What
I mean to say is, we all know that cars depreciate very quickly when
they are first sold. Drive a new car off the lot and it can lose 20
percent of its value, right? So where's the secret?
OK
so there are certain types of cars that hold their value at a mostly
constant level for three years. Then, in the fourth or fifth year,
the value begins dropping off more steeply again. What this means for
you, the savvy consumer, is that you can drive a (nearly) new car for
(almost) free.
Furthermore,
if you combine this concept with a sharp eye for the market you'll
make out like a bandit. Currently, the used car market is very soft.
You could get a great deal on a two-year-sweet ride, drive it for two
years and then, when the market improves, recapture most of your
money.
Pick
a car and look at the depreciation from year to year. At first you
will think that the depreciation is constant. However, the percentage
depreciation
is actually accelerating since more loss is detracted from a smaller
total value.
Hopfully
I have not confused you so here is a recap; There is a huge drop-off
when you first buy a car. Then the depreciation isn't too scary in
the second, third, fourth and fifth years. But once the car is five
years old, the value drops dromaticly.
While
this drop doesn't look severe in the grand scheme of things, it is a
well-known fact among car dealers. A longtime friend and used car bargain hunter
was asked if there was a second drop in a car's price. "Oh
yeah," he answered without hesitation. "It's really true in
the high-end American cars — the Cadillacs, Lincolns and
Chryslers." Now understand it is not my intention to
denigrate any car manufacturers brands.
To
understand the reason behind the second drop you have to look at
where a car is in its fifth year. If the car has been driven for
12,000 miles each year, there are 60,000 miles on the clock. At
60,000 miles, if the car has been babied, it still is comfortably
below the 100,000 mark. However, there are some rather major service
issues looming such as the replacement of timing chain, another set
of tires and the slow oxidation of the paint job. (Buying
tip:
Make sure to ask for valid service records on any car with about
60,000 miles to see if this work has been done.)
Why
should you care about this? Well, here's the good news. And here's
why I made you sit through math class. If you buy a car that is one
or two years old, and drive it for three years, you can sell it for
close to what you bought it for. In other words, you can let someone
else get hit by the depreciation at the beginning and the end of this
car-buying cycle. And you can drive it while it's on that flat spot
on the graph.
Let
me put one other factor into this mix. The used car market goes up
and down like a roller coaster, a bit like the real estate market. If
you find yourself in a buyer's market, drive a hard bargain for a
good used car. Then you are ahead of the game from the beginning.
Baby the car and put it up for sale again in a few years. You may
find that you've had the pleasure of driving a (nearly) new car for
(almost) free.
Not
all cars age at the same rate. And the condition of a used car is
still the most important factor. So forego the new car price tag and head for Draper Auto LLC. Then you can put your money on
something more stable — like a sure thing at the race track.
Visit us at;
Draperautos.com
