Automotive

Depreciation

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  • Jul 28th, 2015 11:12 am
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Deal Addict
Apr 13, 2015
1108 posts
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Depreciation

Without rehashing the complex debate of used vs new, I want to examine only one issue: Depreciation. You can also assume I am paying for the car with cash - no financing.

I am assuming my intended purchase, a Honda Civic Si, will set me back $30K. I am further assuming that it will last about 10 years. Therefore, my effective cost per year, examining only the depreciation to 0, $30k/10 = $3K/year;.

A similar 3 year old used car, will cost 67% of its new purchase value. Again, looking at 10 year life with only 7 remaining, its cost per year is (0.67)X$30K/7 = $2857/year.
http://www.intellichoice.com/1-12-2015- ... rices.html

$3000 - $2857 = $143.

Don't try and tell me the car won't have zero value after 10 years. Of course it won't, but remember both used and new car is now 10 years old. They both have the same value, all things being equal.

Conclusion: By buying new I am costing myself an extra $143/year. I am paying an extra $143/year for the luxury of a brand new car. Why on earth would I want to risk the unknown issues that could come with that used car??? Thats $12/month for a little longer warrantee . $12/month for the security of beginning with a clean, unused car.

Sorry, I don't understand the used car argument unless you're short of cash and can't afford the new car with cash.
73 replies
Deal Expert
Mar 25, 2005
22706 posts
3697 upvotes
bruceh2015 wrote: Without rehashing the complex debate of used vs new, I want to examine only one issue: Depreciation. You can also assume I am paying for the car with cash - no financing.

I am assuming my intended purchase, a Honda Civic Si, will set me back $30K. I am further assuming that it will last about 10 years. Therefore, my effective cost per year, examining only the depreciation to 0, $30k/10 = $3K/year;.

A similar 3 year old used car, will cost 67% of its new purchase value. Again, looking at 10 year life with only 7 remaining, its cost per year is (0.67)X$30K/7 = $2857/year.
http://www.intellichoice.com/1-12-2015- ... rices.html

$3000 - $2857 = $143.

Don't try and tell me the car won't have zero value after 10 years. Of course it won't, but remember both used and new car is now 10 years old. They both have the same value, all things being equal.

Conclusion: By buying new I am costing myself an extra $143/year. I am paying an extra $143/year for the luxury of a brand new car. Why on earth would I want to risk the unknown issues that could come with that used car??? Thats $12/month for a little longer warrantee . $12/month for the security of beginning with a clean, unused car.

Sorry, I don't understand the used car argument unless you're short of cash and can't afford the new car with cash.
Well the 67% at 3 years is key. That is almost linear (10% per year), hence the small gap in your math.
Deal Addict
Apr 13, 2015
1108 posts
214 upvotes
Kasakato wrote: Well the 67% at 3 years is key. That is almost linear (10% per year), hence the small gap in your math.
I understand that. Its key to my point. The depreciation rate in these cars isn't great enough to benefit from a used car.
Deal Expert
Mar 25, 2005
22706 posts
3697 upvotes
bruceh2015 wrote: I understand that. Its key to my point. The depreciation in these cars isn't great enough to benefit from a used car.
That's rather optimistic in my books. I would depreciate book value down 42% over three years as such:

Y1 20%
Y2 12%
Y3 10%
Deal Addict
Dec 30, 2007
1005 posts
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Ottawa, ON
I think the benefit of purchasing a slightly used car (1-2 years) greatly benefits those purchasing a vehicle for short term ownership (ie, buying something "new" every 3-4 years) vs. those of us looking for long term ownership. The savings are significant when you can cut out the first 1-2 years of depreciation and you only plan to keep the car for 3 years. Buying new and selling after 2 years costs more as years 1-2 depreciation values are costly.
Sr. Member
Dec 19, 2011
562 posts
330 upvotes
You really want to be driving a 10 year old Honda Civic? My '07 is costing me $500+ per month in parts and service.

I'm going to buy a new car soon, too; I never buy used because my time is worth more than the depreciation.
Deal Addict
Apr 13, 2015
1108 posts
214 upvotes
Kasakato wrote: That's rather optimistic in my books. I would depreciate book value down 42% over three years as such:

Y1 20%
Y2 12%
Y3 10%
Using the Canadian black book site, the average asking price of a 2012 is exactly 67% of the new purchase price of a 2015.

This is reinforced by the data presented here: http://www.intellichoice.com/1-12-2015- ... rices.html
Deal Addict
Apr 13, 2015
1108 posts
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nickscott wrote: You really want to be driving a 10 year old Honda Civic? My '07 is costing me $500+ per month in parts and service.

I'm going to buy a new car soon, too; I never buy used because my time is worth more than the depreciation.
No, I'm thinking about selling and buying new every 3 years, and paying a penalty of between 3% (70% - 67%) and 10%.

I agree with your time argument.
Deal Addict
Aug 19, 2011
4226 posts
3152 upvotes
Markham
Image

Just look at the buyout.

