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.

[Aquinasfan]

The sport-utility vehicle's average two-year-old 2000 model has lost 48% of its value

Crazy to buy new. Then again, I hope not to be in the market for a while. My '89 Toyota pick-up is still going strong at 150k. Doesn't burn a drop of oil between changes. I'm hoping to get five more years of "free" driving thanks to the good people of Bondo. 8-) Hate to put money into a depreciating asset.

[TroutStalker]

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.

See my post #14. Trade-ins are where you get whipped in car deals. Also I have 107,000 on my '96 Explorer, and plan on driving it till it falls apart. Never had any problems with it, and now it is stricly my "utility vehicle".

[Wolfie]

Right, as opposed to the huge ROI you got on a new car before 0% financing.

[Aquinasfan]

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.

LOL! You're just like me. My wife has a '99 Sienna, but my '89 pick-up is going to be driven into the ground.

[Hacksaw]

By the time I am done driving my cars they have over 100K on them, so I don't exepect to get much out of them anyway.

[Mr. K]

This article is true (but with an idiotic title). A freind of mine was recenlty searchihg for a car- I told her to look for a one or two year old used vehicle instead- she got the car she wanted, like new, with less than 20K miles on it (nothing nowadays) and saved $12,000.

I won't tell you how she thanked me for the advice but it was worth it. 8)

[Poohbah]

Someone told me, straight-faced, that a car was an "investment."

I asked him how many investment instruments he bought KNOWING that they would decline in value.

[mewzilla]

Our other car is a four-yr. old Corolla that we've had no problems with so far. I hate buying the darn things. I have no respect for car dealers, not any of the ones I've had the misfortune to come in contact with at any rate.

[Aquinasfan]

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

We haven't had any problems with ours. But since you can get a 2-3 year old non-Toyota/Honda for $10k less, is it worth it? Probably not, unless you really hate going in for repairs. I really hate going in for repairs. So does my wife.

Maybe it would be worth getting a 2-3 year old Sienna or Odyssey.

[TEXASPROUD]

Drive the b*stard into the ground.

Your Dad and my Dad must have known each other. I had a 1987 beat-to-sh*t Dodge Ramcharger with 193,000 miles on the odometer. Just got a 2002 Chevy Silverado, extended cab, short bed. Plenty of room for the guns and hunting gear. Love it!!

[fogarty]

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

You are wise. Too many people I know continually by $25k brand new vehicles, and cannot imagine not having a car payment. Some live their lives with TWO car payments, in addition to mortgage! They consider car payments as a regular charge of life, lumping it in the same category as mortgage payments.

It is amazing to see how many people are on never-ending debt due to buying cars. Our next door neighbor just bought their 17-year old son a 2002 Jeep Liberty. They already have two car payments plus mortgage.

Like so many other rational people here on FR, I consider car payments an avoidable evil. I buy used, I pay in cash, and then I drive the car until it dies.

[John Robertson]

88 Volvo. Gl or Dl, wagon or sedan? I have an 88 240 GL sedan I bought new. My 17-year-old used to ride in the back in a car seat...now it's her main car. I also have a 91 240 DL wagon. former, 179K miles, latter, 194K miles. slight oil leaks, but nothing some cat litter won't sop up. yes, they do tend to run forever. though my family wishes they'd both die so we could buy something cooler and newer. at times, i find myself looking at the ads...then my bank account pulls me back. there's only one downside to driving a classic (the box-shape, I mean) Volvo: libs presume you're one of them. i guess you could say we're undercover.

[RightField]

Our best deal ever was a 1971 Toyota truck that had been repossed. We bought it in 1972 for just what the guy owed on it ($2,300). We refinanced it once to get a down payment on a foreclosure house we were buying (now THAT would qualify as an car-purchase investment).

We had the truck for 24 years, and it finally died with 336,000 miles on it. Do you remember when Toyota did a series of commerials featuring old, high mileage Toyotas? We actually negotiated with Toyota to have our car in one of those commercials, signed a contract and everything. But, they never did come to do the photo shoot, and the ad campaign ended without our getting our 15 minutes of fame.

[general_re]

Just got a 2002 Chevy Silverado, extended cab, short bed. Plenty of room for the guns and hunting gear.

So if you're like me, you'll be out shopping for a replacement sometime around 2017 or so ;)

[eleni121]

One of our cars is a 1987 Nissan Pathfinder - the first year they came out. It has about 200 thousand miles on it and is still chugging along fine with repairs of course. Funny thing: its value seems to be holding steady or rising as it gets older. Anybody know why?

On the other hand we got rid of a 1997 Ford Expedition a couple years ago. Bought it at about 30,000 thou and could only get about 16,500 from the wholesaler 3 years later. Never again!

[oust the louse]

Tonto,
Same here.We purchased a Toyota Highlander and will be driving it until the wheels come off.Very reliable product.A friend has driven his Toyota Avalon close to 200k in miles and has has nothing wrong with it.We shouldn't have a new car purchase for at least 10/12 years.

[Huck]

Those who buy/trade ever 2-3 years are getting killed. I'll pick up that 2-3 year old and keep it for 8-10 - and then move on. Let the first sucker take the depreciation hit.

Yeah, I mean, if they can afford it, and it's worth it to them, it's their call, obviously. I bought my 91 Merc in 97 for 5K. It was in beautiful shape. 62K miles. It's been a reliable car. It's fun (turbo, rag top). Good mileage. Looks cool (after market ground effects, nice silver paint.) No complaints. I can't think of a reason why I would buy a new car, unless I was lighting cigars with 10 dollar bills. Maybe I am missing something, or it's just a matter of preference. Like I say, if it's worth it to someone, that's their call. But it's good to know the market will be favorable for me when I have to buy a used car in the next couple of years. I'm with you. Let someone else take the depreciation hit.

[grania]

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).

One disadvantage of these used cars with good sticker prices is that the warranty just isn't as good. The new, small car I bought has a warranty that is about the best insurance possible that it will be running, repair-free, for five years of my use.

The two-year old car, on the other hand, cut that warranty down to about two years of my use and didn't cover as much.

[Salgak]

For those who feel driven to buy a new car every few years, it's a problem. For those of us who buy a car, drive it until it dies, and donate the corpse of the car to charity, what's the big deal?? A car isn't an INVESTMENT, it's a UTILITY. . .

[oust the louse]

Can't go wrong with a Toyota.Excellent product.Meant to be driven for 100dreds of thousands of miles.I'm sold on them.Go to Edmunds.com and look at the chat rooms going on regarding Sienna's.