New Car Depreciation - A different take

[heleu]

Bark?s Bites: A Moment of Appreciation for Depreciation | The Truth About Cars

Everybody on the internet knows that buying new cars is just plain stupid. New cars, after all, are just “depreciating hunks of metal.” New cars depreciate an average of 20% immediately, and then go down another 15% each year after that, according to sources such as KBB and Edmunds. According to every message board I’ve ever read, buying a new car will probably cause you to lose your house, get divorced, and be sent to the Chateau d’If for thirteen years.

But how true is that? And if it is true, does it matter? Let’s find out.

Like the best scientists (and by the best scientists, I mean Ma href=”http://en.wikipedia.org/wiki/James_franco”>Norman Osborn), I made the decision to test this theory myself several years ago, albeit not necessary intentionally. Since 2000, I have bought five cars for myself, all of them new. In order:

2000 Hyundai Tiburon (bought new in March 2000)

2001 Hyundai Santa Fe (bought new in June 2001)

2004 Mazda RX-8 (bought new in May 2005)

2009 Pontiac G8 GT (bought new in October of 2008)

2013 Ford Boss 302 (bought new in June 2012)

Each car was financed over a sixty month term, and only the Tiburon had any sort of cash down payment (you can read about how that happened in my epic tale of short-lived 944 ownership). Each car was traded in on its successor at a franchise dealership. In other words, I did exactly what you’re NOT supposed to do. How did it work out?

The longest I kept any car was nearly four years. The shortest was a little over a year. In each case, I either got out even up (Tiburon, Santa Fe) or I had positive equity on my trade(RX-8, G8). So, essentially, I leased the cars for varying terms from sixteen to forty-six months. How did I manage to do this without taking massive financial losses?

1) Negotiate the hell out of the price on the front end. With the exception of the Boss (which, at that point, was seeing an average of $5K-10K ADM), I paid significantly less than invoice for the car. My best purchase was on the RX-8. For a car that stickered at just over $30k, I paid $22,500, which included a $4K factory rebate and $4K of dealer markdown. I was able to accomplish this due to my patience and willing to buy a car from the previous model year six months into the current model year. It took over two weeks of negotiating to make this happen, including walking away from the deal entirely twice only to have the dealer call me back. Use everything that’s available to you. Maybe your employer is a GM supplier-find out. Get invoice numbers, not only on the base car but on options. Dealers HATE how much information is available to consumers now-more than one dealer has said it’s impossible to make money on the front end of a sale of a new car. Use it all. You’re not there to make friends. Which leads me to…

2) Finance, finance, finance-but only at a good rate. It’s amazing to me how many people will battle like crazy on the price of a car only to give it all back in the Finance and Insurance office. If you have a beacon score of at least 700 (and that’s auto-adjusted, meaning that even if you’ve missed a credit card payment or two over the years but you’ve paid your car on time, you should be fine), there is NO REASON to ever, ever pay more than whatever the best promotional rate available is. If you’re at least a 660, you can still negotiate down to a very good rate-nothing more than 3.9% over sixty months. Anything that’s less than the rate of inflation is essentially free money. I was able to get zero percent for 60 months on the G8, so the payments I was making three years into my schedule were actually worth about six or seven percent less in actual dollars than the payments I was making in my first year. If the dealership is trying to hit you with a rate over five percent, it’s because the F and I guy is getting spiffed on every point above and beyond standard rates he can get you to agree to. Back-end profits are about all a dealer has left nowadays-don’t give it away. Know your score before you go in and, even better, pre-arrange financing with your own financial institution so you have an offer in your pocket.

3) Try to buy interesting, desirable cars. Most modern dealers will have some sort of desirability index that they reference when deciding what value they give your trade. It grades the supply of similar vehicles in the market compared to the market demand for that vehicle. If you have a 2011 Ford Fusion, you are screwed. The supply of these vehicles far outweighs the demand. Get ready to battle. If you have a 2009 Jeep Wrangler with low miles, feel free to sit on your hands and wait for the offers to come in. I was able to leverage this in two cases-my RX-8 and my Tiburon (and if I’d been willing to wait a little bit longer, my G8, too). I got crushed on my Santa Fe. Nobody wanted a Hyundai with nearly 100,000 miles on it. Part of my two-week negotiation with the Mazda dealer on my RX-8 was getting them to just get me out of the Santa Fe even up; they initially offered a value that was four thousand dollars less than my remaining payoff. The cooler and more interesting your car is when you buy it, the cooler and more interesting it will be when you go to trade it in. But even if you have a lame car…

