Automobiles have a unique place in American consumption and personal finance. Nothing else costs so much and depreciates so fast and we continue to buy them.
As everyone knows, cars are more than transportation. For businesspeople, it is often important to have a newer 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 manufacturer’s suggested retail price (MSRP) through years of resale.
Age Drops Resale Value, Even As Quality Increases
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, for example, the Toyota Camry. In 1999, a new Camry had an MSRP 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 — roughly 71 percent of its original price.
A buyer getting a 10-year-old Camry for $6,400 pays 29 percent of the original MSRP, but can they 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 100,000 miles almost certainly has more than half its usable miles.
Shaving 70% Off the MSRP
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.
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 that a used car also means additional savings, as 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 MSRP, I find the ratio stays in the low 70 percent range.
- Honda Accord: 70 percent
- Acura and Nissan Maxima: 76 percent
- Ford Mustang: 69 percent
- Crown Victoria: 76 percent
I often hear people say they buy a foreign car over a domestic car because it retains its value longer. This 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.
To save yourself a bundle on your next car, find yourself a 10-year-old model under 100,000 miles and you’ll pay as much as 70 percent less than the original MSRP.
Fred Siegmund covers America’s jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
