Automotive

depreciation math

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  • Dec 13th, 2019 3:58 pm
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depreciation math

hey math wizards.

Trying to determine how much I should pay for a used vehicle. Took a brand new unit for a price of $52000, nothing down and looks like the residual would be around ~$20000 after 36 months. So that's about 39%. Yikes.

If the vehicle is being sold used at $40000, can I use the 39% as my depreciation curve to determine a good starting point would be? IE;

Car is 2018 and is 20 months old (date of registration is April 2018)
Brand new = 52000
Buyout = 19760
So for 36 months, pay 32240 which is 10746.67/12 months = 895.56/month
20 months = 17911.20
52000-17911.20 = $34088.80

Starting point @ $30,000ish for a $40,000 asking price but fair for all would be $35k @ full asking? Assuming no discounts.

Does my math work? Car in question is Stinger GT Limted. Helping a 'friend' look at getting something newish.

TIA

PS. Surprised I got out of school if math is wrong.
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Jan 8, 2007
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Math checks out, however it has nothing to do with how you price a used vehicle.

Depreciation curve as name implies isn't straight. It's steeper early on and flattens out later. On top of that, residuals are often set very conservatively so that manufacturer limits their risk on getting cars back that are worth less than market value. What I mean is that your friend would have a very hard time buying this car at 3 years old at a dealer for 19,760. It would be priced quite a bit higher.
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Mar 7, 2007
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aleks wrote: Math checks out, however it has nothing to do with how you price a used vehicle.

Depreciation curve as name implies isn't straight. It's steeper early on and flattens out later. On top of that, residuals are often set very conservatively so that manufacturer limits their risk on getting cars back that are worth less than market value. What I mean is that your friend would have a very hard time buying this car at 3 years old at a dealer for 19,760. It would be priced quite a bit higher.
I agree with the above.

But even if you get the "depreciation equation" 100% right, the real reference is market price. Find identical cars for less than the asking price, try to negotiate with that.
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Oct 6, 2015
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I would use exponential, rather than linear depreciation. As the vehicle is going to lose value a lot faster initially (they say that losses are severe "driving it off the lot"!).

Residuals are based on wholesale value, while you may be using a MSRP which nobody with a brain pays on any vehicle. So you might want to use a more realistic "starting price", ie: on a $52k MSRP'ed car, driving it off the lot at $47k (in cash, or equivalent in subsidized financing) is probably very realistic these days.

Having said that, I would go ($19,760 / $52000 )^(1/36) to determine that the vehicle was worth sequentially month over month. ie: 97.35% month over month. Depreciation being the fastest in the first month (ie: $1378), slowing to $538 in the 36th month! Intuitively this makes more sense than constant depreciation.

So for 20 months, I get that the car would be worth 58.4% of its initial purchase price, ie: $30,377. (ie: (97.35%)^20 * $52000 )
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This reminded me how painful school was...... Face With Tears Of Joy I can never get it right with balance sheet...
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isn't stinger new, only first model in 2018? Probably why they have the RV so low, to cover their bums.
i checked autotrader and seems like 40k is what going price is. If i had the stinger and you offered $30k while every other listings is 40k, I'd probably just ignore you
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konsensei wrote: isn't stinger new, only first model in 2018? Probably why they have the RV so low, to cover their bums.
i checked autotrader and seems like 40k is what going price is. If i had the stinger and you offered $30k while every other listings is 40k, I'd probably just ignore you
Autotrader is asking prices, not actual transactional prices. But yeah, you're right, probably a bit on the low side. Having said that, if one can buy a vehicle from someone who is trustworthy in terms of accident history, maintenance, and overall operation of the vehicle, that can have a value as well which would not be incorporated in a lease residual (as an entity that buys a lease car on wholesale would have no access to such history).
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Yeah 10k under the average autotrader asking price seems low, Id start at 6k under.
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aleks wrote: Math checks out, however it has nothing to do with how you price a used vehicle.

Depreciation curve as name implies isn't straight. It's steeper early on and flattens out later. On top of that, residuals are often set very conservatively so that manufacturer limits their risk on getting cars back that are worth less than market value. What I mean is that your friend would have a very hard time buying this car at 3 years old at a dealer for 19,760. It would be priced quite a bit higher.
It isn't straight because its usually a percentage value of the car. Say 15% of a 70k car would loose 10k in first year ( coming to 59k ) and 15% for the second year would be 8.9k ( coming to 50k value after second year ) and 7.5 for the third year Value of 42 k. So the appears to loose 30k value in 3 years,
So while the $value isnt straight, the percentage loss is straight ( more or less ).
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Are you trying to take over a lease or buying out a lease early?

2018 Stinger GT Limited has a CBB trade in value of $35K. So whoever is leasing that car can get that hassle free from any dealer. Why would they want to get less than that selling it used or even entertain a low ball value of $30K?
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Supahhh wrote: It isn't straight because its usually a percentage value of the car. Say 15% of a 70k car would loose 10k in first year ( coming to 59k ) and 15% for the second year would be 8.9k ( coming to 50k value after second year ) and 7.5 for the third year Value of 42 k. So the appears to loose 30k value in 3 years,
So while the $value isnt straight, the percentage loss is straight ( more or less ).
That's exactly the method I used above... Its a 'curve', not a straight line. But even then, one has to realize that the sales commission is basically an up-front sunk cost, never to be recovered. Just like on a piece of real estate, where you pay $400,000 for a property that is only honestly worth $380k or so on closing, because the Realtor takes a $20k commission on the purchase.
[OP]
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Fantastic advice so far wizards. Upvoted all the help.

