 104,000 miles on it. Essentially that’s figuring a straight line depreciation over 200,000 miles. Priuses (Prium? Prii? Preasauruses?) tend to be extremely reliable cars, but I think it is safe to say that the first 100,000 miles of any car’s life is more pleasurable than the second 100,000.

  • avatar
    Junebug

    I “was” a trader, a rather stupid one. During the 90′s when the kids were little and bills were not so bad, we’d trade about every year. Now, I have a daughter going to college in the Fall and I sure regret not keeping that car from 5-6 years ago as it would be paid for now. As it stands, I have a 2008 GTI that I really like, gets 28-30 mpg and I got a 72 month zero interest loan through VW. I had a couple thousand in negative equity in that loan too. So while I’m about 2/3 though my loan and it is worth more than I owe, I still have a nagging feeling that after I pay it off, it will turn on me and bite my butt off with a colossal repair bill. I know better than to neglect maintenance, I do my own oil changes (Mobil 1 every 5K) and it doesn’t use but a half quart between changes if that. Part of me says keep it for 10-15 years and the other says sell it before it hits 100K miles. I’m leaning toward keeping!

    • 0 avatar
      joeaverage

      Just hook up with one of the VW enthusiast forums and ask for help when you need it. Those forums always have a few really sharp people who have probably dealt with every problem you can imagine and they bothered to take pictures while they did the work and then they posted the whole shebang on the forum.

      • 0 avatar
        joeaverage

        FWIW my father had an Oldsmobile in the 80s. All I remember was that it did alot of miles for him as a salesman’s car and burned a valve before 90K miles and that the interior looked like the inside of a friggin’ coffin. I hated that car for those reasons alone. He liked the price – only. And his customers would not have let him on the premises with a foreign car. The Oldsmobile replaced a cool little early 80s Celica with a sunroof and am/fm/cassette and air with a five speed. It was a great car – troublefree – right until the day he sold it at 150K.

        It wasn’t Detroit I hated – it was the still unanswered question of why do I need to buy a foreign car to get the quality, styling, and features that I want?

  • avatar
    Robstar

    Interesting post but after major frustration over the past 2 weeks, I’m thinking of just buying new for a car I want.

    Situation: My beater/dd died. I’m driving my weekend car (Subaru WRX STi) as my dd. I want a 10-15 year old 5/6 speed stick econobox with under 150k miles on it. I want it to be within 75 miles of my house. I drive 65 miles/day round trip.

    The selection of cars that meets this (IMHO: simple) criteria is practically zero. My wife is encouraging me to buy new, which I really DON’T want to do (I want a beater that I don’t care about), but the fact is that while I’m searching I’m spending $5/day more on gas alone an untold more amounts on tires and other wearables. On top of that my insurance has doubled since it went from limited mileage car to daily driver. My guess is it’s costing me $15/day (and I work 6 days a week) along with (so far about 20 hours) of my time trying to find something that fits my criteria. $15/day * 6 * 4 = $360 more/month while I search.

    The longer I wait the better off I would have been just buying a new or 3-5 year old car at $7-$10k. I suppose if I count my time searching as “0″ and I find a car in less than 5 years I’m still ahead…

    • 0 avatar
      Ubermensch

      I would be in the same boat trying to find a car like that in my neck of the woods. Most cars that old around here have gone to the crusher because they have rusted out.

      • 0 avatar
        Robstar

        So I’ve been looking at a fiat500 with stick.

        0% for 5 years, and the specials I’m seeing on stick are at $14.1 or so + TTL I figure $16k..$267/month out the door…

    • 0 avatar
      grzydj

      Find a Toyota Echo. Since they weren’t the most popular Toyota ever made, the deprecation on them isn’t that great. If you manage to find one with a 5 speed manual, you’ll find 0-60 times in just over 8 seconds. They’re great little cars that would suit your needs perfectly as a commuter.

      • 0 avatar
        Robstar

        Already looked. I found 1 within 100 miles of me. I contacted the seller twice w/o response…Pretty typical here in Chicago.

      • 0 avatar
        KixStart

        That’s in line with Steve Lang’s follw-up advice, above, to check forums. The overwhelming majority of comments on Edmunds about the Echo end with “Love my Echo!”

      • 0 avatar
        28-cars-later

        Drove a rental Echo in Jan 2002 when my Cavalier was wrecked. It was very icy that month and driving this little ugly thing up and down the hills of Pittsburgh was no joy, I slipped quite a few times but was never going fast so I was able to compensate (I think it was just too light of a car for the conditions). I remember returning it and the girl asking me, ‘did I want to keep it for the weekend at a special rate’ and my response was simply ‘Oh God, no’.

  • avatar
    Oodie

    As I exit my 20s and enter my 30s, I suspect my habit/vice of trading a car every year or two (if that) will be coming to a grinding halt.

