Factors that Influence Depreciation and Resale Value
It just doesn't seem fair that as soon as you drive your brand new car off the dealer's lot, it's worth less money than you just shelled out for it — a lot less, in fact. Unfortunately, that's the sad reality of depreciation. In fact, depreciation is the biggest car expense you'll incur during the first five years of owning a new car.
In this article, we'll provide some tips about what to look for when buying a new car, as well as how you can maintain your existing car to minimize your monetary loss.
When buying a new car, look for one that will appeal to the masses, instead of to a select few (or worst of all, to just you). Consider the following:
Color is Key
Cars with common, neutral exterior colors, such as black, white or silver, are more likely to still be popular five or more years down the road, so they have a better chance of bringing in more money than cars in flashy, off-beat colors like lime green or purple. With that in mind, stay away from custom or trendy colors.
Safety and Comfort
Choose a car with options that add to the safety and comfort most people will value (or even require), such as anti-lock brakes; power doors and locks; cruise control; a CD player/changer; an auxiliary jack to play MP3s; alloy wheels; a navigation system and parking sensors.
Brands that have a good reputation among consumers will have a higher resale value. Things like low maintenance and smooth handling can attribute greatly to a brand's reputation. Some people specifically look for used Hondas or Toyotas because they have a reputation for needing fewer repairs. Therefore, it's wise to research new car brands that rate high among consumers before you buy
The law of supply and demand is something many of us learned in basic business or economics classes in school. It applies to pretty much anything that can be bought and sold, and that definitely includes cars. If one out of five cars on the road is the same as yours, you'll have a lot more competition when you go to resell it. Buy a car that's a little harder to find, but that still has some market appeal, and you'll be in a much better position come resale time.
Miles Per Gallon (MPG)
This is becoming more and more of a factor in depreciation as gas prices rise. Car buyers are already gravitating toward more fuel-efficient vehicles, and that doesn't seem likely to change. Your best bet for buying a new car is to look for a car that gets great gas mileage, or better yet, go for a hybrid. Those are getting more and more popular every day with the growing environmental issues. Avoid the gas-guzzling trucks and SUVs, not only because of resale value, but to save money on gas.
Once you buy your new car, there are a few things you can do to get the highest resale value possible, helping to soften the depreciation blow.
Keep It Clean!
Let's face it — no one wants to buy a dirty, smelly car, even if it just needs a good wash and detail to remove the grime and odor. Think about it — would you buy a shirt that was stained and wreaked of cigarettes, even from a second-hand store? It doesn't matter if it's nothing a little detergent can't remedy. People want to buy a car that looks and smells like it's been taken care of properly. The thought process is that if you can't take the time to clean your car, then are you really going to take the time to have it serviced regularly as you should?
Speaking of servicing, it can really help in the resale value of your car to have it serviced regularly. Oil changes and tune ups are crucial. Even if it doesn't lower the depreciation amount of your car with sources like Kelley Blue Book (KBB) and the National Automobile Dealers Association (NADA) Guides, it can still make a difference when you go to sell your car. If a buyer is trying to decide between your car and one just like it, but you have records of regular preventive maintenance and the other seller doesn't, you're much more likely to get the sale.
Mileage, Mileage, Mileage
The age of a car is important, but if it comes down to a five-year-old car with 85,000 miles versus a six-year-old car of the same make, model, trim, color, etc., with 45,000 miles, you'll probably have a better chance of selling the six-year-old car — given the condition is comparable. The number of miles you drive you car contributes to the wear and tear on it — inside and out. Not only is having low mileage a great selling point for a used car, your car will probably look a lot more attractive to buyers compared to other cars on the market made the same year.
The best way to protect your car's paint job from exterior wear and tear (accidents not included) is to park it in a garage. If you don't have a garage, consider investing in a car cover. Yes, it'll take a little extra work to cover it every day, but protecting your car from sunshine and inclement weather can make a big difference in the long run. An added benefit is that you won't have to wash and wax it as often, saving you time and money.
Whether you're proactively looking to buy a new car with a lower rate of depreciation, or you're trying to maintain your current car to get the highest possible retail price for it, keep these tips in mind. Also, think about what would matter to you when shopping for a used car.