Car Depreciation As Reason to Get A New Car

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WestsideGuy
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Car Depreciation As Reason to Get A New Car

Post by WestsideGuy » Mon Aug 07, 2017 9:18 pm

Long time reader, first time poster, so please be gentle...

I know the general bogleheads' mentality is to keep a car until its wheels fall off (or at least until repair costs start to eclipse the value), but does anyone consider depreciation as a cost and a reason to lease instead (i.e., I could lease a car for the same amount as the depreciation or close to it, and be even)? Or alternatively, to keep buying a 2 year old car and keep it until year 5?

I ask because I have a 2011 Audi A5, and because I drive pretty minimally and have been trying to be *relatively* frugal, have just kept it since I first bought it. But out of sheer curiousity, I have tracked its depreciation on a somewhat regular basis to see if that would level off at some point. I know the general view is that a car depreciates 20% the second you drive it off a lot, but it seems that aside from some initial leveling off for the first couple of years, it just keeps on going down at a pretty high pace (i.e., 39.5% for the last two years). Does anyone have any thoughts, experience, or explanation with this?

For frame of reference, using Kelley Blue Book, I have kept track for the last few years as follows:

8/1/15 - $26,900 (23.6k miles)
12/20/15 - $23,433 (25.3k miles)
4/14/16 - $23,152 (26.8k miles)
9/3/16 - $21,371 (28.5k miles)
1/2/17 - $19,018 (29.9k miles)
5/4/17 - $17,364 (31.3k miles)
8/4/17 - $16,256 (32.6k miles)

This basically seems to be $10.7k lost in depreciation, or 39.5%, for the last two years. So I should I pretty much expect this rate of depreciation to keep going? Somewhat disappointing, as I am now experiencing more upkeep costs (i.e., new tires, etc.). Any thoughts are welcome!

sport
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Re: Car Depreciation As Reason to Get A New Car

Post by sport » Mon Aug 07, 2017 10:14 pm

IMO it's a mistake to have general rules about auto depreciation. Some makes/models depreciate quite fast, and others quite slowly. For example, a late model used Toyota or Honda often will sell for almost as much as a new car. In addition, keep in mind that there is a big difference in what you have to pay to buy a car (retail) and what you can get for it (wholesale).

brennok
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Re: Car Depreciation As Reason to Get A New Car

Post by brennok » Mon Aug 07, 2017 10:31 pm

Be cautious with KBB these days, they have had some suspect numbers lately. Check NADA for comparison. In some cases their numbers we're off by several thousands. It reminds me of the change you saw with truecar.

rgs92
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Re: Car Depreciation As Reason to Get A New Car

Post by rgs92 » Mon Aug 07, 2017 10:42 pm

The way to avoid big depreciation is to buy a good late model low mileage (and I prefer CPO [certified w/warranty]) car instead of new.
This solves the problem without the lease route that makes you worry about how much you are driving.
Some CPO warranties are superb, like Lexus, up to 8 year w/unlimited miles (if you pay for the Platinum Vehicle Service Agreement).
But other CPO programs are fine too with other cars.

Depreciation most often is super-steep in the first few years and then levels off a lot.
A 7 year old car is not much more expensive than a 9 year old one.
A 1 year old car is far more expensive than a 3 year old car.

smithers
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Re: Car Depreciation As Reason to Get A New Car

Post by smithers » Mon Aug 07, 2017 10:59 pm

WestsideGuy wrote: I have a 2011 Audi A5
That's your problem right there. Audis, like most imported luxury cars, are notorious for pretty steep depreciation.

Take a look at the blue book value for a Subaru, for instance. You can roughly approximate the numbers you have for your Audi by looking up the value of a 2013, 2012, and 2011 model, respectively (use the same mileage numbers if you want). I actually haven't tried it myself for those numbers, but I've seen Subarus that are 5 years old selling for a negligible amount less than a similar new car. My guess is as good as yours as to who's crazy enough to buy them at that price.

What accounts for the difference? It's partly explained by the cost to repair (expensive for German cars, cheaper for Japanese cars) and perhaps partly by the type of person who buys them (i.e. people who can afford to buy a $50k German car for status would be turned off by a used one; people who buy Japanese cars often do so for frugality rather than status, and thus care less about newness). Frankly, I'm making some of this up— the difference is a bit of a mystery, determined by market forces of one kind or another, but the phenomenon is real and the difference pretty staggering.

Nate79
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Re: Car Depreciation As Reason to Get A New Car

Post by Nate79 » Mon Aug 07, 2017 11:16 pm

By fleasing, I mean leasing, you are paying the depreciation anyways but during the highest depreciating years, when the car is new. By always buying/leasing new cars you are perpetually having a car in its highest depreciating time.

