Author Topic: The myth of car depreciation  (Read 4945 times)

Asalbeag

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The myth of car depreciation
« on: June 29, 2017, 08:16:39 PM »
Ok maybe it's not quite a myth but I do think it's oft overstated significantly. I've linked an example of an infographic I've seen a few times (actually posted in another thread on here recently also)

My situation is that it's time to replace my 2002 Focus due to rust (well a myriad of small/medium problems really but the rust is the killer) which is unfortunate because she only has 80K miles.

Now I can get into a new Ford Focus for ~$15K or Mazda3 for ~$16K (not including taxes and fees but you can't depreciate them anyway). So according to that infographic I should be able to find a 2014 with average miles (~50K) for <$10K. That is completely unrealistic, in reality they are closer to $12K or $13K.

So is this because nobody buys base model cars (in which case I'm paying extra for crap I don't need or want), are new cars just getting cheaper or is it because I've limited myself to manual cars only (a tiny fraction of the used cars available) since I have no interest in an automatic. I'm in the Pittsburgh area FWIW.

I will acknowledge that the majority of used cars I can find are being sold by dealers so the person who sold it or traded it in got a lot less than the asking price now, but there are very few cars for sale by owner that are not beaters. These kind of numbers make new cars look a lot more attractive even though I really don't drive enough to warrant one.


Paul der Krake

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Re: The myth of car depreciation
« Reply #1 on: June 29, 2017, 09:32:00 PM »
Entry-level sedan cars depreciate less than the more expensive models because so many people want them. Your infographic is based on a 30k car. It's also highly dependent on location, consumer preferences, inventory, etc.

$11k focus with 57,000 miles:
https://pittsburgh.craigslist.org/cto/6166855041.html

Travis

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Re: The myth of car depreciation
« Reply #2 on: June 29, 2017, 11:22:21 PM »
Entry-level sedan cars depreciate less than the more expensive models because so many people want them. Your infographic is based on a 30k car. It's also highly dependent on location, consumer preferences, inventory, etc.

$11k focus with 57,000 miles:
https://pittsburgh.craigslist.org/cto/6166855041.html

I was going to remark that supply and demand takes a big bite out of those equations.  How well a model of car sold a particular year and how many remain in circulation, how popular and regarded it is, it's long term maintenance and operating costs, the cost of a similar new model, and how large or small the market is in your local area all play a role in determining the market price for that used model.

Asalbeag

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Re: The myth of car depreciation
« Reply #3 on: June 30, 2017, 04:40:39 AM »
Ok so using that car as an example (although it's automatic so never came up in any of my searches). Currently available for ~$17K new (after $4000 incentive) which means it only depreciated $6000 in its first 57000 miles, or ~10.5c per mile with presumably very little maintainance. If I were to run that until it dies (let's say 200k miles it would cost me about 5.5c per mile, so about $7000 less but I'd need a whole bunch of maintenance, at least 3 sets of tires, brakes etc. Maybe a savings of $3000 over not driving a new car every 3 years or if I just bought it new it would cost 8.5c per mile about $4000 extra.

So it's definitely cheaper to buy used but not really a very significant saving considering the risk of getting a lemon or something that has been driven like a getaway car and might never make it to 200K.

I've read a lot of people say the sweet spot is 2-3 years but I'm just not seeing it. BTW I'm not trying to justify a new car, I'm trying to justify a used car but I'm struggling to find anything that I'd regards as a good deal.

gooki

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Re: The myth of car depreciation
« Reply #4 on: June 30, 2017, 04:59:24 AM »
Cheap and easy credit enables prices to remain high.

Cranky

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Re: The myth of car depreciation
« Reply #5 on: June 30, 2017, 05:54:29 AM »
I'm not denying that cars depreciate, but when we looked around for a good low-mileage used car, it was good luck, Huck. People aren't selling two year old cars in good running condition, as far as I can see.


shawndoggy

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Re: The myth of car depreciation
« Reply #6 on: June 30, 2017, 06:29:27 AM »
all bets are off with manual transmission cars.

that said, have you looked at something like an accord sport (6spd, honda, well equipped but not loaded by accord standards)?

I think that dealers tend to avoid taking them because they are manuals and from time to time you can find a 13-14 with low-ish mileage for 13-14k.  Yes, that's more than your $10k pricepoint, but it's also a shit ton more depreciation on an arguably much much better car.  gas mileage is pretty decent on them too. 

