How 0% Financing Deals Destroy Your Car's Value

The Wall Street Journal ^ | Tuesday, October 8, 2002 | KAREN LUNDEGAARD

[TroutStalker]

There's a little-noted downside to the slew of financing incentives that Detroit is using to keep car sales humming: The enticing deals are triggering sharp declines in the value of cars the minute they drive off the lot.

One reason: Millions of Americans are snapping up new cars, which is increasing the glut of used cars on the market and driving their values down. In addition, the incentives themselves are effectively slashing the prices on new cars, which are a key factor in determining resale values. That also shrinks the value of earlier models already on the road.

[Huck]

Well, for those of us who never buy new cars, this is good news. My '91 Mercury Capri XR2 has 148K miles on it. I hope to have it for a while longer, but sooner or later I'll have to replace it. Nice to know there will be plenty of used cars to choose from at good prices.

[Alberta's Child]

Interesting article, though I'm not sure how many people who purchase new vehicles give much thought to the vehicles resale value (except as an indication of the vehicle's potential longevity).

[TontoKowalski]

Interesting analysis, not sure if I understand all of it, though. I need to study it more.

However, one thing is for sure. For buyers like me, who intend to own the same care for 20 years or so, it's a good deal.

I've got an 88 Volvo that just keeps on ticking. Body is getting a little beat up now, but I don't care. I intend to drive it till the wheels fall off.

When getting our mini-van in 98, I told the wife to be sure of what she wanted, because she'd be driving it for 20 years. We got the Toyota Sienna.

I hate a car-note worse than anyone else in the world.

[Flyer]

Yep, you're upside down as soon as you drive off the lot.

---

[Damocles]

Goodie. I'm looking for a good used minivan right now. I guess I can beat the price down a little more during negotiations now.

[miyamoto]

Not a reason to get mad at 0% deals or to lobby against them.

Whatever bad decisions in auto buying you've already made is "sunk cost" and from now on we have to be smart consumers and armed with this information from this article if one wants to optimize his/her "auto purchasing power" one should keep what's still working and buy only what we need.

[Damocles]

How do you like the Sienna? Is it worth the extra money upfront?

[Larry Lucido]

So, low retail prices are resulting in low resale prices. Guess we will now need government price supports for used cars sellers, for the children of course.

[RightField]

After 35 years of car ownership, it seems that there is no way to ever profit from the experience. At best, you just hope to pay a reasonable price for transportation.

We never buy new cars anyway. Usually, we go for the very late model lease returns, and then drive them until they die. Case in point ... We just got rid of a 1992 Explorer which had 198,000 miles on it, and was becoming unsafe to drive. We replaced it with a lease-return 2001 Expedition, loaded with everything except leather seats, for $23,500. We'll probably drive it for 8-10 years and then repeat the process.

[mewzilla]

We never resell our cars. We drive'em till they fall apart. We've got 190,000 on one right now, it's ten years old, with only a starter, alternator and head gasket repairs on it. Why keep buying new/er cars?

[Phantom Lord]

One case in point is the 2000 Ford Taurus SE, which had a sticker price of $19,440 but now is worth only about $8,300.

One of major reasons that Fords values drop like bombs is that they are the largest "Fleet" vehicles out there. Especially the Taurus. Ford always advertised the Taurus as the "Best selling car in America." But if you removed the sales to "Fleets" the Taurus wasnt even in the Top 10 in sales. And fleets are rapid turnover leases, that flood the market and auto auctions.

The Ford Exploder, I mean Explorer is another whose value drops like a bomb. When I was selling cars all of the salesman would run and hide when someone pulled up in an Exploder. We knew they were so far upside down that there was no way they could trade out of it.

Saturns were cars we were torn on. The value was nothing and thus hard to trade out of, but the owner always wanted the hell out of it, and fast.

[TroutStalker]

I don't like car notes either, but decided to buy an '02 Explorer Eddie Bauer last month for my wife. It is a fully loaded demo with 10,000 miles and I saved thousands over the sticker, and with 0% financing, my payment is less than the '96 EB Explorer I have was.

I also skipped the trade-in game and negotiated stricly on the price. Sold my '94 Saturn SC2 with 85,000 miles on it for $4,000 cash, my asking price, which was almost 25% of it's original price.

[RightField]

We never resell the cars either. When they finally give out on us, we usually donate them to a charity, and take the full blue book value as a tax deduction.

[general_re]

I've got an 88 Volvo that just keeps on ticking. Body is getting a little beat up now, but I don't care. I intend to drive it till the wheels fall off.

The best advice I ever got about cars was when my father took me aside and said "Son, the only way to get your money's worth out of any car is to drive that b*st*rd into the ground" - and he was right ;)

[TontoKowalski]

Ours is a 98, and we love it. To be honest, I wanted an SUV, but it was to be HER primary vehicle, and she wanted the van.

Anyway, she did a ton of research...Consumer Reports, etc., and the Sienna came out as tops in safety, reliability, and so on...

I figured it would be out of our range (by the way, when did basic family transportation get up in the 30-40K area?), but it turned out to be right in the middle of the spectrum as far as price. Maybe a little less than the middle.

That made the choice easy. We haven't regretted our purchase. Again, all this is based on research and options in 98. Were I to go out tomorrow and buy a new van, I'd do the research all over.

[Damocles]

I was actually looking at a 1998, which is why I asked. The reviews I've read are all full of praise. Must be a good buy.

I have to admit however that it is not the best looking van out there. Oh well.

[Phantom Lord]

I drive a 1991 Toyota Previa which hit 202,200+ miles on the way to work today. Have had virtually no problems with it. At 195,000 I had to replace the cap and rotor because it started arcing. Oh, and the AC just had to be repaired.

My goal is 300,000 miles before I consider getting rid of it.

[gridlock]

My new car is an '88 Volvo Wagon.

Better not spread that around too much here. People will figure we're liberal professorial types with leather patches on the elbows of our tweed jackets, and all that rot.