Pluto9th
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Re: Car Depreciation As Reason to Get A New Car

Post by Pluto9th » Tue Aug 08, 2017 12:40 am

rgs92 wrote:The way to avoid big depreciation is to buy a good late model low mileage (and I prefer CPO [certified w/warranty]) car instead of new.
...
Depreciation most often is super-steep in the first few years and then levels off a lot.
A 7 year old car is not much more expensive than a 9 year old one.
A 1 year old car is far more expensive than a 3 year old car.
Right. Depreciation is a good reason to keep a car longer, whether you bought it new or late-model-used. If you buy a new car with high predicted reliability, after ~10 years it wouldn't have that much room to further depreciate, and you can consider it a "free car" from that point on. My car is now old enough to drive, but not old enough to drink, and the average annual maintenance/repair bill has been under $200 (not counting tires and battery, they wear out at roughly the same rate regardless of a car's age, assuming the car is well maintained). Buying a late model used car is a great way to avoid big depreciation, but if you keep a new car long enough, the initial extra thousands of premium for buying new isn't that much, when averaged over the car's lifetime; and it matters not at all how fast the car depreciated in its infancy.

daveydoo
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Re: Car Depreciation As Reason to Get A New Car

Post by daveydoo » Tue Aug 08, 2017 12:54 am

WestsideGuy wrote: For frame of reference, using Kelley Blue Book, I have kept track for the last few years as follows:
KBB is junk for this type of analysis. KBB is for a dealer trade-in low-ball. You'd need to look at comparables on Cars.com or Autotrader, etc. Had a guy literally yelling at me on the phone that my car was worth $5K according to KBB and why was I asking $9K?! (Why did he respond to my ad?) I sold it that same (first) day for $8500. My inference about KBB is not based on that event, though; it's pretty common knowledge, even on BH.

JBTX
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Re: Car Depreciation As Reason to Get A New Car

Post by JBTX » Tue Aug 08, 2017 1:48 am

If you want to get an idea of depreciation go to cars.com and pick a popular model and pick a year then sort by miles. You can get an idea how many miles reduce the value by how much. For a $20k car You may find something like $1000 depreciation for every 10000 miles but that number will decrease as mileage increases.

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bottlecap
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Re: Car Depreciation As Reason to Get A New Car

Post by bottlecap » Tue Aug 08, 2017 6:48 am

Depreciation doesn't matter, but I seriously doubt a barely driven car has depreciated 40% in 2 years.

JT
Last edited by bottlecap on Sat Aug 12, 2017 8:48 pm, edited 1 time in total.

Jags4186
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Re: Car Depreciation As Reason to Get A New Car

Post by Jags4186 » Tue Aug 08, 2017 6:57 am

bottlecap wrote:Depreciation doesn't matter, but I seriously doubt a barely drive car has depreciated 40% in 2 years.

JT
What happens with cars around the 6-7 year mark is that a new body style comes out destroying the value. This is especially prevalent on luxury cars as those are all about status vs practicality.

Take a look at BMWs for example. A 2011 3 series sedan is significantly less expensive than a 2012 because the 2012 has the same body style as the 2017 model. The 2011 has the same body style as a 2006 model.j

jebmke
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Re: Car Depreciation As Reason to Get A New Car

Post by jebmke » Tue Aug 08, 2017 7:15 am

My car is 9 years old and still in decent shape. I plan to keep it at least to the 15 year mark as long as it runs well.

I don't consider tires, brakes and other "consumable" parts as maintenance issues. They are part of the normal usage pattern on a car just like gas and oil. The "upkeep cost" was always there as the tires gradually wore down -- it is just now that it becomes cash flow apparent.
When you discover that you are riding a dead horse, the best strategy is to dismount.

NotWhoYouThink
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Re: Car Depreciation As Reason to Get A New Car

Post by NotWhoYouThink » Tue Aug 08, 2017 7:34 am

If you want a new car and can afford it, go for it. Use whatever rationale you like. The dealer will thank you, the guy who buys your old car will thank you.

alfaspider
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Re: Car Depreciation As Reason to Get A New Car

Post by alfaspider » Tue Aug 08, 2017 7:43 am

Car depreciation is usually steepest in the earliest years before hitting zero around year 15. The only exceptions are certain highly desirable limited production vehicles (like the Porsche Cayman GT4 or BMW 1M) that may appreciate from new. Continually buying new cars ensures you are always in the steep part of the curve. Leasing is the same, except you know how much depreciation you are paying for up front.

