Author Topic: Are older cars more expensive than newer cars?  (Read 2447 times)

ChpBstrd

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Are older cars more expensive than newer cars?
« on: June 03, 2022, 11:30:10 AM »
I was looking at https://www.edmunds.com/tco.html to think about automotive choices such as BEVs versus hybrids versus conventional cars, and I saw some weird things going on with their five-year total cost of ownership calculation.

A brand new 2022 Toyota Corolla LE costs $27,905 to own 5 years in my zip code. A 2016 model of the same car costs $32,108, thanks to higher expected depreciation on the older car.
https://www.edmunds.com/toyota/corolla/2022/cost-to-own/?style=401899726
https://www.edmunds.com/toyota/corolla/2016/cost-to-own/?style=200746659
The difference in upfront price as calculated by Edmunds is $8,073, and the projected savings are $4,203 so you get more than a 50% return on investment by spending the extra money on a 2022 model instead of a 2016.

A brand new 2022 Honda Civic LX automatic costs $27,511 to own 5 years in my zip code. A 2016 model of the same car costs $32,660, again thanks to higher expected depreciation on the older car.
https://www.edmunds.com/honda/civic/2022/cost-to-own/?style=401875382
https://www.edmunds.com/honda/civic/2016/cost-to-own/?style=401588685
The difference in upfront price is $8,062, and the projected savings are $5,149, so you get a nearly 64% ROI for upgrading your Civic.

The Nissan Sentra S, Chevy Spark, and a Chevy Colorado Crew Cab with 2.5 engine all showed the same pattern: new is cheaper than used.

Questions:

1) Can this possibly be correct? Is there something wrong with Edmunds' depreciation calculations or is there something wrong with used car prices right now? This totally looks like a bad data problem, but with used car prices what they are I'm not so sure.

2) Is it possible the world is so out of whack that spending cash to upgrade one's car could yield a double digit return on investment?

3) Do these crazy numbers mean a massive fall in prices for cars aged about six is imminent, as soon as supply chain issues are resolved? I still see plenty of cars on the lots around me, so is that really it?

4) From a FIRE perspective, are these crazy times an opportunity to sell your five or six year old car for way too much money, walk into a dealership and pay cash for a no-frills brand new car, so that a big automotive trade is out of the way for the next decade, your car situation is ready to go for at least the next decade, and your future transportation expenses are lower / more predictable?

chasingsnow

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Re: Are older cars more expensive than newer cars?
« Reply #1 on: June 03, 2022, 12:00:27 PM »
I have 0 insight on this, but PTF because I have thinking about unloading our used car

Dee_the_third

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Re: Are older cars more expensive than newer cars?
« Reply #2 on: June 03, 2022, 12:20:27 PM »
Yeah that is...weird. As you point out, the depreciation calculation is wack. I'm at work so I can't check, but an easy thing to verify it would be to check the KBB value of a 2016 vs. 2015 model. Is there a 3,500 price difference?

chemistk

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Re: Are older cars more expensive than newer cars?
« Reply #3 on: June 03, 2022, 12:47:58 PM »
I did some fiddling because it's Friday.

First, looking across many TCO charts, I actually have to say that the data is fairly representative of real-world scenarios. In all TCO calculations, they assume the buyer is financing and note that although some older vehicles may be purchased with cash, including the financing aspect factors in the opportunity cost of potentially getting a higher rate of market return. Moreover, they point out that they are pulling tire data from TireRack, which to me signals they care enough to get so granular about each vehicle that they aren't just assigning a static replacement value across sedans with a 15" rim diameter.

Best I can tell, Edmunds is factoring in some 'Y' value that assigns a fairly substantial depreciation hit once the vehicle is more than two years old. If I had to read between the lines, it looks to me like the assumption is that at some point in year two (under the assumed driving conditions of 15kmiles/year), the lucrative powertrain warranty expires (likely hitting the 36k mile mark) and the value subsequently drops because that's no longer a selling point nor can it be used as an offset to repair costs.

