Champagne on a Beer Budget…
Far too often, I have seen customers come to the end of their lease looking to trade their vehicle in to realise they have zero equity in the car they have been paying countless months for, or even worse, they owe penalties for additional KM or damages or damage history to the vehicle should they choose to return. I myself, have been through it enough times on the consumer end to understand the process and know now, it ain’t for me.
The other new car alternative is finance or out completely, which might be even worse. As soon as customers sign the papers, they are now the proud new owners of a second mortgage… The whole price plus the all the tax the moment ownership is transferred. When they decide to get out early, they realize with even their high down payment, they owe for the negative equity to the bank.
The key factor of course, is depreciation. Most people by now, know this to be the biggest downside in buying a new car. But just how big, and how the depreciation curve usually looks with most vehicle makes and models.
Let's take a fully loaded 2013 Mercedes E550 as and example. Spec’d out new, sticker price is $89,435*, plus of course luxury tax of 15%, for a grand total of $102,850. And of course, not to mention, our wonderful add-on fees, like “documentation”, and freight and PDI.
Mass pricing data across most brands indicates used car prices typically depreciate by 50% every 4 years, or 85,000km*
Year 1 losing about 22% $19600
Year 2 losing about 16% $14300
Year 3 losing about 12% $10700
This brings us into 2017 sales prices at this time would have raged in the $45,000 range. Following this formula into 2021 for the next 4 years, we can project anther loss of half, $22,500 roughly:
Year 5 $9900
Year 6 $7200
Year 7 $5400
That's said buying new can be a good option if money is no issue, but even then, if the best value is to be had, buy used outside of 2 years. Not to mention all the money spent on those new car options, for the most part, can be kissed goodbye. Nearly all the retained value in the $12,000 in extras in our 2013 E550 are lost the moment it leaves the lot, when sold in comparison to one with none of the option boxes checked. Get into that dream car for less, and let somebody else pay the premium of buying new.
So depending on the desirability, the make, model, KM and condition, depreciation begins to level out. In some cases prices can begins to turn around and actually appreciate with time… But that's a whole other topic.