It seems like everyone knows that a new car loses a lot of value as soon as it is driven off the lot. I’ve seen estimates in the 20-33% range. It’s natural to want to avoid this. Why not be that person that buys the car after the depreciation, scoring a big deal?
Better yet, I’ve seen estimates that a car loses 50% of its value in the first 3 years. So it makes sense to buy a car after that and drive it for another 7+ years. I’ll take 7 years for half the price over, right? In fact, I’ve written about this car buying strategy before.
That was exactly what I was planning to do when I bought a new Subaru Forester at the end of last year. Sometimes there’s a wide difference between having a theory and pulling it off in practice.
It seems my first miscalculation was thinking that the 50% loss of value applied to car dealerships. It seems like the car retained closer to 66% or 70% at the dealership. It makes sense because dealerships have to make money for their overhead. Also they’ve presumably put these cars, typically coming off of leases, through a process to get them “certified used.” That adds to the price too.
So when I went to cash in that 50% depreciation, it was closer to 30%. Simple math: if you plan on driving a car for 10 years and you’ve only scored 30% depreciation for 3 years… you really aren’t saving anything. In fact, you are giving up the best three of the car.
What’s worse is that you are buying a car that’s three years behind the times. If there’s improved fuel efficiency in the newest version of the car, you sacrifice that in going used. I also found that there aren’t dealer incentives, and that generally leaves less room to negotiate. For example, the 0% financing that they were offering on the new car didn’t apply to the used ones. It was like the dealers were purposely pushing us to buy the new car… almost as if they liked having a few used cars in to bring in people, so that they could upsell them a new one.
But car dealers aren’t that smart, are they?
What do you think? Did you score a good deal from a dealer on a used car? Let me know in the comments.