Not trying to take over a lease. I have only found a few leases that were available and the monthly payments are high high high. Assuming that the folks paid pretty well much msrp and high lease rates iirc.

Some of 2018s were obtained in late 2017, just over the 2 year mark where I assumed that depreciation would be at it's highest.
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koffey wrote: Fantastic advice so far wizards. Upvoted all the help.

Not trying to take over a lease. I have only found a few leases that were available and the monthly payments are high high high. Assuming that the folks paid pretty well much msrp and high lease rates iirc.

Some of 2018s were obtained in late 2017, just over the 2 year mark where I assumed that depreciation would be at it's highest.
They were never great leases to start with. Genesis G70 of the same year had higher residual and included maintenance that make them a way better buy in the high 40s to 50s range.
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Xtrema wrote: They were never great leases to start with. Genesis G70 of the same year had higher residual and included maintenance that make them a way better buy in the high 40s to 50s range.
Yes, their courtesy service was included in the pricing of the vehicle. If one was able to get a deal on the G70, it would have been the better vehicle. But, the G70 is more a 'luxury' car as supposed to the Stinger which was more of a drivers car. Good point tho.
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koffey wrote:
Yes, their courtesy service was included in the pricing of the vehicle. If one was able to get a deal on the G70, it would have been the better vehicle. But, the G70 is more a 'luxury' car as supposed to the Stinger which was more of a drivers car. Good point tho.
Not sure how much you want to spend on this (my math is terrible Smiling Face With Open Mouth And Cold Sweat), but if 35k is where it needs to be, maybe there are other choices worth considering? A CPO C43? S5? Golf R? If you want to own it rather than to lease, could try taking over an expiring lease and execute the buyout option.
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koffey wrote: Yes, their courtesy service was included in the pricing of the vehicle. If one was able to get a deal on the G70, it would have been the better vehicle. But, the G70 is more a 'luxury' car as supposed to the Stinger which was more of a drivers car. Good point tho.
No. Go test drive a G70. It's much more a driver's car and way sharper than Stinger.

The Stinger is mid size and G70 is compact. Material is slightly better in G70 and it has less cheap plastic switches. But if you need to use backseat often, Stinger is better for your rear passengers. Nobody over 5'8" will fit in the G70.

https://www.roadandtrack.com/car-cultur ... ve-review/
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cokeboy wrote: Not sure how much you want to spend on this (my math is terrible Smiling Face With Open Mouth And Cold Sweat), but if 35k is where it needs to be, maybe there are other choices worth considering? A CPO C43? S5? Golf R? If you want to own it rather than to lease, could try taking over an expiring lease and execute the buyout option.
Not a MB fan and prefer sedans. Thought about a panamera but lol. S5 is an option tho that I didn't think of.
Xtrema wrote: No. Go test drive a G70. It's much more a driver's car and way sharper than Stinger.

The Stinger is mid size and G70 is compact. Material is slightly better in G70 and it has less cheap plastic switches. But if you need to use backseat often, Stinger is better for your rear passengers. Nobody over 5'8" will fit in the G70.
Plan to trying them both out. But from everything that I've read, G70 is not labelled as the driver car where the Stinger is. Boasts more luxury.
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koffey wrote: Plan to trying them both out. But from everything that I've read, G70 is not labelled as the driver car where the Stinger is. Boasts more luxury.
The G70 3.3T weighs 199 pounds less than the V-6 Stinger we tested in February. It has a 2.8-inch shorter wheelbase and rides on a stiffer suspension. A four-cylinder, manual-transmission version is lighter still. Compared with the Kia, the G70 uses more aluminum throughout, from the hood to unsprung suspension components. A team led by Albert Biermann, former head of BMW’s M division, developed both the Stinger and the G70. The latter is meant to be the sharper of the two. It’s also intended to be more luxurious.
My reference is my C43 and previous Audi S4s.

I tested both Stinger and G70. Stinger looks good but the drive doesn't match up. G70 on the other hand can definitely hang with the Germans. If there wasn't a badge, it very comparable to C43 in handling or power and I would have thought it's German. The only downsize I see if the backseat. It's very tiny much like Lexus IS.

I have not test the G70 4 cylinder but I expect it handle even better with less weight if you don't want straight line performance of V6.
Last edited by Xtrema on Dec 13th, 2019 11:26 am, edited 1 time in total.
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Xtrema wrote: My reference is my C43 and previous Audi S4s.

I tested both Stinger and G70. Stinger looks good but the drive doesn't match up. G70 on the other hand can definitely hang with the Germans. If I went in blind, I won't fault it to have anything less than the C43 in handling or power. The only downsize I see if the backseat. It's very tiny much like Lexus IS.

I have not test the G70 4 cylinder but I expect it handle even better with less weight if you don't want straight line performance of V6.
Gotta be at minimum 300hp for me to even entertain.

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koffey wrote:
Not a MB fan and prefer sedans. Thought about a panamera but lol. S5 is an option tho that I didn't think of.

[
C43 is available as both sedan and coupe. S5 as well (coupe and sportback). S4 is available as sedan.

Golf R will be a fun one but sounds like you need more space with the backseat.

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