I find it interesting that in the TCO projections of 2021 & 2022 model years, there seems to be a fairly constant drop in the depreciation cost around year 3 of ownership. That one has me a little perplexed - the only rationale I can see for it is that many people who are leasing or who like to buy new cars after a couple years would see the highest return right before the powertrain warranty is up, but I don't think that explains it fully.

Once you get out after 5 years, it looks like they are assuming a somewhat linear depreciation.

So to answer your questions,

1) see above
2) It's possible. If you can wait on a new car, ordering one at MSRP and then selling it a couple years later (at around 30k miles) could yield a positive return assuming the used car market stays like this. I think in reality it's those who purchased new in 2019/2020 who are able to capitalize on this.
3) To me, it seems like used cars have supplanted the formerly entry level cars of yore. So I'd guess that while we won't see prices rise much once inventories return, I also don't think prices will plummet. My gut feeling is that more people than ever are willing to buy used, and it's going to buoy prices for some time. We're also in an interesting age, where for the most part nearly all major automakers are making cars that are designed to last at least 10 years. I still remember thinking that a used car with 90k miles was getting close to EOL. Now, save for a select few models, my assumption is that any car that's been properly cared for will last to abut 200k miles.
4) That's hard to say, but given how the writing's on the wall for oil, I'd think that strategy is only going to be truly effective if you purchase an electric vehicle. Once whatever inflection point is reached with EV's that makes them the preferred option for your average buyer, we'll see prices for gas vehicles steadily drop. Probably not too steep given the residual demand from those who want to avoid electric and those who need gas vehicles.




joe189man

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Re: Are older cars more expensive than newer cars?
« Reply #4 on: June 03, 2022, 12:50:59 PM »
Yeah that is...weird. As you point out, the depreciation calculation is wack. I'm at work so I can't check, but an easy thing to verify it would be to check the KBB value of a 2016 vs. 2015 model. Is there a 3,500 price difference?

I checked this for a 2017 vs 2018 mazda 3 sedan - there is a ~$2500 price difference

This post may be of interest
https://forum.mrmoneymustache.com/ask-a-mustachian/is-a-new-car-purchased-at-0-interest-an-inflation-hedge-with-7-inflation/

Paper Chaser

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Re: Are older cars more expensive than newer cars?
« Reply #5 on: June 04, 2022, 05:22:43 AM »
Between Jan 2021 and Jan 2022 used vehicle prices jumped an average of 40%.
New vehicles increased just 12% over the same time frame.

https://www.usatoday.com/story/money/cars/2022/02/13/used-cars-cost-more/6778705001/

So price increases of older vehicles have outpaced price increases of new vehicles, and that's why they're expecting more depreciation from the used vehicles in the coming years than the new vehicles as prices hopefully return to something closer to historical norms.

theninthwall

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Re: Are older cars more expensive than newer cars?
« Reply #6 on: June 04, 2022, 06:17:12 AM »
I would say the warranty plays a big part. There are many people who move on to something new as soon as the warranty expires, which would accelerate depreciation at the point you are describing.

wageslave23

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Re: Are older cars more expensive than newer cars?
« Reply #7 on: June 04, 2022, 07:37:22 AM »
Just looking at my own situation, I don't think it makes sense. I have a 2016 hyundai sonata with 75000 miles. It's worth roughly $10,000.  In 10 yrs, driving 10,000 miles per year the car will basically be at the end of its useful life. I'll probably be able to get $2,000 for it. But let's just round it to $1000 per year depreciation.  Based on other older cars I have owned, I will assume $500 per year in maintenance.  Definitely don't come close to that now, at the end it may be that high. Opportunity cost of that $10,000 vehicle value is roughly $500 per year. Less in later years but I'll round up.  Insurance is about $400 per year. So about $2400 per year in vehicle costs.  Buying a new vehicle, the depreciation each year is going to be $2500 alone. There will be some maintenance over the next 5 yrs but hopefully only $1000 over 5 yrs, so $200 per year. Insurance will probably be $700 per year because you are insuring more vehicle value. Assume 0%interest but if it's 2% interest, that's $500 per year. Taxes on new vehicles are about $1500 in my state, plus $500 in dealer fees. So even with 0% interest, I'm not seeing it.

