Can You Afford to Drive a Used Car? (Part 1)

It seems like so many around me are being bitten by the New Car bug. I’ll admit, there have been times – even recently – that I’ve heard that bug buzzing around me. A few weeks ago, I think I even got bitten.

It’s a good thing I found the antidote!

Maybe I should clarify, when I say new car, at least in my case, I mean different car. I certainly don’t mean new as in zero-miles-fresh-from-the-factory new – at least in my case. You see, I’m a staunch advocate of buying used – not just cars, but that’s what we will talk about here.

With a background in finance, I understand a thing or two about depreciation, and it seems that nothing depreciates as quickly as a new car. According to the most recent figures on GoodCarBadCar.com, the top-selling new car in America is the Toyota Camry.
So, let’s look at NADA.com to see how quickly one of those depreciates.
Here is what we get on a brand-new 2016 Toyota Camry:

Blog - Car 2016 Camry NEW pic

Here’s the difference if we take that same car, title it to someone drive it only 100 miles and then try to sell it (keep in mind that for many people, 100 miles is enough to get from the dealer to home and back):

Trade-In

Base

Mileage Adj. Option Adj.

Adjusted Value

Average

$17,375

$675 $0

$18,050

Let’s say you got a deal on the car and bought it at invoice price we won’t even include dealer doc fees and the other add-ons they have. Then, you got it home and decided you wanted to trade it in for a different car – mind, you haven’t even taken the plastic off the back seat yet. What happened to the value of the car?

OUCH! You lost $3,000 just driving it home!

The odds of that happening are slim, and most dealers will work with you if you get home and are unhappy. But, theoretically, you’re taking a BIG slug of depreciation by putting your name on the title of a new car.

Let’s look at a more realistic scenario. Let’s say you bought the 2015 version and you’re now ready to trade it in a year later. Again, we will assume the base version Toyota Camry LE only this time we will put $12,500 miles worth of use on it.

Blog - Car 2015 Camry USED pic

Trade-In

Base

Mileage Adj. Option Adj.

Adjusted Value

Average

$15,375

$950 $0

$16,325

What a difference a year makes! Put some more miles on the car, allow some time to go by and watch the price drop! Discerning eyes will realize that our 12,500 miles was well below the amount of mileage expected on a 2015, increasing our value by $950. Even with the mileage adjustment, though, we’re still talking an additional $1,633 in depreciation over the course of a year.

Now, I know there is a big difference between the trade-in value of a vehicle and the price you pay a the car dealer. So, let’s look at the figures:

 

Trade-In

Base

Mileage Adj. Option Adj.

Adjusted Value

Average

$15,375

$950 $0

$16,325

Clean Retail

$19,075

$950 $0

$20,025

You’ll notice that the Clean Retail Adjusted Value is not much different than the actual purchase price of the car in the first place. Well, note this: There is a $3,700 difference between the “Average” trade-in value (what the dealer paid for it) and the “Clean Retail” value – that means there is at least $3,700 worth of negotiation between the posted price and what you’ll actually pay for the car.

That is a lot of money!

Why am I bringing this up anyway?

The reason is that people are constantly telling me “I can’t afford to drive a used car. I have to buy a used car [so that any repairs are covered under warranty].”

We will cover more in the next installment.

Can You Afford to Drive a Used Car? (Part 2) | Make Dollars Make SENSE - June 13, 2016

[…] Part 1, we learned how expensive it is to buy a new car. Depreciation […]

Can You Afford to Drive a Used Car? (Part 3) | Make Dollars Make SENSE - August 17, 2016

[…] Part 1 of this series, we covered the impact of depreciation (OUCH!) and in Part 2 we talked about the […]

Can You Afford to Drive a Used Car? (Part 4) | Make Dollars Make SENSE - August 17, 2016

[…] Part 1 of this series, we talked about new-car depreciation, in Part 2 we talked about the benefits of […]

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