    To be clear, I was never under the impression that I was making a wise financial move on any of them, but it was just something I wanted to do with some excess cash.

    I just recently traded my “perfect” car – a 330i 6MT ZSP – because the repair bills were starting to become scary. I do wish I still had it for weekends, etc, but the inability to budget the costs was a problem. Had it been paid for, it wouldn’t have been an issue, so perhaps the answer is to only pay cash if you intend to be a frequent trader? That would at least take away interest costs, and, if you got on the flat end of depreciation, would hopefully leave you able to get most of it back (allowing you to only really pay for the expenses/repairs)… depending on how long you kept it, of course.

    I don’t think there is any way to make it ever make “sense” – but there are certainly ways to lessen the blow. I agree with others that this vice should only be permitted if you can truly afford it.

  • avatar
    JMII

    My 350Z Touring = $33k new, $17k used 8 years, 20k miles, clearly a garage queen, I think the car has more layers of wax then miles!

    Wife’s Volvo C30 = $28k new, $18k used 3 years, 40k miles, kind of high mileage, but the car was leased with all dealer maintenance.

    Our car payments combined are less then $400 a month. Both vehicles will be paid off in under 2 years. Depreciation is a used car buyers best friend. The dollar-per-value scale just goes thru the roof when you find a lightly used pre-owned vehicle. Thus we are done buying new cars! Especially with today’s internet making searching is so easy. I spent 8 months looking for my Z, getting a general feel for the market: prices and vehicle conditions, so I knew what a deal was when I saw it. And all I had to do was check my email for updates from autotrader.com and cars.com.

    My other vehicle is the “keeper” category: I have a Dodge Dakota I bought new in 2002 because I needed a reliable towing rig and thus had to have the power-train warranty. Its got 88K on it now and I have ZERO plans for getting rid of it until a small diesel is available in a mid-sized truck. Until then maintenance/parts shouldn’t be a problem and any repairs will surely beat the snot of out new truck payments.

  • avatar
    bikegoesbaa

    “Had it been paid for, it wouldn’t have been an issue, so perhaps the answer is to only pay cash if you intend to be a frequent trader?”

    I recommend a couple of approaches that may help with this:
    (A) Never buy more car than you can easily afford with cash on hand
    *or*
    (B) Never put yourself in a situation where you’ll be making payments on something out of warranty. If you choose to finance something, make sure your warranty period will exceed the repayment period.

    Either way, you’ll not find yourself making a car payment and shelling out for a big repair at the same time.

    I used to be a strict believer in (A) but have started to warm up to (B) recently.

  • avatar
    icemilkcoffee

    When you are dealing with cheap used cars with no warranties- it’s critical that you stay away from the money-pits. For example- a cheap used Range Rover could be a financial nightmare. An AWD Audi likewise.

    Stick with the known quantities- for example a 88-95 Honda Civic, or a domestic pickup truck. The repair cost will always be within reason. If you can do some basic repairs, one of these cars could last you the rest of your life, and cost you less than $500 per year in upkeep or repairs.

  • avatar
    Dynasty

    Steve,

    Generally, on a percentage basis, how much does the introduction of a new revised model affect the outgoing model’s depreciation?

    For example, in 2014, a completely revised model X will replace the aging 2013 model X body style.

    I would like to find a CPO of the current body style. By waiting until the updated design is released, how much would I really be saving (in general %) vs. just getting what I want now?

    Like does the introduction of a revised model cause the outgoing years to lose automatically 10%, 20%..?

    • 0 avatar
      Steven Lang

      The answer to that question requires two things.

      Specifics and a statistician.

    • 0 avatar

      My gut sense is that this depends a lot on how much people liked the old design and how much they like the new one. So it’s going to vary a lot from case to case. There are cases where the older car holds its value better. The 993 vs. 996 comes to mind.

      The introduction of the Mazda3 didn’t hurt the resale value of my Protege5, even though it led to huge incentives at the end of the run (that I took full advantage of). Even two years after I bought mine new people were often still asking more for their used car. Getting it? Probably not, but close.

    • 0 avatar
      Sanman111

      I agree with Michael on this. It really is going to depend on the new model. If the new model is ugly, has problems, or just is not a good update the older model is more likely to hold its value. If the update is as expected or good, the previous generation will drop in value.