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sunny_socal
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Re: Car Depreciation As Reason to Get A New Car

Post by sunny_socal » Tue Aug 08, 2017 7:47 am

WestsideGuy wrote: <snip>
This basically seems to be $10.7k lost in depreciation, or 39.5%, for the last two years. So I should I pretty much expect this rate of depreciation to keep going? Somewhat disappointing, as I am now experiencing more upkeep costs (i.e., new tires, etc.). Any thoughts are welcome!
Tires are included in routine maintenance and shouldn't be a shock.

You have a very nice car, keep it and enjoy it. You hardly drive, it's not worth leasing or buying anything 'new', your existing car is a creampuff. (You'll make some BH very happy if you decide to sell it :beer )

The Wizard
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Re: Car Depreciation As Reason to Get A New Car

Post by The Wizard » Tue Aug 08, 2017 8:12 am

WestsideGuy wrote:Long time reader, first time poster, so please be gentle...

I know the general bogleheads' mentality is to keep a car until its wheels fall off (or at least until repair costs start to eclipse the value), but does anyone consider depreciation as a cost and a reason to lease instead (i.e., I could lease a car for the same amount as the depreciation or close to it, and be even)?
No.
I ignore vehicle depreciation. I buy new vehicles and consider that expense a purchase of 150,000 to 200,000 miles of use, spread over a decade or so.
Any small residual value at the end can be used toward the sales tax on the next purchase...
Attempted new signature...

aristotelian
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Re: Car Depreciation As Reason to Get A New Car

Post by aristotelian » Tue Aug 08, 2017 8:18 am

I do not consider my car as an asset. If it has zero financial worth it can't depreciate.

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flamesabers
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Re: Car Depreciation As Reason to Get A New Car

Post by flamesabers » Tue Aug 08, 2017 8:23 am

OP,

I think any mention of a car being a depreciating asset is in regard to the argument of not getting a loan to buy a car (unless the loan has an extremely low APR). Rather then using depreciation as a guide for when to get a new car, I recommend considering the maintenance cost instead. When it starts to cost an arm and a leg to perform maintenance on your car, I think that's a reliable sign it's time to get a new car. For what it's worth, I don't consider new tires to fit this criteria in most circumstances. If you're driving a total junker and the engine is already on its last leg, then maybe buying new tires for the car isn't worth it. Short of that, I think buying new tires is standard maintenance for cars.

If you really have your heart set on getting a new car, I would suggest forgetting about depreciation and just go out and buy it. Buying a new car when you don't need it isn't frugal behavior, but then money isn't everything in life.

mmarreco
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Re: Car Depreciation As Reason to Get A New Car

Post by mmarreco » Tue Aug 08, 2017 8:41 am

The depreciation should not factor in as a reason to get rid of the car. You have already "paid" for most of it so it would be foolish to let the car go now for such low price with few miles on it.
The depreciation curve flattens at some point, and older cars lose less value than newer cars.
For some reality check, the Manheim MMR value of the car is $14,750 - that's about the value you should expect to be given by a dealer at trade-in. KBB is nearly useless information.

bloom2708
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Re: Car Depreciation As Reason to Get A New Car

Post by bloom2708 » Tue Aug 08, 2017 8:52 am

OP, are you using Trade-In Value, Private Party or Retail to value your car?

Retail is the value it might be listed at on a dealer lot.

I typically think somewhere between Trade-In and Private Party is what you could expect if you sell it yourself. If super low miles or very clean or both, you may get over Private Party.

Depreciation is the reason to keep your car or buy a 3+ year old one. Let someone else pay the steepest depreciation.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

goingup
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Re: Car Depreciation As Reason to Get A New Car

Post by goingup » Tue Aug 08, 2017 9:02 am

We had an A5 from 2008-2012. What a beauty! Never had more compliments on a car than that one.

If you're constantly eyeing the depreciation with every passing mile, and resenting every maintenance bill, this probably isn't the car for you longterm. The bills only get bigger. Wait till you need brakes!

Owning a Toyota or Honda won't give you the kind of maintenance heartburn that an Audi does. It also won't give you the thrill of driving. :wink:

Atgard
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Re: Car Depreciation As Reason to Get A New Car

Post by Atgard » Tue Aug 08, 2017 9:22 am

First of all, even if the numbers are accurate from KBB, it hasn't depreciated 40% off the new price. It depreciated 40% off the 4-year-old price. Just think -- it can not possibly depreciate 20% (off new car price) each year, or your 2011 car would now be worth zero and would have absolutely no more depreciation no matter how long you drive it going forward. So, bottom line, in dollar terms (and probably percentage too), cars depreciate less each additional year you own them (barring blips from new body styles coming out or whatever).

