May 20, 2010

Varying Auto Depreciation Rates Have Signficant Impact

A while ago I talked about Car Depreciation.    Its generally well known that new cars lose a significant % of their value after the first year.  Its also pretty well known that certain cars hold their value better than others.   The amount that depreciation varies from one car model to another can make a pretty big impact on the value of a car.

Lets say that you're in the market for a family sedan.    You are looking at various models from several manufacturers.   I'll use the depreciation figures from the Yahoo auto site.  Here is how the depreciation in the 1st year compares for some typical sedan models from various manufacturers:

1st year
Honda Accord 27%
Chevy Malibu 41%
Dodge Charger 41%
Ford Fusion 33%
Hyundai Sonata 30%
Toyota Camry 33%
VW Jetta 31%

So in just one year the Honda Accord will lose 27% of its value while a Ford Fusion would lose about 33% of its value.

Now lets look at the total depreciation for the same set of cars over a 5 year period:

5 years
Honda Accord 55%
Chevy Malibu 68%
Dodge Charger 65%
Ford Fusion 57%
Hyundai Sonata 66%
Toyota Camry 60%
VW Jetta 61%

There is a 13% difference between the highest and lowest depreciation rates.  Thats a pretty significant amount.

Lets say you're comparing the Honda Accord to the Chevy Malibu.   The Accord costs $21,855 MSRP and the Malibu is $21,825 so they are very close in initial purchase price.   However after 5 years if you went to sell them the Accord would be worth about  $9,873 and the Malibu would fetch just $7,065.   That is a $2,808 difference over 5 years or $561 per year.   The slower depreciation for an Accord would save you $561 each year over a 5 year period compared to a new Malibu.

When comparing two car models the expected depreciation over time can make a significant difference in the value of the purchase.

Now keep in mind that this is just a semi-random sample of sedans.  The depreciation figures I'm using come straight from the Yahoo auto site.   So this shouldn't be treated as fact, but more of a pretty educated guess based on trends.

While you might draw some generalizations about depreciation by brand theres no hard fast rules.    Hondas may typically hold their value better than Chevy's.   But that doesn't mean that every Honda will retain value better than every Chevy or that every Chevy will lose value faster than every Honda.   For example the Chevy Camaro is only expected to lose 19% of its value in the first year.

Keep in mind that depreciation is just one factor that you should look at when buying a car.   Other costs such as fuel, repairs and insurance rates should also be considered.   Sites like Yahoo Auto or Edmonds help you calculate the total costs of a car by figuring the 'True Cost to Own' or 'Total Cost to Own' respectively.

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