Thursday, August 2, 2007

What will a brand new car really cost?

If you're anything like me, you balk at the very idea of paying more than $15k for an automobile. The value of these things sink like a rock. The depreciation is even worse on a luxury car. I wonder what this guy felt like when he traded in his car. If the link doesn't work, it's a 2002 Volvo S80, very nice, full leather interior, with only 87k miles on it selling for $12,000. Guy probably traded it in for around $9-10k. The MSRP on this vehicle brand new was around $45k. Over 5 years that's a depreciation of $6,600 a year!

Assuming a no-down zero-interest loan (we'll assume the guy has awesome credit since he's buying a luxury sedan) he was paying $750 a month on the car while it was going down in value $550 a month. So over 5 years, this vehicle cost him $583 per month to own, not including all his maintenance costs.

Compare this to the person buying the car now. When people take care of their vehicles, they can last forever (I've had plenty over 150k that looked and ran brand new). There will be some increased maintenance costs for an older car, but the preventative maintenance is about the same as with a new car. Oil changes, adjustments, etc.

Figure paying $12k for the 5 year old luxury car with 85k miles on it. After another 5 years the vehicle is 10 years old with, say, 170k miles. Its probably nearing a good retirement age by that time. So sell it for a few grand. My 2002 Volvo has now depreciated $150 a month during my ownership, as opposed to $550 a month. Oh, and by the way, instead of a $750 car payment while waiting for the beautiful 02 Volvo to go on sale after 5 years, I was stashing away $400 a month in a nice 5% savings account.

So the first owner has sold his brand new car, spent $33,000, and is back in another new car with a loan.

I waited 5 years, kept the clunker I had, stashed $400 (leaving me with, btw $350 extra a month to maintain my old clunker) and bought the same car for $12k with $15,800 left over in my pocket, not including the extra $350 a month that I doubt went entirely to maintenance.

The difference between the same car purchase brand new vs 5 years old is $48,800!

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