Depreciation: The Silent Killer
Depreciation isn’t a popular topic of conversation, because it just isn’t very sexy. If you bring it up at a party, you will probably be rightfully ignored as being painfully boring. Due to the fact that depreciation typically makes up more than half of the cost of a car over the course of ownership, however, it does deserve some attention. So bear with me.
The biggest problem with buying new, besides the annoying and time-consuming task of dealing with car dealers, is that your car – one of the biggest expenses for most people – instantly loses thousands of dollars when you drive it home. If you tried to sell your car with 50 miles on it on the used market, you would be at a loss of about 20% of the total purchase price. This rapid decline in value is the depreciation of your car.
According to bankrate.com, a car typically loses 15% of its value each year. This of course slows down over time, but the depreciation of the car after just a year of ownership can easily be 35% of the out-the-door cost once you take into account the taxes and fees. That’s $8-9k gone from a car that cost $25,000 to begin with, which is nothing to sneeze at.
This sounds like bad news, but just the fact that you are aware of how much money can be lost in depreciation has armed you to become a much smarter consumer. Even if you just buy a car that is one year old, you will have saved yourself thousands of dollars. If you are shopping for luxury cars, the same rules apply, perhaps even moreso since luxury car buyers usually want to be the first on the block with the newest cars. In the current economic climate, this is even more applicable, as people are trying to save money and buy fuel-efficient cars.
You can take advantage of this to buy cars which have been barely used at a huge discount. It’s pretty difficult to tell the difference between a car that’s brand new and one that’s a year old, besides of course the much sought after new car smell. Even then, buying a car from someone who is forced to sell because of a bad financial situation into a market with no demand might mean that you can land a car that even still smells new without suffering the big depreciation hit that the original owner did as he drove home.
A BMW 335i can be had for around $28,000 these days with the extended Certified Pre-Owned Warranty (6 years, 100,000 miles) to boot, if you are patient and negotiate well. One hell of a deal, if you ask me.