(this is one of the many many cars that I "fantasy shop" on the regular)

marielle

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Re: The myth of car depreciation
« Reply #7 on: June 30, 2017, 06:30:42 AM »
I see cheap cars with low mileage all the time since I tend to look at Craigslist as a bit of a hobby. Even more so if you look at a less than popular car, or an older car with low miles. For example, I just found a 2006 Mitsubishi Eclipse with 45k miles for $8k. A 2004 Honda civic with 80k miles for $3900.  A 2007 Jaguar S-Type with 70k miles for $7700. 2015 Nissan Sentra with 55k miles for $9k. All clean titles. There are even cheaper ones with rebuilt titles of course. I think your problem is that you're looking at a very specific car with specific features (manual). If the manual part is most important, try to consider some other types of cars as well. You never know until you drive one.

Rubic

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Re: The myth of car depreciation
« Reply #8 on: June 30, 2017, 07:28:14 AM »
I like driving manual transmission cars, but their resale potential is more
limited than automatic.  If it was a sub-$3000 car that I was planning to
drive until the wheels fell off, I'd probably consider it.  Otherwise I'll stick
with automatic transmission.

bortman

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Re: The myth of car depreciation
« Reply #9 on: June 30, 2017, 08:00:30 AM »
Like the OP, I've been looking for a used car 5-8 years old with the requisite mileage. The reason: I bought a new car in late 2003 and have driven it into the ground.

Supply and demand was mentioned earlier, but I think that the major driver is that many are holding onto their cars longer, rather than availability of particular models or trim levels.

http://www.cnbc.com/2015/07/28/americans-holding-onto-their-cars-longer-than-ever.html

So, will we have better luck finding an 11 1/2 year old Mustachian car? Even the cars I've found of that vintage seem relatively expensive for their age.

Smokystache

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Re: The myth of car depreciation
« Reply #10 on: June 30, 2017, 08:03:09 AM »
Ok so using that car as an example (although it's automatic so never came up in any of my searches). Currently available for ~$17K new (after $4000 incentive) which means it only depreciated $6000 in its first 57000 miles, or ~10.5c per mile with presumably very little maintainance. If I were to run that until it dies (let's say 200k miles it would cost me about 5.5c per mile, so about $7000 less but I'd need a whole bunch of maintenance, at least 3 sets of tires, brakes etc. Maybe a savings of $3000 over not driving a new car every 3 years or if I just bought it new it would cost 8.5c per mile about $4000 extra.


This is the big difference between your behavior and the buying behavior of the average person (at least American). If you only take the big hit on depreciation (the first few years) every 15 years, then it isn't a big deal. But the average person buys new every 3-5 years (I'm guessing on this) and so they take the big depreciation hit every 3-5 years.

I know where you're coming from: I bought a new Honda CR-V in 2006 because the 2004s and 2005s were only about $1-2000 cheaper and I plan to drive it 200k+ (10 years old and at 125k now). I think only the most hardcore would facepunch anyone who is buying a new car that is below $20k and driving it for 200k+. It's the revolving door of new or leased cars every 3-5 years (or less) that is facepunch-worthy.

ReadySetMillionaire

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Re: The myth of car depreciation
« Reply #11 on: June 30, 2017, 08:17:47 AM »
I'm not really sure what your question is, but it sounds like you are debating whether to buy new versus used, and thinking about the costs of depreciation?

I think you just need to look around for the right used make and model.

I just bought a car last weekend. A new 2017 CRV EX retails for about $26,800. I got a 2014 CRV EX with 36k miles for $16,300.

I also agree with the above poster who said that a lot of people get a new car every 3 years or so. Right now you should be able to find 2014 models flying off the lots because people are turning in their 3 year leases.  Dealerships traditionally try to get these off the lot as fast as possible.

neo von retorch

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Re: The myth of car depreciation
« Reply #12 on: June 30, 2017, 08:37:17 AM »
My wife and I actually bought two used Mazdas this month.

Her CX-5 MSRP as optioned (Touring AWD) is $28,280. Her 2014 w/ 34k on it was $17,800. 37% depreciation.
My Mazda3 MSRP as optioned (GT 6MT hatch) is $26,370. My 2015 w/ 8k on it was $19,975. 24% depreciation.

