Tuesday 15 August 2017

Money-losing proposition...............from Rico

Buying a new car today is an expen$ive proposition.*
- It is also a money-losing proposition...and if you need that 'new car smell' every few years it almost guarantees a life of debt slavery.
KBB and Experian tell us that the ATP (average transaction price) of $34,342 is close to the amount of the average new car loan.
- The average payment for that loan is $506 per month.
New cars depreciate 19% in their first year (and can drop in value 50% in the first five years). Using the ATP above, that's a first year depreciation of $6,525.
- That makes the average depreciation ($544) per month.
You're under water (monthly payment vs monthly depreciation) from the time you drive that new car smell off the lot.
- Another way to look at it is you 'lose' ($1,050) [544+506] per month.
It's far more cost-effective to buy your significant other a nice leather skirt...even if you are one of Nancy Pelosi's constituents.
*The ABAI (auto buyer's affordability index) shows how expen$ive it is today to 'buy' what amounts to a money-losing asset.


Drew458 said...

If you insist on new every few years you might want to consider leasing, although interest rates below 1% make that a numbers game. My new car has a 0% loan.

If you keep your new car clean inside, don't eat or smoke in it, and let somebody else bring home the carry out food, then the new car aroma will last longer. They also sell that scent in an air freshener.

Lola said...

Rico. You are double counting. The new car buyers are financing three things, the dealer mark up, the sales taxes and...the depreciation. In the UK 80% of new cars are bought on PCP schemes. After three years you may or may not have any equity in the vehicle to set against the next one. But why bother? Just put down the minimum and finance the dealer profit, the sales tax (20% in the UK) and the three year depreciation and secure yourself a 'reliable transport solution' for a low monthly payment. These schemes are not a problem for buyers. They are potentially a problem for financiers.