Appreciate new car's depreciation
By James R. Healey
USA Today
Car buyers fret over purchase price, interest rates, fuel economy and reliability data, looking for cars and trucks they can afford not only to buy, but also to keep. What they often overlook is the biggest — by far — expense of car ownership: depreciation.
If your car depreciates, or loses value, fast, it's not worth much a few years later when it's time to buy a new one. In fact, you might owe more on your car loan than the car's worth.
Worst of the lot: Pontiac's controversial-looking Aztek. The 2005 model is expected to be worth just 27 percent of its window-sticker price after three years, according to a report for USA Today by Kelley Blue Book, veteran tracker of used car values. Most vehicles are worth close to 50 percent after three years; the best, more than 60 percent.
Of course, if you're shopping for a used car, you love finding a good car or truck with bad depreciation. The first owner took the big hit, and you wind up with a nice vehicle, cheap.
Often a steep drop in value isn't because of poor quality. "Sometimes it's because it's ugly, as in the case of the Aztek. Or it's overpriced, like the ($65,000) Volkswagen Phaeton, or the Cadillac Allante years ago," says Charlie Vogelheim, Kelley Blue Book's executive editor.
Also look for used cars that are reputable but were overshadowed when new. Mazdas, Mitsubishis and Buicks often fit that description, he says.
To avoid troublesome used models, rummage for last April's Consumer Reports magazine auto issue and use the list of "used cars to avoid."
Plenty of Web sites give you a rough idea of a fair price for a used car, but if you're buying new, it's hard to tell whether you're about to get the next Aztek on the depreciation charts. To help, keep in mind:
• If it's popular new, it's probably worth more used.
As boring as it sounds, and as much as it'll rankle fans of Detroit brands, the numbers show that your best overall bet is a Honda or Toyota just like the ones everybody else is buying. They are popular with individual buyers rather than rental fleets and have good reputations for reliability — two things that slow their depreciation.
That individual-buyer factor is important. Ford Taurus is the fourth-best-selling car because it's a commodity, cranked out in batches for rental-car companies and other multicar fleet buyers. It's sold new at big discounts; then, used ones flood the market in numbers beyond the demand.
A 2005 Taurus would be worth 36 percent of its sticker price three years from now, Kelley Blue Book says. In contrast, it expects a Honda Accord to be worth 56 percent of its new price after three years.
In real money that's a 3-year-old Ford worth $7,920 vs. a Honda worth $12,320, if both were $22,000 new.
Full-size pickups are another good bet. New, they are the best-selling vehicles. Used, they are eagerly sought by buyers who need work trucks and would rather bang up a 3-year-old pickup than scratch and bend a $40,000 new one. Yes, pickup prices have gotten that high.
• Big rebates that make new vehicles a bargain ruin the value of similar used vehicles. Great when you buy, lousy when you sell. For every $1 in new car rebates, the same model, used, drops at least 60 cents in value, auto executives say.
That's partly why the best-selling Japanese brands hold value better than the top-selling Detroit brands: Honda and Toyota are stingy with discounts.
• Buyers who pay more than sticker price for a hot model are in trouble. Three years from now, nobody will care if that used Mustang or Prius was the first on the block. It's just another used car, worth the same as others like it — whose owners got theirs at a discount.
• Special models can skew depreciation. Sports cars, some luxury models and others with strong appeal to enamored buyers hold their values well. Thus, the Mini Cooper S and the Mazda RX-8 sports car are expected to depreciate slowly.