Obviously these are more expensive than the typical recommended Mustachian purchase. But they are very much examples of the savings over new. And my Mazda is stick shift (as per your stated preference), and it's CPO so it has a better warranty than a new one.
« Last Edit: June 30, 2017, 09:16:06 AM by neo von retorch »

Spork

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Re: The myth of car depreciation
« Reply #13 on: June 30, 2017, 09:07:55 AM »
I'm not denying that cars depreciate, but when we looked around for a good low-mileage used car, it was good luck, Huck. People aren't selling two year old cars in good running condition, as far as I can see.

My very limited experience is: Everything varies wildly all the time.  If you want a 2 year old car right damn now and have narrow requirements, you're probably right.  If you are a little flexible and watch the market for a few months, you have a little more luck.  We bought a 2 year old Rav4 with low mileage a few years back for pretty much what blue book would suggest.  We've had no problems whatsoever.  It was at a dealership where the same lady traded in her cars every 2 years for a new one.

Asalbeag

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Re: The myth of car depreciation
« Reply #14 on: June 30, 2017, 09:54:25 AM »
I like driving manual transmission cars, but their resale potential is more
limited than automatic.

I've heard that quite a lot but the evidence is to the contrary, hence this entire thread.

Seems like a lot of people have been in the same predicament, most of the examples given here of people making major 'savings' on used cars are actually paying more than I would pay for my 'ideal' new car off the lot. My only real requirements for the car is that it be manual transmission, <10years old (ideally newer), relatively good safety rating and per my wife's instruction fit a rear facing child seat - which unfortunately ruled out my Ford Ranger and several Hatchback preferences :( Ideal scenario would be <80K miles, fun to drive, under $10K.

I've been on the look out for about a month, I'll continue to bide my time.... but my state inspection is expired!!

Classical_Liberal

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Re: The myth of car depreciation
« Reply #15 on: June 30, 2017, 10:06:35 AM »
Regarding supply and demand of used vehicles, remember that the great recession really started to hit households 2009-2011.  The number of new car sales tanked, this means less used cars in the market for this 5-8 year range.  There may be a temporary supply-side issue driving up (pun not intended) prices of used vehicles.

neo von retorch

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Re: The myth of car depreciation
« Reply #16 on: June 30, 2017, 10:15:02 AM »
Eh... my specific example was for a super low mileage, excessively loaded version of "your ideal car." So it was "more" than you can get for a new one. (The new manual hatches around here are asking nearly $20k before a Mazda cash incentive of $2k, so $18k. Seems they are a little cheaper in your area, or you're OK with the sedan version.) Sure, there aren't really any current gen ones for under $10k... but you're comparing a brand new one at $16k and then expecting a lightly used one to be > $6k less? That's one way to "justify" a new one, but it's not valid :)

Not sure what area you're shopping, but there seem to be LOTS of manual current generation Mazda 3s with pretty low mileage for $15k or less, with a few under $12k. And that's with a lower mileage cap than your 80k...
https://www.cars.com/for-sale/searchresults.action/?mdId=21446&mkId=20073&mlgId=28864&page=1&perPage=50&prMn=0&prMx=15000&rd=500&searchSource=GN_REFINEMENT&sort=price-highest&transTypeId=28112&yrId=58487&yrId=56007&yrId=51683&zc=17067

(No doubt, the Focus are even more numerous and less expensive.)
« Last Edit: June 30, 2017, 10:18:31 AM by neo von retorch »

mcneally

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Re: The myth of car depreciation
« Reply #17 on: June 30, 2017, 10:34:59 AM »
I bought new in 2010 because ~3 year old models were only maybe $3k less. A couple people here are comparing prices they paid for used to what new MSRP is. For the vast majority of models, the cost of buying new is less than MSRP, sometimes way less. Or maybe I can claim I bought my brand new car after it took 10% depreciation.

Asalbeag

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Re: The myth of car depreciation
« Reply #18 on: June 30, 2017, 10:49:38 AM »
I mean my ideal would be a TRD Tacoma hence why I put 'ideal' in quotes. I like the Mazda 3 because it's cheaper and fairly highly regarded but probably wouldn't be my first choice, I just picked two fairly common cheaper cars as examples in my OP. I like the Grand Touring you purchased it seems like a nice car and has definitely been on my radar but I would not spend that much on a used car if I could get a perfectly acceptable one new for less (granted I'm not comparing like with like but at the end of the day they're both vehicles that get me where I need to go equally reliably).

but you're comparing a brand new one at $16k and then expecting a lightly used one to be > $6k less? That's one way to "justify" a new one, but it's not valid :)

Essentially yes, that's only 37% depreciation so that should be valid, based on the countless infographics and the endless, "buying a new car never makes sense" and "they depreciate so much as soon as you drive off the lot". So naturally I anticipated finding used cars that live up to these claims, and I can't, I was genuinely surprised that this was the case hence the entire thread.

