Factors that Influence the Depreciation and Resale value of Cars
When buying or selling a used car, it is of utmost importance to familiarize yourself with the resale value. Essentially, the resale value is the car’s brand new price less depreciation. Such knowledge protects both the seller and the buyer. Two excellent sources used in obtaining this information are the Kelley Blue Book and NADA (National Automobile Dealer’s Association Guide). However, it must be stressed that these books serve as a guideline, for there are many factors to consider when assessing a car’s true value. The values given in these books are for cars with typical mileage for their given age and it is assumed that they are clean and in good running condition.
To illustrate this point, let’s suppose that Car A is three years old. Let’s further suppose that the value for such a car in good condition is $12,000. By no means does this necessarily imply that one can either expect to pay or purchase the vehicle for this amount. It depends on several things, which are listed below:
Mileage- A car’s value can be higher or lower based on this factor alone. A three-year-old car should have mileage in the range of the upper 30’s to mid-40’s x 1000. If the car has less than this “typical” mileage, the value will be higher. Conversely, if the mileage exceeds normal parameters, the value drops.
Accident History- If a car has been in an accident that required body work to repair, this will likewise be adjusted accordingly.
Cosmetics- If there are dents, rock dings, chipped paint, cracked lenses, mismatched paint spots due to fading or damage; such as tree sap or acid rain, this too will bump the car’s value south.
Cleanliness-If that cloth seat is permanently stained from that time your Chinese take-out leaked through the carton or when your nervous dog urinated all over the carpet on that trip to the vet, this will lower the value. So will old wrappers and sticky remnants of candy or soda-pop. A dashboard so thickly covered with dust that a person can write his or her name on it won’t help, either.
Tires- A fresh, new set of tires with thick tread adds to a car’s value while bald tires will reduce it. Since a decent set of tires can cost $500 or more to make the car safely drivable, you can expect to have your value deducted by the same amount.
Smoking- Although this was barely an issue a couple of decades ago, this day and age has brought with it nonsmokers who can smell old tobacco smoke from a mile away. If the car’s interior has been exposed to smoke, this can lower the value. Cigarette burns in the carpet? That will knock it down, too.
Mechanics-The car must be in reasonable mechanical condition for its mileage and chronological age. If that hypothetical three-year-old car needs a head gasket or has a transmission that slips, something is drastically wrong with this picture. This indicates either a real lemon or a car badly-abused by its previous owner. At any rate, the cost to repair or replace any worn components will also be adjusted in a car’s value.
Other factors that can affect a car’s monetary value are based on supply and demand. When Volkswagen introduced the New Beetle back in 1998 , the demand for these cars was so great that waiting lists up to a year and a half weren’t uncommon. Thus, if you were willing to grease the dealerships with $4000-$5000 above the sticker price, your place in line was moved up accordingly. Chrysler’s PT Cruiser and Ford’s retro Thunderbird of a few years back resulted in similar highway robbery. Geographic areas can also affect a car’s value. A convertible will command higher resale values in Orlando, Florida than in Edmundton, Alberta. On the other hand, a four-wheel-drive SUV will be worth more in Fairbanks, Alaska than in Biloxi, Mississippi.
Finally, the resale value of a used car can be greatly affected by the price of the vehicle you plan to trade it for. If that car you’re looking at on the lot is discounted $1000 below its sticker price, then your car’s value will likely be dropped by the same amount. Likewise, if a dealership offers you a ridiculously high allowance for your car such as at a “Push, Pull, or Drag” sale, then the price of their car will be jacked up accordingly as well. It’s all a numbers game.
Thus, as you can see by these preceding examples, there are many factors that can and will influence the depreciation and/or resale values of any given car. Being made aware of such factors will give you, the shopper, an edge when the time comes to replace that old car.