4) Dealers need to take in trades for their business model to work. Auction prices are out of control. Dealers both want and need trades-in fact, they are keeping stuff now that they never, ever would have before. It’s no longer crazy to go in asking for retail price for your car. You might not necessarily get it, but you might not be that far off, especially if the used car manager has a prospective customer for your car. I had a used car manager stalk me on my G8 for weeks, even after I traded it in elsewhere-he asked if I had any other friends with G8s.

5) Buy cars when the OEM/Dealer needs to sell it to you. Dealers have OEM new car targets that they have to hit. In fact, it’s one of the few ways that they can make money on new car sales anymore. And for some marques, the very existence of the franchise can be at stake if they don’t make targets. The whole thing about buying cars at the end of the year/quarter? It’s totally true. I have always bought cars on the last weekend of the month, and always when there is additional cash on the hood (again, with the exception of the Boss 302). Buy from struggling dealers. That guy that advertises that he’s the number one franchise dealer in town? Avoid his store like the plague. Buy from the desperate dealer. It matters.
But let’s say you take all of my advice-you’re still going to lose SOME money. After all, unless you bought a 993, you DID buy a depreciating asset. And even if you buy used, you’re STILL going to lose money.

Here’s my advice. Accept that buying a car, virtually any car, is a money loser. Don’t lose sleep over it. Enjoy it. Remember that if you’re reading TTAC, you’re probably an enthusiast. You’re buying a car because, on some level, you enjoy driving. You enjoy car ownership. Every day that I’ve owned my Boss 302 is a day that I’ve been able to enjoy it. The guy who’s waiting two years for it to depreciate forty percent? I’m enjoying my car for two years longer than he will. Maybe that’s worth forty percent to me. If this sort of thing matters to you, I got it when it was new and hot. He’ll get it when there’s a newer, hotter model of Mustang being sold at Ford stores. Maybe that means I’ll enjoy it more.
When you buy your dream car brand new, and then when you have the incredible nerve to finance it, rest assured; the Internet will call you an idiot. Who cares. You’ve got your dream car. In my experience, there have been few better days than the days I drove my new cars into my driveway for the first time. I sincerely hope you have the chance to share that same experience.

And tell the Internet to go to Hell. After all, it’s your money.

I'm definitely a used car (at least 2 years) type of guy, but he makes some good points. I like how he says a 993 will never depreciate - that was my long term plan. That or a NSX lol.

Are invoice numbers as readily available in Canada as the US?

[meme405]

Tl;dr

Buy used...

[mos_skeeto]

Catch-all advice (ex: it's stupid to buy a ... when you can buy a ...) is generally unhelpful I think. It's not stupid to buy a new car and it's not stupid to buy a used one. It's only stupid if you're buying something you can't afford or the maintenance/payments after will burn you poor.

[freakshow]

I would like to see more numbers from him, as opposed to a few sentences that say "I either got out even up or I had positive equity on my trade".

Theres almost no way he would have made out as well as if he bought cars at the same time at the same price range, that were 5+ years old instead of new.

[4444]

When I was younger, I always figured I'd do nothing but buy new cars when I was older.

Now that I'm older, in my career, make solid income... I only buy used cars. In fact I have only ever owned 1 new car, and that's only bc I felt I needed am extremely reliable car (was anticling and travelling a lot), since then, bought used, about to move to another country, will buy 3 yr old, 60k kms...

It's almost as though I'd rather get a 'new' car every 5 years, but if I buy them 3 years old (around 50-60% of new value), then I'll save a lot of money versus buy new and have to keep for 8 years to be on same financial ground.

And cars are built so well these days and for so cheap (in North America at least), a great 3 yr old 335 or 5 series can be had for a very reasonable price, and these are nice cars with loads of features.

