I’ve long heard it said that cars lose a significant portion of their value in the first year, which has sometimes been described as starkly as “cars lose X% as soon as you drive them off the lot.”
Is this really true? I once bought a brand new car that had 6 miles on it. If I drove it home from the dealership, with let’s say 10 miles on it, and put it in a garage where it was pristine, why wouldn’t I be able to sell it for the same value as when I bought it? It still had that great new car smell, and I immediately added a coat of high quality polish.
Are there any taxes on new car sales where you live? If so, there is at least part of the answer.
Apart from that, you are now selling a used car. New car smell and polish come out of a can, so no biggie. If I pay new car price, I want a new car, not a used one, no matter how low the mileage.
You couldn’t get top dollar because you don’t have the value and convenience of a dealership. There’s no reason to pay $X to a random person when that same $X can be paid to a dealership which will provide much more confidence in the purchase. There’s no telling what a random person has done with the vehicle. They may say it’s in pristine condition, but they may be lying. There may be known faults that they aren’t disclosing. And if I find the problems later, my recourse is going to be very limited.
A person might also wonder if there’s some kind of scam going on. Maybe the car is stolen with fake paperwork. The purchaser might not feel confident in their ability to recognize if they are being cheated or not.
And people like the selection at a dealership. They go there because it’s easy to find a car in the right color with the right features and options. When buying from an individual, the selection is just one car. A person will have to do lots of searching for a long time in order to find just the right car for them. They’ll have to traipse all over the county looking at random people’s cars. It’s only worth it to expend all that effort if they are getting a significant savings over the dealer price.
In economics, this is part of what is known as the lemons problem.
If you buy a new car and then want to sell it a month later, a buyer would naturally think that there must be something wrong with the car, and it’s impossible to fully judge the quality. He or she will only be willing to pay a fraction of what a new car would cost, even if it is actually in pristine condistion.
This is probably key. You paid the full price for the car that appealed specifically to you. Now you have to find the one-in-one-thousand who would like you choice of model, colour, options configuration to pay the same. They maybe will only pay that price if trading in their current vehicle discounts the price - are you willing to take a random vehicle in trade? (Many dealers over-value the trade-in in lieu of discounting the vehicle being sold). You are basically competing against half a dozen dealers in the metropolitan area offering the same thing, and a vehicle they are selling is not racking up miles with daily use.
After you’ve put a thousand miles or more on the vehicle - suspicion is raised: why are you selling it? Is it a lemon, is there something wrong with this particular vehicle? Did you mistreat it, are you dumping it before the flaws are obvious? How much are you willing to discount to get rid of it? And the obvious - you are insisting on selling for full price, did you actually buy it at a discount and are now looking to turn a profit? Maybe the buyer will instead look to the dealer(s) to see if there’s a better bargain to be had.
The same might be said of house-hunting. How much extra is it worth to you to pick the exact floor plan, select the finish details like flooring, carpet, paint, windows (triple-pane?) and appliances, etc. versus selecting one of an existing inventory? Is a custom built house worth a little extra? Your “custom” may not be someone else’s selection.
Perhaps you took it to the track and ran quarter miles with it, thus negating the engines warranty. Your 4 miles of usage could have been 16 trips full bore down the the track. Or you did a Breaking Bad thing and did four miles worth of parking lot donuts because you were pissed the dealer wouldn’t take it back. I don’t know you, but would suspect such things from a private individual seller.
Or you could be a reseller of hard to find cars, like say new fully loaded Corvettes. You could charge a premium to people who just won the lottery and don’t want to wait. Lots of new cars fall into the hard to find category these days due to the chip shortage, so you may actually be able to make a profit off of a fairly mundane car like a Bronco.
Or you could be Rosch Racing Systems who buys new Mustangs and converts them into Shelby Cobras. Thus being able to charge more.
I suspect that, if this is true at all, it’s very location dependent. Dealerships carry cars that they think people will want to buy. There may be a large selection but it’s likely going to be a selection of cars that are the most popular, which means that one-in-a-thousand car likely won’t be sitting on the dealer’s lot. If some sucker goes to a dealership “just looking” and some slimy salesman talks said sucker into a purchase, than the selection is irrelevant: that buyer will be sold on whatever the salesman can get them to buy. The person looking for very specific make, model, color in a specific configuration will likely be disappointed unless that desired car in that desired color in that desired trim is popular across a broad spectrum of buyers. For example when I was new car shopping in 2019, my first choice was a Honda Fit with a manual transmission. Honda made them but no dealer in Oregon had them (and according to the local Honda dealer, could not order them since there were none on the west coast). My second choice was a Civic hatchback, also with a manual. No dice, same excuses. Finally I settled on a Civic sedan with a 6-speed because that’s the car that they could actually get. According to the dealer there wee only 3 on the entire west coast. I have no clue if that statement was true, but it’s what the guy said. It was the one-in-a-thousand car and it took months to find.
