Last night Channel Seven ran an interesting article on the way cars lose value over time. The results were interesting. Basically cars fall in value by about 50% over the first three years of their life. Some fall by a little less, some by quite a bit more. In fact, of the big cars the best performer was the Chrysler 300c which fell in value by 53.9%. Remember, that was the BEST performer in that class, the class that includes the traditional aussie six's.
So what does that mean for our financial wellbeing? First of all we should never, ever think that buying a standard car is an investment. And secondly we should decide whether we want to buy a car before it falls in value over the next three years, or as a three year old car that is suddenly 50% (or more) cheaper than when it was bought.
One emphasis that I have is that we should look at money as being a unit or work. That is, if I am paid $15 a hour after tax then a purchase of $30 is equal to 2 hours of work. That way we can decide as to whether we really think that we are going to get the benefit from our purchase that will justify the work that we have to put in. Let us say that we want to buy a new car costing $24,000. We now know that we can buy the three year old second hand equivalent for $12,000 (and three years old is still pretty new). The difference is equal to 800 hours of work - or 20 full time weeks of work. That is a lot or work just for that new car smell! Of course, some people really into cars will say that is worth it, and fair enough too. For me, I'd rather drive a second hand car and do 20 weeks less work.
For more information on second hand car prices, the pre-eminent guide in Australia is redbook.com.au.