Agreed on the MSRP comment, the reason those Focus and Mazda numbers are good is because both are offering manufacturer rebates currently ($4K and $2K respectively) plus my company offers plan pricing that takes another few hundred dollars off (but probably no more than you could haggle them down anyway).


Jrr85

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Re: The myth of car depreciation
« Reply #19 on: June 30, 2017, 11:07:47 AM »
Ok so using that car as an example (although it's automatic so never came up in any of my searches). Currently available for ~$17K new (after $4000 incentive) which means it only depreciated $6000 in its first 57000 miles, or ~10.5c per mile with presumably very little maintainance. If I were to run that until it dies (let's say 200k miles it would cost me about 5.5c per mile, so about $7000 less but I'd need a whole bunch of maintenance, at least 3 sets of tires, brakes etc. Maybe a savings of $3000 over not driving a new car every 3 years or if I just bought it new it would cost 8.5c per mile about $4000 extra.

So it's definitely cheaper to buy used but not really a very significant saving considering the risk of getting a lemon or something that has been driven like a getaway car and might never make it to 200K.

I've read a lot of people say the sweet spot is 2-3 years but I'm just not seeing it. BTW I'm not trying to justify a new car, I'm trying to justify a used car but I'm struggling to find anything that I'd regards as a good deal.

The depreciation hit on 2 to 3 year old cars was so large that it essentially amounted to an inefficiency in the market, which has largely been traded away as people have continually pointed out that 2-3 years is still basically new.  The last car we bought, we bought new because the depreciation was pretty much straight line over the first 5 or 6 years, at which point it started to slow down considerably.  That car before that, the depreciation looked like what everybody claimed, very steep depreciation immediately, then relatively steady depreciation for several years before it slows down, so we got huge savings by buying a 6 month old program car versus buying new. 

In hindsight, for our last car, we should have just bought the 5 or 6 year old car, but we already had one 5 year old car, and were trying to stagger the ages to try to evenly space future car purchases.  That really wasn't a good reason to drive so much of our decision, and we should have purchased the older car and planned on trading in more often. 

But all that to say, if you're buying a car say 4 or less years old, there's not that much difference and getting a good deal on a new car is probably better than retail price on a three year old car, if you're just looking at depreciation and cost per mile.   If you really want to save, you need to move out to or past that 5 or 6 year mark.
« Last Edit: June 30, 2017, 11:20:43 AM by Jrr85 »

Bicycle_B

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Re: The myth of car depreciation
« Reply #20 on: June 30, 2017, 03:35:15 PM »
When I look at used car listings, there is a variance of several thousand dollars between the asking prices of dealers (which appear often, even on Craigslist) and the prices of private party sellers.  To me the many listings I've seen strongly support the general depreciation theory, but with a big fat overlay of dealer profit sneaking in on top.  Where are are you looking for these cars, and who are the sellers?

Good luck in any case. 

Rubic

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Re: The myth of car depreciation
« Reply #21 on: June 30, 2017, 03:45:25 PM »
I like driving manual transmission cars, but their resale potential is more
limited than automatic.

I've heard that quite a lot but the evidence is to the contrary, hence this entire thread.

What evidence?  Not to be snarky, but independent of my personal observations,
State Farm and autotrader.com tend to confirm my experience.

It could depend on the car.  I had no problem selling a high performance sports
car, but that obviously attracts a different kind of buyer than a sedan.

Of the not inconsequential number of millennials I know, perhaps less than
10% of them even know how to drive a manual transmission.  Fewer potential
buyers (except for certain models of vehicles) lowers the resale market for
your vehicle.



Asalbeag

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Re: The myth of car depreciation
« Reply #22 on: June 30, 2017, 08:24:07 PM »
My evidence is that I can't find one at a reasonable price.

Fewer potential buyers but also fewer on the market, so not much demand but not a whole lot of supply either.

I agree with the dealer profit thing, I'm sure the people selling them or trading them in don't get a very good deal. My primary sources for private sellers are Craigslist, Autotrader and FB marketplace but so far I've really only seen beaters listed by private sellers. Most of the cars with potential are listed by dealers and are expensive.