Archives: Sunday Journal
Car Cost Sneaks Up on You
By KELLY K. SPORS
Staff Reporter of THE WALL STREET JOURNAL
Depreciation can put a much bigger dent in the value of your car
than you might think.
Buying incentives dangled by car makers such as General Motors
and Ford in the past few years have, in effect, stepped up the
depreciation rates on most domestic cars. Why? Because while it's
nice to get a cash rebate when you buy a new car, these sweetheart
deals essentially push down the values of used cars along the way by
creating a glut of used vehicles that must have their prices slashed
in order to sell. As a result, your car's value could plummet by as
much as 45% in just the first year you own it, wiping out the
rebate's value -- and then some -- when you go to sell. Depreciation
usually then slows down the longer you own the car.
To ease the sting of depreciation, consider what kind of car is
likely to fetch the most come resale time.
Foreign autos, such as Honda, Toyota, Audi, and Volkswagen,
generally hold their value much better than domestic cars.
For example, while the Honda Pilot, a popular sport-utility
vehicle, will probably keep 57% of its original value after three
years and 45,000 miles, a Ford Explorer will keep only about 38%
over the same period. If you consider that they both sell for about
$30,000 new, that's a $5,700 difference in resale value after three
Another reason to care about depreciation: If your car gets
totaled in a crash, your auto insurance reimburses you for its
current value. So if you're in a two-year-old Toyota Camry, you'll
get a lot more back than if you were driving a Ford Taurus of the
Big Hit Comes Early
Autos, on average, depreciate 20% to 30% in their first year,
with another big drop in their second year, which means buying a car
a few years old makes the most financial sense.
Some cars such as Lincoln Continentals lose as much as 15% of
their value just being driven off the lot. (Luxury towncars and
small domestic sedans such as the Dodge Neon have the worst
depreciation values.) But some makes such as Audi barely lose that
amount in their first year.
Depreciation is an important factor to keep in mind unless you
plan to drive your vehicle "till its wheels fall off," says Jesse
Toprak, a senior analyst for Edmunds.com, an online automotive
consumer guide. Average buyers keep their autos for four and a half
To see how much vehicles lose to depreciation, check out the
Edmunds.com "True Cost to Own" database. Go to edmunds.com, click on the blue
"ownership" button at the top of the page and then click on "True
Cost to Own."
Make and model aren't the only factors in resale value, says Tony
Langenderfer, who owns a firm that helps customers buy cars in
Picking out popular colors and extra features such as sunroofs
and leather seats, even if you don't want them yourself, can
sometimes garner you a couple thousand more dollars in resale value.
Silver, white and black autos sell the best.
"You may hate silver, but by golly that's going to hold its value
much better than maroon or dark green," Mr. Langenderfer says.
Write to Kelly K. Spors at firstname.lastname@example.org
How some of the new domestic and foreign autos for 2004 will
likely hold up in value after three years and 45,000 miles.
||Approx. New Price (Before
||Resale Value After Three Years
||Residual Value (After Three