Understanding depreciation

[Eric]

Don't end up "upside down"
By Eric Peters
for immediate release

Understanding depreciation rates -- how well or poorly a vehicle retains its value over time -- is key to making a smart buy because it will affect how much (or little) you'll recoup at trade-in time. Depreciation rates also affect lease terms -- and can get you into big trouble over a new car loan, potentially leaving you owing more on the car than it's worth.

The average vehicle loses about 10-20 percent of its value in the first year of ownership -- but some lose as much as half their value before they're three years old. And that can leave you "upside down" on your new car loan -- insider lingo meaning you owe more than the car's actually worth.

General factors affecting depreciation rates include the vehicle's track record for being well-built and reliable -- as well as the overall reputation of the brand of the vehicle. Consumer demand for a given vehicle also plays a large role in determining how well it holds value. Owners of undesirable models -- for example, Pontiac's ill-starred Aztek van -- can see the net worth of their vehicles plummet faster than the Dow Jones in 1929.

Unfortunately for Detroit, American cars (GM and Ford models especially) currently have among the highest depreciation rates, while the mainline Japanese imports (Honda and Toyota especially) hold their value exceptionally well.

The vehicles with the lowest depreciation rates include:

* Minivans -- Honda Odyssey; Mazda 5
* Luxury cars -- Lexus GS
* Sports cars -- Nissan 350Z
* Family sedan -- Honda Accord
* Mid-sized sedans -- Toyota Prius

While five of the vehicles with the highest depreciation rates include:

* Large sedans -- Ford Crown Victoria
* Minivans -- Buick Terraza
* Mid-sized sedan -- Pontiac Grand Prix
* Compacts -- Dodge Neon
* Family sedan -- Mercury Sable

However, not all Japanese brands are good bets, depreciation-wise. Mitsubishi and Suzuki vehicles, for example, have tended to depreciate very rapidly relative to both import and domestic brand competitors.

Hyundai and Kia -- the two major Korean automakers -- have made great strides quality-wise (and offer superb warranties) but some models (for example the Kia Spectra) still tend to depreciate faster than average.

Among the high-line European imports, there is often great variation among specific models, even within the same brand of vehicle. For example, the Mercedes-Benz M-Class has suffered unusually high rates of depreciation (probably as a result of quality problems with the early vehicles) while the C-Class compact sedan has done well. Land Rover's LR3 SUV has held its value -- while the smaller Freelander has not. Jaguars are stylish -- but reliability problems have hurt their resale value.

Check out web sites such as Intellichoice, Forbes, Consumer Reports and other sources that chart the resale/depreciation value of late model cars and trucks -- before you commit to buying anything.

You could end up saving yourself a lot of trouble -- and fist-fulls of dollars, too.

END

[jillsuncle]

Who cares? If you can't afford it don't buy it. Ride the bus. I depreciate my car on I-95 everyday. I hope I blow it up before I run it into the woods. God is my co-pilot and I don't roll in a Honda.

Vroller <-- ProCharger I Love You. Allstate I hate you! ???

[Kwozzie1]

Mitsubishi and Suzuki vehicles, for example, have tended to depreciate very rapidly relative to both import and domestic brand competitors.
<---SNIP!!---->
Among the high-line European imports, there is often great variation among specific models, even within the same brand of vehicle. For example, the Mercedes-Benz M-Class has suffered unusually high rates of depreciation (probably as a result of quality problems with the early vehicles) while the C-Class compact sedan has done well. Land Rover's LR3 SUV has held its value -- while the smaller Freelander has not. Jaguars are stylish -- but reliability problems have hurt their resale value.

Mitsubishi...for some reason I have never liked them although 3 friends of mine have the current model Pajero 2 diesel 1 petrol. they have some good features...but they just don't feel right.... I think that in my past having seen Magnas / Sigmas on a taxi fleet moving off with blue smoke from the tail pipe.

the M class seems a bit lost in OZ although popular...its sort of not quite a tre off roader, aslo some quality issues with earlier models... Disco 3....not sure how it will go long term here.....it seems more like a vehicle for "ladies who lunch" I look forward to seeing the new model Freelander

[JohnB]

Mitsubishi and Suzuki vehicles, for example, have tended to depreciate very rapidly relative to both import and domestic brand competitors.
<---SNIP!!---->
Among the high-line European imports, there is often great variation among specific models, even within the same brand of vehicle. For example, the Mercedes-Benz M-Class has suffered unusually high rates of depreciation (probably as a result of quality problems with the early vehicles) while the C-Class compact sedan has done well. Land Rover's LR3 SUV has held its value -- while the smaller Freelander has not. Jaguars are stylish -- but reliability problems have hurt their resale value.

Mitsubishi...for some reason I have never liked them although 3 friends of mine have the current model Pajero ...but they just don't feel right....

Maybe because the word "Pajero" is slang for "masturbator" in most of Central and South America...

[DennisWG]

<Allstate I hate you!>

I once heard a similar statement when I worked for AAA. I got talking with a customer, and he said, "AAA, well, I'm with Allstate. The company that says you're in good hands with Allstate. So, I filed a claim and they gave me the finger."

[DennisWG]

I wonder what the resale value of hybrid cars will be once the word gets out about the cost of replacing the battery packs. I checked with a Toyota dealer about the current cost of replacement for a Prius, and they said the cost was about 4,000.00US for parts and labor, and that the current warranty covers them for 80,000 miles. But, what will the cost of replacement be in 4-5 years when current units are old and obsolete?

[chiph]

<Allstate I hate you!>

I once heard a similar statement when I worked for AAA. I got talking with a customer, and he said, "AAA, well, I'm with Allstate. The company that says you're in good hands with Allstate. So, I filed a claim and they gave me the finger."

I knew to stay away from them after how they treated their policy holders in southern Florida after hurricane Andrew. Their treatment of their Katrina policy holders just reinforced my opinion.

Chip H.

[Eric]

I wonder what the resale value of hybrid cars will be once the word gets out about the cost of replacing the battery packs. I checked with a Toyota dealer about the current cost of replacement for a Prius, and they said the cost was about 4,000.00US for parts and labor, and that the current warranty covers them for 80,000 miles. But, what will the cost of replacement be in 4-5 years when current units are old and obsolete?

Well, no one really knows - but bear in mind a few things:

* In many cases, it's individual cells/packs that would be replaced - not the entire unit.
* Replacement costs should drop considerably as batteries/components become mass-produced (economies of scale, etc.)
* I doubt that Toyota and Honda (the hybrid leaders) would have committed to hybrids to the extent they have if they believed that, in less than ten years' time, they'd be holding the bag for the huge consumer fallout that would occur if the scenario you posit were to develop. It would do as much or more damage to ther reputation as the Oldsmobile diesel or the exploding Pinto.. and I just don't think Toyota or Honda managers and execs. are that stupid.