Picture this scene: you find yourself in a car dealer’s office. The showroom is mostly empty, the instant coffee machines have long been turned off, and you’re ready to get on the road. You’ve spent most of your afternoon, not to mention evening, in anticipation for the event that is about to come. All that separates you from this moment is the quick signature of a few documents, and then you’re free. The salesperson shakes your hand, thanks you for your time, and hands you the keys to your brand new ride. Driving off the lot, it was all worth it. The haggling, the waiting and the anticipation all fade away in the rearview mirror as you drive away in your new vehicle. Few feelings can compare to the experience of buying a new car. At the same time, due to depreciation, there are few experiences that are more expensive.
Of course, conventional wisdom tells us that our most common everyday items that we buy quickly lose value after we buy them. The idea of depreciation is nothing new but is amplified when it relates to most individuals’ second most expensive purchase, your vehicle. The value a vehicle loses as soon as it is driven off the lot varies by vehicle, but Forbes believes that it typically “amounts to around 21 percent, which is enough of a financial salvo, but the worst model in this regard decline in value by nearly a third or more after 12 months.” With new car prices at all-time highs, the new car smell is becoming harder to justify.
It is not only the vehicle itself that quickly loses value but also the in-vehicle technology. The option packages in these vehicles may actually lose value quicker than the vehicles themselves. Instead of being able to select only the options they want, buyers often have to settle for expensive option packages in their vehicles and these options quickly lose value. According to a Consumer Affairs article, over the same period of time, the vehicle can lose approximately 60% of its value while the option packages lose up to 85% of their value. Not only can in-vehicle technology quickly become obsolete, it can lose all of its value when trading in the vehicle.
In the same article, Forbes believes that “Depreciation is typically one of a new vehicle’s biggest long-term ownership costs.” Yet, there are still major benefits to buying a new vehicle over a used one. First, new cars come with assuring warranties and an assurance that they will be dependable. And who could forget that new car smell?
Is there anything to be done about depreciation? For one, car buyers can purchase a fuel-efficient vehicle that acts as an insurance policy against future rising gas prices. Additionally, by finding an affordable new vehicle with a warranty, car buyers can protect themselves against taking massive depreciation losses down the road.
The concept of a new item losing value as soon as its purchased is not going anywhere, but car buyers can protect themselves against inflated depreciation rates in several different ways. Car buyers should avoid expensive option packages, and seek out a fuel-efficient, affordable vehicle with a warranty. This kind of vehicle can offer the new car smell without the sting of significant depreciation.