Are Cars an Asset or Liabilities

Common wisdom dictates that a modern car bought new off the showroom floor is going to depreciate quickly. It is accepted that luxury models such as a BMW 2 Series or Mercedes E-Class sedan also depreciate more quickly than popular high-value, cheaper models such as the Toyota Corolla.

Are Cars an Asset or Liabilities

If you are financially savvy and hate the idea of losing a ton of money on a fast-depreciating car, what should you buy to minimize your losses? Even more importantly, are there new cars that actually appreciate?

Is a luxury brand such as BMW necessarily going to lose value faster than cheaper mainstream vehicles or are there a few good investments among the premium brands? Let’s look at the new cars in the USA that retain their value best after five years, so we can arrive at a most sensible option if you want to buy new ones.

Furthermore, let’s consider the factors that affect your car’s second-hand value, so you lose as little as possible when selling it. Lastly, we’ll look at how to buy a car that will actually appreciate in value.

New Cars That Retain Their Value Best

In the results of a study published by CarEdge.com in September 2020, the notion that luxury brands shed their value fastest is largely borne out. However, this does not mean that there aren’t any expensive cars on the list of top value retainers.

However, this often has to with availability and cars for which there is a greater demand than supply hold onto their value best. Here are the top-10 cars with the highest resale value in the USA at the moment:

  • Chevrolet Corvette – should retain 67.4 percent of its value after five years
  • Nissan GT-R – 63.8 percent
  • Subaru BRZ – 61.8 percent
  • Toyota Prius – 61.6 percent
  • Toyota Corolla – 60 percent
  • Dodge Challenger – 59.9 percent
  • Ford Mustang – 59.3 percent
  • Honda Civic – 58.5 percent
  • Nissan 370Z – 57.3 percent
  • Subaru Impreza – 57 percent

Despite these strong residuals, buying a car new – even these ones – is still the most expensive way to do it and loses you the most money. Not only do you pay the full new MSRP for the car, but it also suffers the worst depreciation during those first few years that you own it.

You might enjoy the benefit of reliability and warranty cover, but in exchange for the peace of mind, it asks for the most money in return.

The Depreciation Curve

Cars lose most of their value while they are new and this rate decreases as they age. According to estimates, a new car can lose 10 percent of its value when you drive off the showroom floor and as much again during the first year of ownership.

Only the top achievers retain more than 60 percent over five years. Unless you want to keep your car for a long time, buying new and selling after only a few years means that you are responsible for footing the bill for that steep part of the depreciation curve every single time – on top of paying a premium for a new car.

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    Factors That Affect Your Car’s Resale Value

    Whether you had bought your car new or used, making sure that it retains as much of its value as possible reduces your losses when you sell it again – and these are the main factors at play:

    • Condition. A car’s condition is the first thing people see. The closer a car’s condition is to the original showroom state, the better it will retain its value. Faded paint, stone chips, dings, and scratches age a car and reduce its value. Sun is paintwork’s biggest enemy.
    • Mileage. The higher the mileage, the lower the value of the car, plain and simple. Even if it is in good condition, a huge mileage would reduce its value. Some cars don’t even reach 200,000 miles before they’re tired and because the expectation is that a car with that many miles don’t have much life left, it will not be worth as much.
    • Maintenance. A full maintenance and service record – especially at the official dealership network – will certainly help you sell your car more easily and get a better price for it. Having a car properly maintained and keeping records of it will ensure it has the longest and most trouble-free life possible. A properly maintained car with high mileage can be more reliable than a poorly maintained one with lower mileage.
    • Damage. Signs of accident damage – even if properly repaired – will affect a car’s value. Having an accident-free history is preferable. Fender benders happen, but high-quality repair work is a must. Poorly repaired cars will be avoided like the plague, as will cars with a salvage title.
    • Originality. Rare cars especially could become collector’s items as they age, but collectors usually want them in original condition, down to the right wheels and tires, and without any customization or changes made to the vehicle. To them, a modified car has lost the appeal of the original.

    How To Buy An Appreciator

    Unless you own a Ferrari 250 or rare exotic that cost you millions, it’s unlikely that you’ll make money off selling a car. Cars can take 20 years to become a classic and start to appreciate – and only some do. It’s not always easy to tell which ones will when they’re new.

    If you have an eye for cars and you pay painstaking attention to the items listed in the previous section, you could have an appreciator on your hands. It would mean that there’s a limit on how much you can drive it in order to keep the mileage low, so you likely have other cars as well.

    There are a few modern cars that are appreciators, based on current demand and price movements:

    • Ford Raptor
    • Lamborghini Huracán
    • Dodge Challenger Demon
    • Mercedes-Benz SLS AMG Black Series
    • Porsche Carrera GT
    • 2005 Ford GT
    • McLaren P1
    • Porsche 911 GT3 RS 4.0
    • Ferrari LaFerrari Aperta
    • McLaren F1

    Conclusion

    Unless you’re a collector of rare exotics with the money to pay millions of dollars for them and the patience to wait when the market is right before selling, cars won’t make you money.

    They are an expense and they accumulate damage, wear, and mileage in use, so the average person’s best bet is to try and reduce the depreciation and save money that way, as well as buying used instead of new because that used car is some way down that depreciation curve in comparison to a new car.

    Most people buy cars to use them and pick them based on cargo space, engine size, performance, fuel economy, and other factors. If you buy to sell, none of these things really matter much, but for that, you need the means and the aptitude – not to mention the patience.

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    Are Cars an Asset or Liabilities — Bike Hacks