The thing to remember is that ALL used cars are dropping in value more quickly now than they were a couple of years ago. When the economy was bad, more people were buying used cars. The higher demand for used cars drove up the prices. Some used cars were going for almost as much as their new counterparts.
People have gotten used to that, but now that the economy is recovering, the market is shifting back toward new cars. That means the prices of used cars are dropping again. We should be seeing a normal depreciation pattern for used cars again pretty soon, if it's not already here.
So there's no reason to panic. The twins dropping off in value in their first year as a used car should be expected. It's still too early to tell what will happen long term. Kelley's estimates put it at right around 50% depreciation at the five year mark, which is just about average. I think it will beat that estimate if some major defect doesn't make itself known in the next couple of years.
Quote:
Originally Posted by ZionsWrath
I never understood how investment and car can be used in the same sentence when talking about new or slightly used vehicles.
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It's a different sense of the word.
Some people hear the word
investment and immediately think "monetary return." How much money will I make from this item? In that sense, stocks are bought as investments, whereas most cars would not be.
But that completely ignores intangible benefits.
Some people hear the word and just think "good purchase." If I find an 80" HDTV on sale at 70% off its normal price, I might colloquially refer to that as a "good investment" even though I don't expect to get any monetary return from it at all. On the other hand, I will get enjoyment out of it, and enjoyment has value. If I could put a monetary value on enjoyment, I'm pretty confident I would get more enjoyment out of that purchase than I paid for it. So in that sense it would be a good investment.
In actuality, these two approaches are well established in business and science. A member of the first group above is thinking like an accountant: money in and money out, with no value placed on intangible benefits. A member of the second group is thinking like a behavioral economist. Economists often attempt to calculate the monetary value of intangibles like enjoyment and utility, and they include those when considering profitability. Accounting profit only considers money. Economic profit includes money AND intangible benefits AND the value of opportunity cost, or what you either gain or miss out on by making the deal.
Usually when people refer to these cars as good investments, they're thinking like behavioral economists. If I get good use out of it, that also has value regardless of its resale value. I bought a purpose-built sports car for less than $30K that I expect to give me more than I paid for it in both enjoyment and utility. I could buy something cheaper, but I would not enjoy it as much. Therefore a cheaper car could easily be a bad investment in economic terms if the value of that enjoyment lost (opportunity cost) is more than the monetary difference in price between the two cars.
I am actually an accountant, so I understand the monetary component pretty well. But I think like a behavioral economist. About everything. I understand that if I only considered the monetary value of my purchases, I would live on rice and beans and never have any fun at all, and there would really be no point in living. Once you understand that, it becomes a lot easier to stop feeling guilty about luxuries or purchases that are not necessary.
Now to put this all in perspective:
I am actually making money on my BRZ at the moment. I drive for work, and I get paid tax-free mileage reimbursement. I am currently receiving more in mileage reimbursement than it costs me to own and operate the car. I expect that condition to continue for the next four years or so, at which time the residual value of the car will still be high enough that I will be well ahead monetarily.
So as an accountant, I'm happy, because this car is profitable to me. Thinking like an economist, I'm
extremely happy, because on top of the accounting profit, I also have all the enjoyment I get out of the car. Either way you want to look at it, this car really is a good investment for me, even though it's a "depreciating asset."
On the other hand, I am currently in the process of rebuilding a 14-year old Jeep. I'm estimating that it will cost me a total of $22K to get it the way I want it, at which time the resale value will be about $15K. From an accounting standpoint, this is a real loser, and I shouldn't do it.
But from the viewpoint of a behavioral economist, is the enjoyment and utility I will get out of having the Jeep set up the way I want it worth the $7K? I think so, but I really won't know for certain until it's finished. I'm willing to take the risk. I might end up taking a loss economically. But even if I do, I'll learn something from the experience, and that has value also.