Your new vehicle loses value immediately, costing you big bucks every year.
It is inevitable: you purchase a new vehicle and the moment you drive away from the dealership, its value has already fallen. Passenger vehicles are rarely a good value (or investment) when purchased new, but it is that same newness that attracts us to them. Exactly what causes a car to lose value? A number of things and each one is beyond your control.
The Test of Time
A new vehicle loses value the moment you drive off the dealer’s lot. We’ve seen claims ranging from 9- to 30-percent, but we think 10 percent is a good rule of thumb. That means if you paid $50,000 for that new SUV, it is worth $45,000 moments later. A sobering thought, isn’t it?
Depreciation is one of the biggest enemies of car ownership. Indeed, an Edmunds.com study tracked the depreciation for a 2018 Ford F-150 pickup truck and found it lost a whopping 28.6-percent of its value after the first year. In the second year, the drop can in at 6.8 percent and by the third year, it falls by another 5.1 percent. But one of the most significant drops is in the fourth year when it loses approximately 15 percent of its remaining value. That’s also the year when new car warranties typically end and maintenance increases as tires require replacement and other milestone work must be accomplished.
You should also know that once a new model appears, the previous model year’s vehicle drops in price. For instance, as the 2022 models debut, the 2021s will simply lose value. This is due in part to customers wanting the newest or most modern version.
Maintaining Your Ride
Beyond depreciation, wear and tear will take its toll on your vehicle. Not only are you dealing with falling value, but likely you’re facing increasing costs to keep it maintained. Follow your owner’s manual and you’ll get a picture of what’s due and when.
If you’re planning to sell your aging vehicle, you can help maintain its value by keeping the interior spotless with rips and tears fixed. Moreover, using the right maintenance products to protect the dashboard, steering wheel, and other vulnerable surfaces is a must. On the outside, regular washings and waxings most certainly will help. Avoid direct sunlight as much as possible or invest in a car cover to protect the surface from bird excrement, hail, rocks, branches, and anything else that can mar its finish.
Keep a record of all maintenance and repairs accomplished. That information can come in handy when a buyer negotiates the price when you’re ready to sell. Check out its current value on Kelley Blue Book, adjusting for the vehicle’s condition, mileage, maintenance, and upgrades. Always ensure that burnt bulbs are replaced, the navigation and infotainment systems are working according to the manufacturer’s specifications, and respond to all recalls and fixes promptly.
Your once-popular model may have fallen out of favor with consumers for any number of reasons. For example, if you own one of the original Hummer models, its value has fallen for other reasons, including its gargantuan size and overall lack of efficiency.
If your vehicle has been involved in an accident, it will also lose its value as that information is reported to Carfax and other reporting entities. Your car’s value will decline accordingly as even the best technician may only be able to do so much. Vehicles involved in an accident simply offer less appeal to consumers, thus furthering its decline in value.
Other challenges to maintaining value include mileage – if you drive more than the average, your car’s value declines accordingly. Further, a vehicle that’s not garaged may show more signs of wear and tear than one that isn’t. A vehicle with a poor repair record, including the open recalls, models with a poor reputation, and any vehicle with a polarizing design may lose value faster as well.
Also, take into consideration accident and safety reports, the cost of repairs, and even the stability of the automaker and you’ll see that these factors may greatly impact value. Finally, higher fuel prices make an SUV less appealing and a hybrid more desirable. Likely, there are other factors, but these are the main ones.
Value or Money Pit on Wheels?
Our personal vehicles can seem like money pits on wheels, but most of us simply have no choice but to own one. Besides, the freedom of slipping behind the wheel when we want and to go wherever we want to go isn’t something we’re willing to give up so easily. But being aware of the value-consuming factors of owning one should help us make smarter purchase decisions.
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