I look at it as: I drove this car for X years for $Y per year. The higher X is, the lower $Y will be.

Also, if your argument is that it has already vastly depreciated more than you thought in the first 6 years, you now want to lease a brand new car to get hit with that depreciation again? The more depreciation that has already occurred, the less that can occur the remaining time you have the car. That's a reason to keep it, not get rid of it.

All that said, if you want and can afford a new car, go for it, but the depreciation argument isn't the logical way to get there. And leases are usually terrible deals, unless you can calculate a lease payment (from residual value, MF, etc.) you will get one of those terrible deals (but probably won't know it).

adamthesmythe
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Re: Car Depreciation As Reason to Get A New Car

Post by adamthesmythe » Tue Aug 08, 2017 10:26 am

sport wrote:IMO it's a mistake to have general rules about auto depreciation. Some makes/models depreciate quite fast, and others quite slowly. For example, a late model used Toyota or Honda often will sell for almost as much as a new car. In addition, keep in mind that there is a big difference in what you have to pay to buy a car (retail) and what you can get for it (wholesale).
I think this is the most important thing. There are no general rules. Repeat: there are no general rules about car depeciation.

Well maybe this one. Cars that are the most fun to drive depreciate the fastest.

deltaneutral83
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Re: Car Depreciation As Reason to Get A New Car

Post by deltaneutral83 » Tue Aug 08, 2017 11:15 am

One thing I would like to squash is the notion that "I buy it new and drive it until the wheels fall off" that people use to justify buying a new car. Well, I can buy a used car at the end of year 3, beginning of year 4, and "drive it until the wheels fall off" just as well and avoid the enormous depreciation hit while still enjoying the monetary benefits "until the wheels fall off."

Driving it until the wheels fall off isn't mutually exclusive to when you buy the car. I am not commenting on this topic to cast an opinion on new/used cars but merely to point out that the logic is non existent in the camp that "buys new and drives until the wheels fall off" as a justification for buying new.

runner3081
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Re: Car Depreciation As Reason to Get A New Car

Post by runner3081 » Tue Aug 08, 2017 3:26 pm

brennok wrote:Be cautious with KBB these days, they have had some suspect numbers lately. Check NADA for comparison. In some cases their numbers we're off by several thousands. It reminds me of the change you saw with truecar.
Completely agree, they sent me updates on our vehicles. 2/3 of them jumped 20+% in value, haha.

daveydoo
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Re: Car Depreciation As Reason to Get A New Car

Post by daveydoo » Tue Aug 08, 2017 7:24 pm

Jags4186 wrote: Take a look at BMWs for example. A 2011 3 series sedan is significantly less expensive than a 2012 because the 2012 has the same body style as the 2017 model. The 2011 has the same body style as a 2006 model.
Ah, but the legendary steering feel evaporated in 2012. That's why I need to keep my 2011 forever. :happy

I agree with you about the inflection points at changes in body style. I have a decent eye and for the less commonly encountered luxury/performance cars, they look pretty fresh one or even two body styles later. An Accord or CR-V, though -- since they are literally everywhere you look -- you can tell it's old from a block away once we're six months into the new model cycle.

denovo
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Re: Car Depreciation As Reason to Get A New Car

Post by denovo » Tue Aug 08, 2017 8:55 pm

Nate79 wrote:By fleasing, I mean leasing, you are paying the depreciation anyways but during the highest depreciating years, when the car is new. By always buying/leasing new cars you are perpetually having a car in its highest depreciating time.
+1

The Wizard
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Re: Car Depreciation As Reason to Get A New Car

Post by The Wizard » Tue Aug 08, 2017 9:58 pm

denovo wrote:
Nate79 wrote:By fleasing, I mean leasing, you are paying the depreciation anyways but during the highest depreciating years, when the car is new. By always buying/leasing new cars you are perpetually having a car in its highest depreciating time.
+1
Well, a lot of rich people like to have good new stuff.
What's wrong with that?
Attempted new signature...

chester23
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Re: Car Depreciation As Reason to Get A New Car

Post by chester23 » Tue Aug 08, 2017 10:12 pm

I tend to buy new cars and drive them forever. By forever, I mean 220,000 miles or so. Example...bought a 2002 Honda Odyssey van for about $28K new, drove and maintained it for 10 years, and then bought a new 2012 Odyssey. KEY NOTE: I sold my van privately using an average of KBB/Edmunds/NADA private party values at the time, and listed it for $4,700. Aside from brakes a few times, 4 sets of tires (maybe 5?), a timing belt at 110,000 miles, and a transmission Honda replaced for me for $700 at 115,000 miles, that van was trouble free. The $700 transmission was quoted at $4800 initially, but a persuasive call to Honda of America got it down to me paying 1/2 the labor (my $700 cost above) and Honda picking up the parts and labor balance.

