Tag Archives: vehicle depreciation

Happy New Year! If You’re Shopping For a New Vehicle

You and I think of new year as being January 1st. But that’s not the new year for vehicles. Their new year is August, so you need to think of this month as being 2023 for their new model year. The factories started building them in March or so, in spite of the parts shortages, mostly related to computer chips.

Ford is currently running a national television ad that starts with the voice-over of: Is the deal a really great deal? OK, let’s take them up on that question. This isn’t about Ford, it’s just their cute catch-phrase.

In spite of the supply problems (which are now easing) there are lots of of 2022s for sale, too. Dealers are now on a big push to sell them, because they can’t send them back to the factory to be melted down. They have to be sold…although that’s certainly easier when some dealers have less than a dozen new vehicles on their lot…

If you’re buying last season’s clothing, you won’t be very trendy. But you’ll get a great price, and in the world of clothing it isn’t a big deal unless you’re a super-sensitive fashionable teenager. It matters a lot more to your wallet on a vehicle purchase. If you’re keeping it for 10 years or longer, and can pay cash, you may get a great deal, and all you’re missing is some of the 2023 model technology, which really isn’t a big deal.

Keeping a vehicle that long means you’re driving it down to a thousand bucks or so. But if you trade frequently, you’re going to be shooting yourself in the foot buying a 2022. The day you take delivery it’s a year old. So if you’re trading it in two years, you’ve actually got a three year old model and that has a huge impact on the value. That’s the reason over 40% of people who trade their vehicles owe more on their loan than it’s worth.

If you drive it into the ground and can afford a new vehicle, the 2022s could be a great deal for you. Start looking after the middle of September. That’s the month most manufacturers send around 5% of the cost of all old models in stock to the dealer to help them with advertising and price reductions. When that money comes through you’ll see the big wave of advertising and that should be your cue to start shopping while the selection is still pretty good. Between now and then, invest the $20 in the Money Tools book and just read the vehicle buying chapter. That’ll turn into a few thousand once you start shopping.

Or you can skip this altogether and do what I do: Drive your vehicle forever – and then another year or so after that. Assuming it’s reliable and you do the maintenance, there is literally nothing that will save you more money. Sure you can skip buying the odd coffee or the bigger dollars by skipping one or two restaurant visits. But nothing comes close to what you’ll save in car payments and depreciation by driving your current vehicle. I know, because yesterday I celebrated my 300,000th anniversary with my 2007 Ford Fusion.

Saving Money on Gas – Sort of…

Sometimes we really do trip over a nickel to pick up a penny. We think we’re saving money, or interest, but we don’t always stop and do some easy math first.

Last week, someone shared with me that they’re really happy they finally purchased a much more fuel efficient car. They paid around $15,000 for a new car that now gets way better gas mileage. Well – not so fast. The logic makes sense when gas is around $1.20 a litre, but does the math make sense? Is this family really going to save some big bucks?

Let’s look three years out. In three years, this new vehicle will have depreciated to around $9,000. That’s a loss of $6,000 right off the top, based on averages from Consumer Report and Edmunds.com. But what about the fuel savings?

Someone driving an average of 20,000 km a year going from 15 mpg (15.7 l/100 km) to 30 mpg (7.8 l/100 km) should save some big bucks, right? At 30 mpg, driving 20,000 km a year, it’ll be $5616 in the gas tank over three years (1560 l x 3 years x $1.20).

That old car at 15 mpg will cost $11,300 in gas (3140 l x 3 years x $1.20). The saving is $5,688. That doesn’t equal the depreciation of the new car! Yes, the new one is under warranty, yes, that family may keep the new one for a lot longer than three years. But make sure that you’re making an informed decision with five minutes of easy math.

In this case, my friends’ feedback was that he wouldn’t have done it – if he’d have known. He did pay cash, because this math doesn’t include any interest over the three years, if the car is financed. That would add another $1,100 to the cost of ownership. My suggestion would have been to buy a $5,000 to $8,000 used vehicle with the good gas mileage. An older vehicle has pretty much depreciated out, so the savings in the tank are real, almost from the start.

More Heads Up and Updates (Part II)

According to the Washington Post, the on-line cost of hiring a hacker to break into someone’s e mail accounts is now down to $30. And hackers have an almost 100% success rate. But the majority of the buyers from these hackers are actually boyfriends, girlfriends, or spouses. The point is, that for your on-line banking, or anything on-line, you need a better password than most people have! Because the most common password is still 1234 and that’s nuts.

When is a deal actually a deal when we’re financing huge amounts of money? Here, and in the U.S., I keep seeing ads for houses and lots that are supposed to be incredible deals at 50% off. Off what? I’ve seen these ads in Ontario, and for resorts in BC. Lots that were originally listed at $500,000 are now half price. But that’s a phony figure, because the original price of the lots are just made up, and hoping that someone will pay it. What matters is what the house or the lot is appraised at TODAY, not what it’s listed for. Whether you’re selling your home, your car, or anything else, it’s the TODAY value, no what it was somewhere in the past! Careful with that, and don’t get trapped in the hype of an advertisement.

Kelly Blue Book just published their 2010 list of vehicles with their retained value and depreciation: Less than HALF of all new vehicles this year are projected to be worth 20% or more after five years. That is a staggering figure. The brands that will best hold their values:
Number one is Lexus, followed by Toyota (and that’s not accurate anymore with their current problems) and Honda. The only European brand in the top tier of vehicles that hold their resale value is BMW, which is fourth, and Subaru rounds up the top five.

Overall, the average vehicle will be worth 32% of new vehicle price in five years. So remember that the longer you keep the vehicle, the less it matters. But the shorter buying cycle, or anyone fleasing…I mean leasing the vehicle, the more you will feel some real financial pain of paying for the depreciation.

Have you heard of the Visa Black credit card? Well, they just sent me an invite. It’s a great looking, high quality, wedding-type invitation. But inside, it’s just another credit card application with great marketing. You are hereby invited to join an exclusive club limited to only one percent of the population. But at 13.25%, the rate isn’t very exclusive, and the annual fee is $495. But the card is made with actual carbon and guaranteed to get you noticed. Really? Is that why I need a credit card? It also talks about “fantastic rewards,” but doesn’t list any of them at all. I’m afraid I’d be getting a plain burger for the price of a steak.

Good old CBC is now getting into the product placement market. A lot of it will be with TD/Canada Trust. The bank will show up (OK, not show up – pay to be included is more like it) on Being Erica, Little Mosque on the Prairie and Hartland.