REAL DEAL AUTO BLOG

Think sports cars and flashy SUVs depreciate the most? Think again!

Posted in Pictures, Video, Commercials, Media by wolferadio11 on October 28, 2010

If you went out this weekend and spent $58,400 on a shiny new 2010 BMW M3 coupe, you’d get more than a sweet new ride–you’d get a good investment. Odds are, a new M3 will trade in for at least $26,000 five years from now, a total depreciation of 56%. It might not sound like much, but it’s a fortune compared to some other car models. 

Take the Chevrolet Cobalt and the Mercury Grand Marquis. These cars retain less than 20% of their initial values after five years of ownership–a total depreciation of more than 80%. That puts them both near the top of the list of cars that lose their value the fastest. Why do the Cobalt and Grand Marquis lose so much value? In part, it’s because neither model has been updated in awhile, and their parent companies have had ongoing financial and operational troubles. That means used-car buyers, who care most about reliability and overall value, aren’t as inclined to buy them as they might a car from another brand. “The automotive industry is so competitive these days that you’re seeing vehicles being redesigned every four or five years,” says Eric Ibara, the director of residual consulting for Kelley Blue Book. “If you see a vehicle that is in its fourth or fifth year and not doing well selling [new] retail, it would tend to not hold its value as well as its competitors.”

Behind the Numbers
To determine which cars lose their value the fastest, we turned to Kelley Blue Book, an Irvine, Calif.-based valuation company that determines resale prices for used cars. They define resale value as the projected market value of a vehicle at a specific time: For our purposes, we evaluated vehicles from 24 to 60 months after purchase, to get a more complete picture of how–and when–different cars lose their value. New cars typically lose about 20% of their value the moment they’re driven off the lot, and about 65% after five years. But some models fare much worse, like the Mercedes-Benz S-Class S65. After five years, this luxury sedan loses 84% of its purchase price.

You Get What You Pay For
Still, high-end cars and SUVs are generally leaders when it comes to resale value. Sports cars, crossovers and SUVs typically retain roughly 40% of their original purchase price after five years of ownership. One example renowned for holding resale value: the Mini Cooper, which retains 52% of its value after five years. The cars that lose value quickly tend to cluster on the other end of the automotive spectrum–budget-friendly subcompacts like the and Hyundai Accent. And autos made by companies that are experiencing financial problems–like Chrysler’s Sebring and also have trouble retaining value. Many of the subcompacts on our list have been sold in large quantities to fleets, which immediately diminishes their value. That’s also why cars from financially distressed companies lose their value–part of the reason why companies like Chrysler are in trouble is because they depended on these large fleet purchases, which artificially inflate sales numbers but decrease the value of the vehicles.

Depreciation Is Everything
Residual value matters because depreciation is the largest single cost of owning a car. Take the Lexus IS250. It costs $33,015 to buy, but loses more than $18,000 of that to depreciation over five years, according to data from Vincentric, an auto-industry analysis firm in Bloomfield Hills, Mich. Compared with the secondary costs of fuel ($10,035), insurance ($7,442) and maintenance ($2,734), depreciation eats a big chunk of driver expenses each year. (Vincentric assumes 15,000 miles driven per vehicle annually, and a price of $2.60 for regular fuel, $2.86 for premium and $2.75 for diesel. It also applies an inflation rate for the fuel prices, since the calculations predict costs over five years.)The best way to avoid deprecation is to drive fewer miles, says Ibara. And resist the temptation to detail your car in a way that may not appeal to future owners: Silver cars appeal to most second-hand buyers; a pink car does not.

That means you should be wary of highly customizable vehicles like Smart’s tiny Sure, it’s an inexpensive purchase, costing just $21,635 for a base model. But the car quickly loses 63% of its value in 24 months, and retains just 17% of its initial worth after five years. The Hello Kitty wrap offered as a customized option will do nothing to help bolster resale value. Avoid that appliqué and the 22 others in Smart’s “Expressions” line if you want any chance of reselling the vehicle.

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