Your 67% retained value is where you're getting it wrong.
Deal Expert
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Jul 30, 2007
33237 posts
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Toronto
you can also use the manuf. leasing RV figures as a general benchmark on the depreciation amount. In this way, you can see what kind of anticipated wholesale value (not retail or private selling price) the manuf. is foreseeing
Deal Addict
Dec 30, 2007
1005 posts
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Ottawa, ON
nickscott wrote: You really want to be driving a 10 year old Honda Civic? My '07 is costing me $500+ per month in parts and service.

I'm going to buy a new car soon, too; I never buy used because my time is worth more than the depreciation.
And my 2007 Dodge Caliber (that I am approaching 9 years of ownership with) costs me approximately $50/month in parts and service. Now, granted, I am hitting the point where those costs are about to increase significantly, so I too am cutting loose and will be purchasing a brand new car.

Planning to own a car for 10 years is not a bad idea, it becomes a bad idea when you start dumping more money in as you approach year 10.

In my case the AC doesn't work and is a $1,200 repair. The rear suspension is going to require significant work shortly. And my only regret is having purchased new summer tires this past spring as the last set were toast. If I were smart, I would have skipped on the tires and kept my winters on, and gone straight to car shopping.
Deal Addict
Apr 13, 2015
1108 posts
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Wood0209 wrote: I think the benefit of purchasing a slightly used car (1-2 years) greatly benefits those purchasing a vehicle for short term ownership (ie, buying something "new" every 3-4 years) vs. those of us looking for long term ownership. The savings are significant when you can cut out the first 1-2 years of depreciation and you only plan to keep the car for 3 years. Buying new and selling after 2 years costs more as years 1-2 depreciation values are costly.
Yes, but as Kasakato pointed out, the depreciation is almost linear after holding the car for 3 years, with respect to a 10 year time frame. For that reason, trading it every 3 years may still be beneficial. its costing you a 3 to 10% penalty every 3 years for this luxury of a new car every 3 years.
Deal Addict
Apr 13, 2015
1108 posts
214 upvotes
Kasakato wrote: That's a link to a 2015 civic.

Do you really think near linear depreciation of a car is accurate?
Yes, indeed it is. That is my intended purchase. It will depreciate about 11%/year.

Is it accurate? Its reflected well in the 2012 to 2015 year time from, why not the 2015 to 2018 time frame?
Deal Addict
Aug 19, 2011
4226 posts
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Markham
bruceh2015 wrote: Using the Canadian black book site, the average asking price of a 2012 is exactly 67% of the new purchase price of a 2015.

This is reinforced by the data presented here: http://www.intellichoice.com/1-12-2015- ... rices.html
Why do you keep citing a US source to back your argument? Those numbers have absolutely no bearing on Canadian market which is extremely different from US car market, be it used or new.
Deal Guru
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Nov 6, 2010
10018 posts
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Montreal, QC
Depreciation is highly vehicle dependent (both make/model and year) so depending which car you pick, new might be beneficial over used and vice versa. Also depends what you plan on doing with the vehicle; the 10 years in the OP's case are different than someone who flips cars every 3-4 years.
Deal Addict
Apr 13, 2015
1108 posts
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payam1981 wrote: Why do you keep citing a US source to back your argument? Those numbers have absolutely no bearing on Canadian market which is extremely different from US car market, be it used or new.
Actually, I was using the US site together with the Canadian Black Book site. The numbers, correctly or not, match.
Deal Addict
Apr 13, 2015
1108 posts
214 upvotes
payam1981 wrote: Image

Just look at the buyout.

Your 67% retained value is where you're getting it wrong.
Your lease has paid substantially more than the depreciation in the car. Otherwise, the dealer would not profit by taking your car back at the end of the lease. You may be better off buying it out and selling it privately.
Deal Addict
Apr 13, 2015
1108 posts
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uber_shnitz wrote: Depreciation is highly vehicle dependent (both make/model and year) so depending which car you pick, new might be beneficial over used and vice versa. Also depends what you plan on doing with the vehicle; the 10 years in the OP's case are different than someone who flips cars every 3-4 years.

No doubt that is true. However, it makes the point that people need to be careful with the assumption that they are saving money buying used.
Deal Addict
Aug 19, 2011
4226 posts
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Markham
bruceh2015 wrote: Actually, I was using the US site together with the Canadian Black Book site. The numbers, correctly or not, match.
I'm not sure which numbers you're talking about, it'd be nice to see them cause you seem to pick and choose whatever suits your argument. :)

Here is the trade-in values for the car:

Image

That's at best 55% retained value against ~ $30'000 original price (MSRP + PDI)

The average "asking price" (which is meaningless anyway) is also showing about $17'800 on the Black Book site which is again at best 59% retained value.

Image

Mind you these are the most optimistic numbers and I'd take Black Book numbers with a grain or two of salt to begin with anyway, they rarely if ever reflect true market value.

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