Find out why depreciation is a good thing for pre-owed vehicle shoppers.
Did you know that new cars lose about ten percent of their value the second they’re driven off the dealer’s lot? That’s a few thousand dollar loss for a really quick car ride! The only other ways most people can lose that much cash as fast is on Wall Street or at a casino.
Add to that the fact that new cars, on average, lose another twenty percent of their value in the first year. At the end of the third year, the average vehicle is worth only between 50 and 60 percent of its original sticker price.
The basics of depreciation
The phenomenon that causes this is known as depreciation. Most items, except for things like fine art, top quality jewelry and some real estate, depreciate in value. They go down in price because they’re not as attractive or usable when they get older as when they’re new.
Think about a computer. Would you prefer to buy a brand new one or a machine that’s a few years old? Of course, a used computer will let you surf the internet, check email and run most software. However, it won’t have the features, functionality and power to run many of the latest applications or handle advanced tasks.
The same is true for cars. A preowned vehicle can provide a great ride, but it won’t deliver the same driving experience a new car can. It may not come with things like automatic parking or built-in access to online assistants.
Still, when you weigh all the factors, cars aren’t computers. They don’t change as quickly. While new car models come with novel or enhanced features, they’re typically not as revolutionary as those on computers.
Leveraging depreciation while shopping
So, while depreciation is depressing for the original owner of a car, it may prove to be a great opportunity for a smart used car shopper.
It’s especially true for models that are between one and three years old and have been well cared for by their original owners. This is typically the case for late model used cars. Owners usually take great care of their new cars, especially if they plan to flip them for a new model in a few years.
Spend time researching the models you’re considering. Look for ones with relatively high depreciation rates that also have solid reputations. These provide the greatest value. It’s almost like finding a classic designer clothing item that’s barely been worn at half off.
You’ll also get added value if you can find a used car that comes with a transferable manufacturer’s warranty. And before you buy any preowned auto, even if it appears to be in pristine condition, you should have it checked by a reputable mechanic. Investing in a diagnostic analysis will help you sleep better at night knowing your preowned car is a REAL bargain.
Certified preowned cars
If quality in a used car is critical to you, look into certified pre-owned (CPO) vehicles. They’re offered by many luxury and mid-market brands. CPO autos are thoroughly inspected, maintenance issues are taken care of and any cosmetic problems are repaired. Before buying a CPO car, ask the dealer to show you its inspection report. It should include a list of all the areas that were checked, whether or not there were any recalls on the model and details such as tire tread depth and the thickness of the brake pads.
CPO cars are usually more expensive than comparable non-certified models. The differential is usually about $1,000, which will reduce your depreciation discount. For many people, the added cost is worth the peace of mind that comes with buying a certified vehicle.
If you’re a used car shopper, it’s worth taking the time to figure out how to use vehicle depreciation to your advantage. Doing your due diligence will help you find a gem at a discount price.