In the first three years, that’s a total of $21,641 of lost value versus only $12,868 over the next three. If you put 12,000 miles a year on the vehicle in this example, the depreciation cost per mile is 60.11 cents in the first three years versus 35.74 cents for the next three.* Consider that the IRS mileage rate in 2017 for business is only 53.5 cents per mile. You could also supplement your income by driving for Uber, but their base mileage rate starts at $1.06 per mile, and you would still need to buy gas!
Remember that commercial that showed a guy driving an old car that spit change out of the air conditioning ducts? Driving a new car is like that, but exactly the opposite.
Some potential good news, especially if you are in the market for a new car, is that “…millions (of) cars that were leased two or three years ago, many of them used compact and midsized cars with low mileage, are heading toward auction lots and used car dealerships. That surge in supply threatens to depress prices for new and used vehicles…”, according to an Autonews.com article from earlier this month.
Some may be asking if a lease may make more sense than buying, but the lease amount incorporates the expected depreciation, taxes, and interest into the payment. At the end of the lease, you would then start the whole process over again, insuring that you are always paying the highest amount of depreciation. Plus you typically add in mileage penalties and wear and tear charges.
There is nothing quite like that new car smell, except that you may find adding to your retirement account, the kids’ college, or travel funds are even sweeter. You can certainly reduce the amount of depreciation each year by driving a new vehicle longer, but buying the used pickup in the example above would mean you could add an extra $3,000 per year towards goals that may make you a lot happier.
If you would like to discuss any of those plans, get in touch.
If you are in the market for a car, it looks like your timing could be pretty good. As for me, I think I’ll stick with my old pickup for bit longer.
*Arithmetic error corrected from earlier version