  • avatar
    Sanman111

    While you make a good point with the article, I think that there another cost that is as important (if not more important) than depreciation when I look at purchasing cars…financing terms. I tend to buy my cars used and in cash. I use a mix of the things you mentioned in the article to decide on a vehicle. I usually pick up a somewhat also-ran makes (buick, nissan, mazda…I stay away from things like suzuki and it can be hard to get parts and the junkyard,at the auto stores, etc) in the 3 year old range (well-maintained) and keep the car until the repairs become bigger and more frequent. My last vehicle was a 2000 Altima (purchased in 2003) in good condition for $11k (50% off msrp). I drove it for 7 years until the problems became more frequent (power steering pump, radiator, exhaust, and sold it when the transmission started slipping) and sold it for $2500. I likely would have made out better had I sold it at 8 years old after the first big repair hit. Still, I feel that this gives me the most years of trouble free miles for the least amount of money and I am losing nothing to interest. Now, I drive a hand me down 2003 Camry that is in great shape and staying for a while. As for those who need more soul, I am shopping miatas with all the cash I saved and the Camry is great for long trips and NYC traffic jams.

    Though, this does not work for Audis, BMWs, or higher end sports cars and repairs can be painful. Better to lease, CPO, or rent those for fun days, IMO.

  • avatar
    fendertweed

    “and it’s only taken huge chunks of my free time to do it.”

    Your time (and mine) is not “free”. Time has value.

    So … while I agree on the point about depreciation in general, those “huge chunks of [...] time” I value at about $30-50/hr. in my own case when deciding what’s worth my time to do.

    So while you may save a fair amount of depreciation $$, if you spent 60-100 hrs. of your own time on labor, getting parts etc., (hardly an outrageous estimate), then it has “cost” you/me $2000-5000+ there….

    We’ve mostly been buying 2-3 yr. old cars recently and keeping them for 5-6+ yrs or more if possible

    but my “free time” is not free.

    • 0 avatar
      joeaverage

      I try to be careful with valuing my free time at some figure. By the hourly math I make more than a mechanic, plumber, lawn service guy, carpenter, roofer, etc but if I hire those chores out b/c “my time is worth more” I’ll go broke. I figure this valuing of my free time line of logic only works if I’m actually working proportionally more to make the money to pay for those services. Since I work 40-50 hours per week, I still have free time to deal with the problems of my things and save alot of money doing so.

  • avatar
    hatuman

    Yup. I’m a keeper. Hate the thought of paying depreciation. My ’97 Mitsubishi Montero LS (repo purchase), bought in ’02 with 50k miles, now has 220k miles and has been bulletproof. Only real issue it has ever had was electrical problems with an aftermarket alarm from a prior owner(not that this SUV was ever steal-worthy).

  • avatar
    doctor olds

    The best value proposition is a low mileage, late model used car. (GM has a free, transferable 5 year 100,000 mile powertrain warranty on 2007′s and newer, to get in my plug).
    Of course, this really depends on the steady supply of new sales to the market without which there would be no used cars!
    Depreciation is a key reason I prefer to lease my wife’s daily driver, a Buick Regal for $237/month. That way, GM has the risk of higher than expected depreciation while my costs are clearly defined. New vehicles are quite nice, once you get accustomed to driving them!

  • avatar
    shinobi3

    I have owned 5 cars so far,3 BMW’s of 1971 to 1989 vintage and 2 Mercedes Benz’S 1976 to 1984 vintage.If I had bought them new,I would have spent approx.$225,000.I bought them used,spent $40,000 total.The difference in cost is greater by far then the repair costs for those vehicles.That is even when the 1976 MB 450SLC need a engine!

  • avatar
    elimgarak

    Precisely why I shouldn’t have bought my 2008 honda civic ex new during christmas 2007. a hair over 20k out the door, I plan on keeping it for another 15 years considering I only put around 6k miles a year on it. I feel this is the only way I’ll make it worthwhile of having bought it new and swallowing the depreciation on it.

    I fell for buying new because I didn’t feel like kicking the tires on a used car hunt and already was well aware about all the characteristics of the civic and financing was so straightforward for a new car (1.9%/36 months) vs. a used car it seemed.

  • avatar
    SuperCarEnthusiast

    I try to buy cars that always appreciate! Why buy cars that depreciate when you can buy cars that appreciate. It one of the best investment one can make – buying a new car!

  • avatar
    MadHungarian

    Has no one mentioned the ultimate Keeper car yet? Town Car. Other “old guy cars” like Impalas and Lucernes can play this role too, but the Town Car really tops the field. They depreciate like mad over the first few years then level out. I have a 2005 Townie that I bought in 2009 for less than $15K — with only 39K miles.

    It will be interesting to see what the effect of the end of production will be on the Town Car market. Prices might settle in at higher levels if the last few years become more desirable because there aren’t any new ones — sort of what happened with the 1991-96 GM full size wagons.

  • avatar
    SuperCarEnthusiast

    The truth of the matter is that a car represents status in society. Unless you are very wealth like a Warren Buffett and he drives a 5 or 6 year old Cadillac or Lincoln; he does need to show his status since he is the second riches person in the U.S. Plus, he does not care too much about status.

    But most people need to tell others that they too are people with means. They lease their cars you see; then roll it back into another car lease for a brand new car when that lease has ended. It call “Keeping up with the Jones”


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