brellis1vt

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Re: Are older cars more expensive than newer cars?
« Reply #8 on: June 04, 2022, 08:10:09 AM »

 always looked at it differently and ignored depreciation in these calculations.  The main reason I do this is I keep my vehicles for 15 years and the value of the vehicle will of the vehicle will be negligible.  Also, depreciation doesn't tell the whole story.  So I would run an npv calculation based on reasonable expected maintenance, operating cost, and a long life.  A new car will have a  longer life.  Historically, when I performed those calculations 2-4 year vehicles were the most economic but I haven't ran those calculations in the last couple of years. 

As far as EVs versus gas vehicles EVs have longer lives and lower maintenance (motors are better than engines) and my next vehicle will most likely be a used EV.

APowers

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Re: Are older cars more expensive than newer cars?
« Reply #9 on: June 04, 2022, 12:00:39 PM »
I always come at this from the perspective that buying a reliable make/model 15-20y/o or older and doing one's own maintenance is the clear winner in virtually any car-buying scenario...so

Yes. Used car prices are WACK right now, though it's not as much of an issue for 15+ y/o models.

Also, calculating depreciation AND purchase price as actual costs never made any sense to me. Depreciation is a way of understanding the cost over the useful life of a thing; you can account for it all up front (purchase price), or you can account for it *as if* you paid for it in installments, but you don't get to consider both in whatever cost accounting you do. So the calculations in the OP feel like number manipulation to justify the purchase of an overpriced luxury carriage versus a staple transportation appliance.

Car Jack

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Re: Are older cars more expensive than newer cars?
« Reply #10 on: June 04, 2022, 02:59:54 PM »
New cars typically make a few hundred dollars profit for a dealer.  Used, a couple thousand.  Part of the equation is what's it cost the dealer to get the car.  Now, with so many car companies unable to get parts and shutting down factories for months at a time, the cheap trades aren't coming so fast and the cost to get these trades has gone way up.  I've seen lots of stories of people getting solid offers on their fairly new car of more than they paid new.  I got one myself.  $25k for my 19 Subaru Crosstrek that I bought new for $22k.  I'm sure the dealer would price it at $30k.  MSRP of a new one is $26k.  It's one of the higher volume Subarus and I am seeing lots in transit on dealer websites.  I don't know what they're going to ask for them.  A big dealer I checked has zero on his lot and 30 in transit.

ender

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Re: Are older cars more expensive than newer cars?
« Reply #11 on: June 05, 2022, 07:15:50 AM »
New cars typically make a few hundred dollars profit for a dealer.  Used, a couple thousand.  Part of the equation is what's it cost the dealer to get the car.  Now, with so many car companies unable to get parts and shutting down factories for months at a time, the cheap trades aren't coming so fast and the cost to get these trades has gone way up.  I've seen lots of stories of people getting solid offers on their fairly new car of more than they paid new.  I got one myself.  $25k for my 19 Subaru Crosstrek that I bought new for $22k.  I'm sure the dealer would price it at $30k.  MSRP of a new one is $26k.  It's one of the higher volume Subarus and I am seeing lots in transit on dealer websites.  I don't know what they're going to ask for them.  A big dealer I checked has zero on his lot and 30 in transit.

This is much less true now though with so many dealers charging MSRP (or higher) on new cars.

A lot of people take advice regarding car purchasing from pre-covid and try to apply it post-covid. Which... isn't really applicable anymore.

