Most Americans are in denial about how steeply new cars depreciate. For years, we have ignored depreciation because the desire to own a shiny, new machine overwhelmed our common sense. Furthermore, predictions of exactly how much depreciation cost buyers were hazy and subject to manipulation and interpretation. But now that we have cold, hard facts, it's time to change our ways.
Here is the unavoidable truth: some cars depreciate faster than others. Much faster. In fact, much, much faster. After five years, one car could be worth nearly as much as 60 percent of its initial purchase price. Another could have fallen to 20 percent of its starting value. See which cars hold their value best by taking a look at Edmunds' 2011 Best Retained Value Awards.
Buying a car with weak resale value will cost you money. You won't necessarily notice it immediately, but such a car will drain your financial resources steadily as you own it. A car with a high resale value might cost more up front, but will save you money in the long run.
You owe it to yourself and your family to make depreciation an important part of your car-buying decision. Not only will you get more when it's time to trade in the car, but if you decide to lease, your monthly payment will be lower. (An important part of the lease formula is based on the depreciation or "residual value" of the vehicle.)
Car dealers pay attention to depreciation and call this "buying right." A sales manager might say, "He bought right in the first place, so when it was time to trade in, he got strong money for his old car."
Take a tip from the insiders and buy right by looking at depreciation first. Edmunds.com makes it easy to buy right by presenting depreciation information in a number of ways. Most prominently, we feature a True Cost to OwnSM (TCO) section for every car. It shows the vehicle's depreciation over a five-year period, along with other related costs. Additionally, a bar graph of depreciation shows which cars have a high resale value.
Auto manufacturers know that resale value is the life blood of their product. It is, in essence, an indicator of how desirable their cars are.
To get you started thinking about this important subject, try looking at our 2011 Best Retained Value Awards, where the car brands with the highest resale value are Honda (non-luxury category) and Lexus (luxury category), with a residual value of 50.4 and 48.1 percent respectively.
Buy wisely and you'll not only save money, you'll feel good about your car the whole time you drive it. You will have the pleasure of knowing that you've maximized the value of your hard-earned dollars.