Depreciation Applied

In the past I did a WAVE-B Drive Free project. The starting car was a Ford Windstar Mini-van which was sold for whatever I could get for it. That money plus my small nest egg of $3,500 was used to buy a 1994 Honda Accord. One year and a half from then I sold it for about what I purchased it for and added that to the money that was saved to purchase a 2012 Honda Accord cash. The purchase price for the 2012 was $15,000 + registration, fees and tax ($17,000 total). The miles on the car was 26,000. The question I have is: what was the depreciation of this car to this point?

How 2012 Looks in 2017

The 2012 Honda Accord is list price $25,000 new. I purchased it in 2015 for $15,000. This is consistent with the model for depreciation. A quick check of the value provided by USAA insurance using Black Book Car valuation service.

The value is $9,635 today with 70,000 miles on it in metro Atlanta according to USAA. If I look at the model from Edmunds I get a little lower than they get but, I have the factor of driving more than the average American per year.

Losing 3-4 Grand in 2 Years

This does give a good approximation of the car’s value over time . I have lost about $6,000 in value since I purchased the car. (not including the registration, fees and tax add on. This pushes the loss to $8,000 in just two years. Have I waited two years I could have bought two cars with the same money. Of course the operating costs will go up with two cars rather than one but, two years of operating costs doesn’t equal $8K. 4 Grand a year is nothing to sneeze at unless you are in the millionaire zone with no debt.

Unless you are looking to become an indentured servant you don’t want to lose this kind of money.

Nothing Beats a Beater

In the two years the distance traveled was 44,000 miles in the Honda Accord. Also during the same time I have a 1998 Jeep Cherokee that traveled 40,000 miles. The value measured two years ago for the Jeep was $3,400 with 230,000 miles on it. Today it is worth about $1,200 if I look at the local craigslist for a similar model. My depreciation was about $2,200.

Of course one would want to lose less money than more money. An older car has already depreciated a majority of it’s value so the losses are minimal. The first five years are the biggest hit on the depreciation. The down side of an older car is the possibility of unexpected costs of repairs. (This is a risk factor but, with buying a reliable model, proper inspection, and proper maintenance this can be lessened.)

Sweet Spot

I wouldn’t recommend buying a 20 year old car like my Jeep unless you didn’t have a choice. The amount of repairs increase as a car ages and gets used no matter what model you have. All statistics I have seen is the car issues seem to mount after a car reaches the 10 year mark. If you also take in the factor that depreciation starts to level off after 4-5 years then the sweet spot starts to reveal itself.

If I followed the model I should have bought my 2012 Honda Accord this year and keep it until 2022 or longer if it is still performing well. The effects of depreciation really hits home when you put it in the lens of time.

 

 

 

 

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