Automobiles have a unique place in American consumption and personal finance. Nothing else remains our personal choice that costs so much and depreciates so fast.
As everyone knows cars are more than transportation. For people in business it is often important to have a late model car to project an image of prestige and prosperity. Others are interested in style and performance and buy one car over another for a range of personal reasons.
For those who buy cars to minimize their personal expense, they buy a used car. Automobile companies, dealers and car traders have to publish price and sales information to do their business, which makes it possible to follow depreciation from the manufacturers suggested retail price through years of resale.
Used car buyers know the first rule of used cars: age lowers used car prices faster than mileage. They also know mileage lowers the value of a car more than age. Take an example like the Toyota Camry Sedan. In 1999 a new Camry had a manufacturers suggested retail price of $21,888. This spring, 10 years later, various sales guides show a used car price around $6,400, which is depreciation of almost $15,500, or roughly 71 percent depreciation.
A buyer getting a 10 year old Camry for $6,400 pays 29 percent of the original manufacturers suggested retail price so here is a good question to ask yourself: Can I get more than 29 percent of the car’s total mileage? A 10 year old Camry in decent shape that passes state inspections and with less than 100 thousand miles almost certainly has more than half its usable miles.
Cars last longer and break down less than they used to do, both foreign and domestic. In spite of higher quality, resale prices still drop much faster by age than by miles. As long as that is true used car buyers can capture more of the benefits of higher quality by driving the last miles of a car rather than the first.
Remember as well that a used car means additional savings because the lower price lets you earn interest on the money you saved, or avoid interest on the money you did not need to borrow.
I have checked other makes and models and when I compare reported used car prices of 10 year old cars as a ratio to the manufacturers suggested retail price I find the ratio stays in the low 70 percent range. For the Honda Accord it was 70 percent, the Acura and the Maxima 76 percent, the Mustang 69 percent. Even a Ford, Crown Victoria turned out to be 76 percent.
I often hear people say they buy a foreign car over a domestic car because it retains its value longer. Mine is a small sample but if many other makes and models also lose 70 to 76 percent of their value in 10 years, then cars lose value at about the same rate, suggesting quality is more the same than many of us believe.
Find yourself a 10 year old car; keep it under 100 thousand miles; pay as much less than 70 percent of the manufacturer’s suggested retail price as you can negotiate and save a bundle.
Sunday, November 1, 2009
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