Q: Which is the better value, a brand-new or nearly new car?
A: Here’s the short answer: It depends on the type of vehicle you want. No doubt about it, a brand-new car has lots of advantages:
- The best chance of getting exactly the colors and options you want.
- The latest safety features and connectivity/infotainment systems.
- No worries about collision damage, flood damage, or neglected routine maintenance by a previous owner.
- The security blanket of a bumper-to-bumper warranty that covers the cost of repair for nearly anything that goes wrong with the car.
- In some cases, free routine maintenance while the car is under warranty.
- Lower financing costs. New-car loans typically have lower interest rates.
However, common wisdom says a used car is the better value because it’s less expensive, a notion reinforced by automaker certified pre-owned (CPO) car programs. CPO vehicles are late-model creampuffs with an automaker-backed warranty that’s often nearly as good as a new-car warranty
So, how do you decide? It all has to do with that old devil, depreciation: A new car loses value the moment it leaves the dealer’s lot. The latest AAA Your Driving Costs analysis shows that depreciation is, by far, the biggest cost of owning a new car. To minimize depreciation losses, AAA says, shoppers should “consider buying a quality, pre-owned vehicle.”
Evaluating depreciation rates
Ah, but different cars have different rates of depreciation, though nearly all cars depreciate the most during the first few years they’re on the road. Automotive-research company iSeeCars.com analyzed sales data of 4.1 million cars. The average 3-year-old vehicle depreciated by 35 percent. Many depreciated much more—the BMW 5 Series by nearly 53 percent, for example.
Why the difference in rates? As expected, models about to be discontinued or significantly redesigned depreciated more than average. But iSeeCars.com also found that luxury models often depreciated more quickly. And 6 of the 10 highest-depreciating cars in the study were German. Company CEO Phong Ly speculated that high repair costs after their warranties expire could be a factor.
Conversely, iSeeCars.com found that trucks and truck-based SUVs depreciated the least—pickup trucks by just 23 percent on average. In a study of 1-year-old vehicles, the company found that 9 of the 10 vehicles that depreciated the least were either trucks or SUVs, topped by the Jeep Wrangler Unlimited.
The takeaway: Cars with a high rate of depreciation can be bargains as used cars. After all, a 3-year-old BMW 5 Series is essentially half the price of a new one.
But if you hanker after a Wrangler or a pickup truck, the better value may be a new one. The price difference between new and used is relatively small, and you’ll avail yourself of the many benefits of buying new.
As the AAA study suggests, shoppers should pay close attention to depreciation, rather than focusing solely on a vehicle’s purchase price. To aid your research, numerous websites provide the expected depreciation of specific new vehicles. Kbb.com’s “5-Year Cost to Own” feature gives expected depreciation in dollar amounts. Motortrend.com’s “5-Year Cost of Ownership” provides IntelliChoice-projected depreciation as a percentage of the original purchase price.
Peter Bohr helps you get the best value for your automotive dollar. Email westways@aaa-calif.com or write to Drive Smart, Westways, PO Box 25222, Santa Ana, CA 92799-5222.