[- kT]

i bought my car brand new, but it's like the article says - a car isn't an investment and there's no way it'll be so. the next best thing is to enjoy it. also like the article says, every day that i get to drive my car is a day enjoyed. would buying used be more friendly to the wallet? no doubt. but with a new car you get the luxury of untouched anything. the engine is (pretty much) brand new, the interior is spotless, no leaks, no rattles, no past maintenance to worry about. to have that you'd think you'd have to pay a premium
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[dared3vil0]

^ Exactly. Used cars are a hell of a lot smarter financially, but nothing beats owning a car since new. The smells, the experience of breaking it in, your first time driving the car hard...

[westopher]

Originally Posted by mos_skeeto

It's only stupid if you're buying something you can't afford or the maintenance/payments after will burn you poor.

This sums it up very well.

[radioman]

Originally Posted by dared3vil0

^ Exactly. Used cars are a hell of a lot smarter financially, but nothing beats owning a car since new. The smells, the experience of breaking it in, your first time driving the car hard...

So far I've loved getting all my warranty work done. It's been the best part so far

[bcrdukes]

I absolutely love the high and rush of blood through my veins as I walk through the doors of the dealership. The moment I walk through those doors, knowing that my car and I will be taken care of is such a refreshing experience. But this can only be achieved when I casually take off my Ray Ban Wayfarers, while strutting my wares, proudly rocking my Japanese-made corduroy jeans and hand made Spanish espadrilles, Blackberry in one hand, and double shot Americano in the other.

Warranty work

[radioman]

[Great68]

I have zero regrets with buying my car new. I followed the article's rule #1 - buy heavily discounted off sticker (6 months on lot) and #2 - extremely cheap financing

I haven't thought about the depreciation at all, and if I keep the car for a long time it's pretty much irrelevant. All that matters is that it has been reliable and puts smiles on my face.

[freakshow]

There's nothing wrong with buying a new car.. it's better than buying used in almost every way, except financially.

There is something wrong with writing an article implying that the financial benefits (arguably, the only benefit) of buying a used car can also be achieved by buying a brand new car.

[smoothie.]

Our new car market is nowhere near the amount of deals available in the USA



The game here is leasing expensive German cars with all maintenance covered.
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[Euro7r]

To me, have to at least own a "new" car once in your lifetime. Life is too short to not enjoy.

[xXSupa]

Here's how I see it.

Yes, buying a new car is 40-50% more expensive.
But for that 40-50%, you're getting:
1. YOUR choice of what car you want, which colour, what features, exactly the way you want it.
2. Fresh, never been touched before. No need to worry what the previous owners "did" to it. Or in it.
3. Warranty and maintenance.
4. A few extra years of driving compared to if you bought used.


Buying used saves you money, but you are not likely to get any of those above benefits. Really depends on the person and what's more important to him/her. Saving money, or getting all those benefits.

[alf]

i buy used because all the new cars these days are all cookie cutter wind tunnel tested fuel/space practical cars, i love the late 90's cars, and plus it saves manufacturers from putting more cars on the planet

[Manic!]

I don't know if I will ever buy a new car. To me buy used is not just about being cheaper it's about getting a lot more car for the money.

[meme405]

Originally Posted by xXSupa

Here's how I see it.

Yes, buying a new car is 40-50% more expensive.
But for that 40-50%, you're getting:
1. YOUR choice of what car you want, which colour, what features, exactly the way you want it.
2. Fresh, never been touched before. No need to worry what the previous owners "did" to it. Or in it.
3. Warranty and maintenance.
4. A few extra years of driving compared to if you bought used.


Buying used saves you money, but you are not likely to get any of those above benefits. Really depends on the person and what's more important to him/her. Saving money, or getting all those benefits.

I agree, but on the bolded item, if you are persistent you can find the perfectly optioned out car used as well.

The thing is, I always looked at it this way:

I looked new, and I could afford something like a nissan juke, great car, practical, good on gas, etc.

I looked used and I could get like g35's, xterra's, FX's, etc. You just get so much more car for your money.

Now Obviously if you go too old or too far up your budget you risk having a heap of shit that breaks down all the time and you can't afford it. But if you aren't a complete knob about it then you can avoid this problem.

The other thing about buying used, is I dont have to worry so much about modding it and warranty and stuff... I do what I want, and the maintenance I do allows me to be able to get more mods done....

[is350]

since when is a nissan juke good on gas?