38 Autos: Depreciation

Depreciation is what any product, including a vehicle, loses in market value over time. This is a hidden expense. You don’t write a check for depreciation every month, but it keeps on costing you anyway—and costing you big when it comes to cars. Consumer Reports has studied the five-year cost of ownership on more than 300 vehicles and concluded that, on average, depreciation accounts for almost one-half of that total cost—a whopping 48 percent. Contain this monster expense with these strategies.

38.1  Ditch the Car

You don’t have to worry about depreciation if you never own a car in the first place (see Chapter 44).

38.2  Drive the Car Until It Dies

If you drive the car into the ground and then sell it for salvage (or donate it), depreciation becomes an academic issue.

38.3  Slow the Rate of Depreciation

   38.3.1  Limit Miles
The less you drive, the less your car depreciates. For tactics, see 39.4.

   38.3.2  Avoid Accidents
Whenever your car incurs major bodywork, it loses value.

   38.3.3  Follow Maintenance Schedules
Your car fetches more on resale if you perform the recommended upkeep (see Chapter 40). Retain all paperwork so that you can prove your diligence to future buyers.

   38.3.4  Keep Up Appearances
Clean cars fetch more. Wax and vacuum them regularly.

38.4  Rent Even if You Own

For long trips that last a few days only, it’s often cheaper to rent. An example: Jane Dough plans to travel 1,800 miles roundtrip in a single weekend for her high school reunion. A rental would cost $129. How much would it cost to drive her own car? Jane owns a 2008 Honda Accord that she bought used with 50,000 miles on it for $15,000, with  sales tax. It’s reliable and she figures it will last 200,000 miles if she stays accident-free. With this information, she can calculate the car’s depreciation from an 1,800 mile road trip. Here’s the formula:

Purchase Price with sales tax x (Trip Mileage / (Projected Mileage-Mileage When Purchased Used)) = Depreciation from Trip

To plug in the numbers for the reunion: $15,000 x (1,800 / (200,000 – 50,000) = $180. In this case, then, it’s cheaper for Jane to rent. If any doubts had remained, Jane could also have calculated her tire wear ($450 for new tires installed x 1,800 / 50,000 miles tire life expectancy = $16.20) and oil use ($40 for oil change x 1,800 / 5,000 miles between changes = $14.40).

38.5  Consider Depreciation When Buying Vehicles

   38.5.1  Buy Used
Let someone else pay for most of the depreciation (see Chapter 43).

   38.5.2  If Buying New, Buy Vehicles With High Resale Values
The Consumer Reports New Car Buying Guide, published annually, lists the models that retain their value the longest.

   38.5.3  Buy Cars That Appreciate
Scoop up “near classics,” drive them a few years, and then sell them for a profit once they become “true classics.” This requires a keen sense for collector trends.

No comments yet.

Please Leave a Comment:

CommentLuv badge

DISCLAIMER. All information on this website appears on an "AS IS" basis. A Noonan Moose makes no representations to any reader as to the completeness, accuracy, or suitability of the information that appears on this website. A Noonan Moose specifically disclaims liability of any kind for any damage or loss that arises from any of the information published on this website or in the book Spend Less Now!