Sorry for the long story, but [($28,000 + $2,000 (tires) + $800 (brakes) + $700 transmission + $1500 (timing belt/water pump) - $4,700 sale price)] / 220,000 miles = $0.128/mile plus price of fuel for a Minivan. Not to shabby IMO.

So I like to buy them new, know their entire history, and sell them privately. I prefer Honda, Subaru, and Mazda vehicles. Cost per mile is a good way to look at this objectively.

WestsideGuy
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Re: Car Depreciation As Reason to Get A New Car

Post by WestsideGuy » Tue Aug 08, 2017 10:21 pm

Just wanted to say thanks all for your thoughts and advice. Very much appreciated. Am going for my next servicing later in the week, so assuming no big problems on the horizon, I am more convinced now just to keep it for at least another few years ... I am sure that when I have kids, a two seater may go by the way side ... but for now, considering how little I drive, and the fact that no matter what, any car will depreciate, I should just accept that as a fact of life.

ncbill
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Re: Car Depreciation As Reason to Get A New Car

Post by ncbill » Wed Aug 09, 2017 7:57 am

The Wizard wrote:
denovo wrote:
Nate79 wrote:By fleasing, I mean leasing, you are paying the depreciation anyways but during the highest depreciating years, when the car is new. By always buying/leasing new cars you are perpetually having a car in its highest depreciating time.
+1
Well, a lot of rich people like to have good new stuff.
What's wrong with that?
Nothing, if one can accept the trade-offs.

Leasing is more expensive than buying new, but it offers the advantage of turning it back in before the warranty expires.

That option is especially attractive for the, shall we say, less reliable than Asian but fun-to-drive-like-you-stole-it German-engineered vehicles.

The leasehackr [sic] site is a great resource for learning which vehicles currently have the best lease incentives.

denovo
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Re: Car Depreciation As Reason to Get A New Car

Post by denovo » Sat Aug 12, 2017 4:43 pm

The Wizard wrote:
Tue Aug 08, 2017 9:58 pm
denovo wrote:
Nate79 wrote:By fleasing, I mean leasing, you are paying the depreciation anyways but during the highest depreciating years, when the car is new. By always buying/leasing new cars you are perpetually having a car in its highest depreciating time.
+1
Well, a lot of rich people like to have good new stuff.
What's wrong with that?

Nothing wrong at all. But OP was asking if it was the cheapest way of owning a car, it's literally the most expensive, that's a strictly financial question.

Valuethinker
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Re: Car Depreciation As Reason to Get A New Car

Post by Valuethinker » Sun Aug 13, 2017 4:00 pm

WestsideGuy wrote:
Tue Aug 08, 2017 10:21 pm
Just wanted to say thanks all for your thoughts and advice. Very much appreciated. Am going for my next servicing later in the week, so assuming no big problems on the horizon, I am more convinced now just to keep it for at least another few years ... I am sure that when I have kids, a two seater may go by the way side ... but for now, considering how little I drive, and the fact that no matter what, any car will depreciate, I should just accept that as a fact of life.
Only thing that matters is cash cost of owning a car.

You took that up front when you bought it.

Resale value falls fastest In The first few years so your net cost is biggest then.

After that your cost pa is maintenance plus fall in resale value, longer you keep it the less that is until it becomes expensive to repair.

Never get a new car before you need one. At least from a financial perspective.

Dead Man Walking
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Re: Car Depreciation As Reason to Get A New Car

Post by Dead Man Walking » Mon Aug 14, 2017 1:35 am

jebmke wrote:
Tue Aug 08, 2017 7:15 am
My car is 9 years old and still in decent shape. I plan to keep it at least to the 15 year mark as long as it runs well.

I don't consider tires, brakes and other "consumable" parts as maintenance issues. They are part of the normal usage pattern on a car just like gas and oil. The "upkeep cost" was always there as the tires gradually wore down -- it is just now that it becomes cash flow apparent.
+1

15 years is a good mark if you don't drive that many miles. I have learned that parts go bad on low mileage cars in time.

DMW

cjking
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Re: Car Depreciation As Reason to Get A New Car

Post by cjking » Mon Aug 14, 2017 3:58 am

Whether you think there is a rule for how much cars depreciate depends on how accurate you need to be. My rule of thumb is cars halve in value every three years. Since I keep them until they are worthless it doesn't matter if my calculation is slightly out in any given year.

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