“Drive that car off the lot, and it will immediately lose 10 percent of its value!” We’ve all heard some version of that story before, where the mysterious force of depreciation instantly devalues your shiny new car. If you are a new car buyer, that can be frustrating. However, if you are buying a used vehicle, depreciation can be your money-saving ally. Let’s take a look at how depreciation can actually save you thousands.
Back To School
Technically speaking, depreciation is an accounting method of allocating the cost of a tangible asset over its projected useful life. In layman’s terms, it’s just a complicated way of saying “stuff wears out.”
“Depreciation is a big factor in anything you buy used,” said Richard Reina, Product Training Director at CARiD. “Whether it’s an appliance or piece of jewelry like a watch, all of these things depreciate as they get used.”
Thus, the reason used cars are cheaper than new cars is due to the fact they have less of their useful life left. However, this also opens the market to serious deals, as the savvy used car buyer can score a deal when depreciation exceeds the actual life left. For example, when a car has 90% of its useful life remaining, but is 30% off the cost of a new car, that can add up to serious savings.
Reina said automotive depreciation is more complex than most other resold items. Variables like age, mileage, options, and even location can factor into a used vehicle’s price. Location matters because a car that spent its life in sunny southern California will be worth more than a same year, similarly optioned car that saw duty in salty northern Michigan winters.
For real world numbers, let’s use the 2012 Ford Fusion and Toyota Camry. Both of these vehicles are mid-size sedans that offer a lot of space, comfort, performance, and fuel efficiency for the price. Back in 2012 when the first Avengers was in theaters and Gangnam Style a radio hit, both cars retailed for about $22,000.
Today, these cars aren’t new and have racked up an average of 60,000 miles. Since they retailed for the same price and we’re comparing the same mileage, depreciation should affect them equally, right? Wrong. If you research current prices for these used vehicles, a 2012 Fusion is selling for around $9,100, while a 2012 Camry can be had for around $12,400. That’s a $3,300 difference; a depreciation hit of 25% if you bought the Fusion brand new. Both cars are perfectly reliable, but the Camry is known for longevity, while the Fusion was comparatively new back then.
The Badge Matters
Reina says another factor in depreciation is the reputation of the vehicle manufacturer. Despite every manufacturer running advertising campaigns proclaiming their brand as reliable and prestigious, buyers know which brands have durability and status.
“I’ve owned a number of Fords,” said Reina. “And they were perfectly fine vehicles.” However, Reina pointed out that Ford’s reputation for durability is more aligned with their trucks, and their cars are not viewed in a similar light. That is why a Ford Fusion or Taurus will depreciate faster than a Honda Accord or Mercedes C Class.
“A Mercedes is not cheap to maintain, but most of them hold their value well. You can save money by buying used, but you’re still going to pay up for a vehicle that has the status and presence, or dependability.” Reina says used cars of the last 20 to 25 years are massively better than they used to be and can provide years of trouble-free driving if you do some smart buying.
“With today’s vehicles, anything below 100,000 miles that’s been maintained is probably going to be a decent buy.”