Metta

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Re: Are older cars more expensive than newer cars?
« Reply #12 on: June 05, 2022, 08:27:14 AM »
Our Subaru Forester is ten years old now. When we bought it, we were looking at used Subaru Foresters because our Toyota's engine had completely died while we were traveling and we needed something pretty fast.

The used car dealer kept trying to get us to buy one of their Subarus and then we noticed that the Subaru dealer across the street was selling their brand new Subarus for about $7,000 less than the used car price for substantially the same car. So we walked across the street and bought the new Forester we still own (200,000+ miles and still going strong).

We live in crazy times. But that's not unique. Sometimes used cars are crazy expensive. If you go into the car purchase process with the idea that used cars are always a better deal, you're not always going to be right.

Radagast

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Re: Are older cars more expensive than newer cars?
« Reply #13 on: June 06, 2022, 10:29:46 AM »
I mean they can be. I would look at specific instead of generic vehicles if thinking of acting based on this though, and do your own NPV. As an example about 6 months ago we went vehicle shopping and the first vehicle we test drove was a 2020 minivan with 9,000 miles which was priced higher than the same trim of a new 2021 model. And that was a Chrysler! Toyotas, with their fuel efficiency and reliability, seem to be especially egregious and used models routinely sell for above MSRP of new models.  A brand new base-trim Sienna has a similar 10-year NPV to the final year of Town and Country (2016), enough that better reliability and feature creep of newer models might make the new Toyota a better choice. This is particularly true of hybrids and especially PHEV's from what I have heard.

I think it has to do with availability. Anybody who wants or needs a vehicle within a few days is basically constrained to the used market for most models. New cars, especially fuel efficient Toyotas, are typically 3-12 months out. The smart thing financially would probably be to buy a car 10 or so instead, but people aren't always that smart financially.

mntnmn117

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Re: Are older cars more expensive than newer cars?
« Reply #14 on: June 06, 2022, 11:41:48 AM »
I worked for a major construction contractor and they followed a procedure of buying new trucks and using them for about 5yrs/75k miles. Apparently this was the sweet spot of total costs, that any longer than that depreciation starts in earnest and maintenance starts becoming a factor. They're tracking costs on 5,000 pickups seeing work truck usage.

They're working a combination of volume discount for new, owning during a period of almost no major maintenance, then offloading prior to any significant depreciation. I don't know if this works on the individual owner scale but I've definitely re-considered that maybe new car people aren't as dumb as I once thought.

sailinlight

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Re: Are older cars more expensive than newer cars?
« Reply #15 on: June 06, 2022, 11:47:52 AM »

I think it has to do with availability. Anybody who wants or needs a vehicle within a few days is basically constrained to the used market for most models. New cars, especially fuel efficient Toyotas, are typically 3-12 months out. The smart thing financially would probably be to buy a car 10 or so instead, but people aren't always that smart financially.
The same is happening with homes in my area of Florida which is rapidly growing. We bought a new construction in 2021 for 640k and sold it last month for 770k. New homes of the exact same model are selling for about 675k now ... but you have to wait six months to get it and it's nearly impossible to find anything to rent in the meantime.
« Last Edit: June 06, 2022, 11:52:43 AM by sailinlight »

joe189man

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Re: Are older cars more expensive than newer cars?
« Reply #16 on: June 06, 2022, 11:50:30 AM »
I worked for a major construction contractor and they followed a procedure of buying new trucks and using them for about 5yrs/75k miles. Apparently this was the sweet spot of total costs, that any longer than that depreciation starts in earnest and maintenance starts becoming a factor. They're tracking costs on 5,000 pickups seeing work truck usage.

They're working a combination of volume discount for new, owning during a period of almost no major maintenance, then offloading prior to any significant depreciation. I don't know if this works on the individual owner scale but I've definitely re-considered that maybe new car people aren't as dumb as I once thought.

i bought my mazda 3 hatch new in 2011 and it cost next to nothing for maintenance for may years, the last two service (oil change) visits have both found $1,000 + maintenance issues. Granted its 12 years old and has ~103k miles and my DW had a SUV of similar age and maintenance costs when she got a new car, YMMV. i have been researching new cars for a while now

ChpBstrd

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Re: Are older cars more expensive than newer cars?
« Reply #17 on: June 06, 2022, 12:49:48 PM »
I worked for a major construction contractor and they followed a procedure of buying new trucks and using them for about 5yrs/75k miles. Apparently this was the sweet spot of total costs, that any longer than that depreciation starts in earnest and maintenance starts becoming a factor. They're tracking costs on 5,000 pickups seeing work truck usage.

They're working a combination of volume discount for new, owning during a period of almost no major maintenance, then offloading prior to any significant depreciation. I don't know if this works on the individual owner scale but I've definitely re-considered that maybe new car people aren't as dumb as I once thought.

Businesses

a) Suffer 3X or 4x the costs of the repair when downtime occurs, and

b) Pay lower taxes when they can depreciate the newer more reliable vehicles.

and those conditions do not apply to commuters or retirees.

joe189man

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Re: Are older cars more expensive than newer cars?
« Reply #18 on: June 07, 2022, 08:23:59 AM »
i went down a worm hole yesterday and looked up some new and 5 year old car prices and did some math for average depreciation from 2022 to 2017. Average depreciation is annually. I was surprised by how well an outback holds its value. similarly our 2018 honda odyessy  purchased new sells for pretty close to the purchase price. i tried to average prices across trims as that can affect pricing dramatically. if you dont click on the image...

The best car for holding its value (that i looked at) was -

1. subaru outback
2. honda accord hybrid
3. nissan leaf
4. tesla model 3
5. chevy bolt
6. toyota highlander hybrid
7. honda odyessy

the worst was a GMC yukon xl that on average loses $683 in value per month. compare that to the outback that loses ~$133 per month
« Last Edit: June 07, 2022, 08:28:24 AM by joe189man »

bigblock440

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Re: Are older cars more expensive than newer cars?
« Reply #19 on: June 16, 2022, 08:52:30 PM »
Happened about 12 years ago as well, during CFC when the used car market was artificially restricted and there was a glut of new available.  Though I'm not sure that their calculations are correct, they may be using MSRP instead of actual sale price for new.  I'm also not sure if dealers are actually selling near MSRP, or if they're inflating due to the sparse lots, but they're not discounting like they were a decade ago.

That said, 5 years old is hardly an "older" car, that's still fairly new, especially when the average vehicle age is around 12 years old.  Used, yes, but older I'd consider 10-15 years at least (probably anything over average age), so no, a new car would not be more expensive than an older car, but may be than a slightly used newer car when conditions are right. 

bacchi

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Re: Are older cars more expensive than newer cars?
« Reply #20 on: June 17, 2022, 10:40:57 AM »
Used cars actually saw deflation in April.

This would agree with the Edmund's predictions.

wageslave23

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Re: Are older cars more expensive than newer cars?
« Reply #21 on: June 18, 2022, 07:00:56 PM »
Happened about 12 years ago as well, during CFC when the used car market was artificially restricted and there was a glut of new available.  Though I'm not sure that their calculations are correct, they may be using MSRP instead of actual sale price for new.  I'm also not sure if dealers are actually selling near MSRP, or if they're inflating due to the sparse lots, but they're not discounting like they were a decade ago.

That said, 5 years old is hardly an "older" car, that's still fairly new, especially when the average vehicle age is around 12 years old.  Used, yes, but older I'd consider 10-15 years at least (probably anything over average age), so no, a new car would not be more expensive than an older car, but may be than a slightly used newer car when conditions are right.

I'm pretty sure average age means how long is the average life of a car.  I've read differing descriptions but ultimately came to the conclusion that there aren't an equal number of 24 yr old cars driving around as new cars, or generally that idea.  The stat is misleading.