As far as the OP’s question goes:
This is also not only location dependent but make/model dependent. Go back, say, 50 years ago when a lot of American cars were shit and getting 100K miles out of a car was considered good, that was likely true – literally losing half their value. Today (with the noted caveat below), not so much. Yes they will lose some value because even with 10 miles on it it isn’t a new car. Just by being a “used car” the value goes down. But losing a significant amount? I guess that depends on your definition of “significant.” It might lose 10 or 15% in the first year.
Or at least it used to. None of that folk wisdom applies right now. Today – July 6, 2022 – according the NADA blue book my Civic, with 37K miles on it, is worth $6,500K more than I paid for it on Dec. 23, 2019. So instead of being worth 85% of its original value its now worth 130% of its original value, something I find hard to believe but a quick perusal of used car ads tells me it’s likely accurate. New car inventories are at an all-time low so people are looking for good deals on used cars. Supply and demand being what it is, a “good deal” on a used car is oftentimes over original MSRP on a late-model, popular vehicle.
One possible issue – and it really isn’t dead simple or clear cut – is the transferability of any factory or extended warranty:
So, in some cases, you may lose all or part of some aspects of factory or extended warranty coverage. Which is a material loss in value that probably occurs on the day you drive your new car off the lot.
[in addition to the predictably excellent answers above]
This is sort of a “why does a fireman wear red suspenders” question…
Take cars out of the picture and ask how well you would do selling barely used:
Suit of clothes.
Dishes.
Lawn mower.
Shoes. (No - not those limited edition shoes endorsed by some athlete…)
In today’s messed up car selling world, used cars loosing value isn’t true by any means.
Here is a Tesla Model Y Performance on CarMax with 6000 miles for $82,998. If you go to Tesla and build the same car it is only $69,990. The important difference is I can head over to CarMax and drive away today, but Tesla is delivering January – April, 2023.
That is perhaps a special case, so let’s look at something more common.
A local Kia dealership has a Sportage SX “arriving soon” for an MSRP of $35,055. CarMax has one with 10,000 miles for $32,998. So over 10,000 miles that car held about 94% of its MSRP.
That is just one example, and I used CarMax because they use a no-haggle pricing, so those aren’t inflated prices expecting customers to pay less. (Some people may claim CarMax is always inflated.)
Those are just a few examples, but even before the current messed up car market, one year old cars with 5-10,000 miles were about 90%+ of the new car price. So definitely a bit cheaper, but not this “cars loose half their value when they drive off the lot” hyperbole that your older male relatives would tell you.
Another way of looking at it is to turn it around.
I you were in the market for a car, and your options were to buy a new one from the dealer or the exact same model from some schlub who has only owned his long enough to drive it home from the dealer, would you be indifferent to who you bought it from if the cost were the same?
Buying from a dealership includes a bunch of bundled services and protections that you probably don’t get from a private buyer. They do the registration paperwork, they offer service discounts on vehicles they sold, they offer often pretty good financing, there may be additional protections like a lemon law that apply to the original owner, the salesman (if he’s good) knows how all the things work in the car and can demo them, etc.
If we’re talking about an everyday car, like a Toyota Camry or something - why would you pay full price for a car sitting in someone else’s garage when you can go to the dealer and get the same car for the same price?
For exotic or rare cars, which are in short supply, the conventional wisdom about losing value as soon as you drive off the lot doesn’t apply - because the dealer may not have the same car available for sale, and the one in your garage might be the only option for someone who really, really wants that car.
For years, manufacturers like Porsche that make limited-edition cars like the 911 GT3RS have struggled with people purchasing them and immediately “flipping” them at a profit. This was happening even before the pandemic but has only gotten worse with the supply shortages, etc.
step grandpa bought the exact same car that was stolen 3 weeks before but he paid 3500 less that time because it was taken on a test drive and had 8 miles on it it was a fully loaded for 1987 dodge diplomat …
The title will show you as an owner. It’s a used car. I bought my current Jeep Wrangler used from the dealership that sold it to the previous owner, who found out they were pregnant days after purchase. I got a sweet deal because it was a used car, albeit one with 200 miles on it.
My son bought a “used” car from a dealership that was not “used” in the sense that someone had bought it , taken it off the lot, drove it etc. it was only “used” in the sense that the dealer took title to it,( I guess because it was on the lot too long ) and that it came with the manufacturer’s “certified pre-owned” warranty.
I think it was so because you typically lose the factory warranty. But now that they don’t have enough chips to make all the cars, there’s a shortage and maybe people pay more as a premium.
With the shortage of new vehicles in the market, we can’t expect dealers to take less for a vehicle than MSRP, but three times that number seems a bit over the top. MotorTrend tells us some dealers have sold the entry-level version of the Ford F-150 Lightning for up to $130,940. The MSRP for this vehicle is $41,769, making this markup incredible ridiculous. In fact, the vehicle marked up to this level is supposed only to be available to fleet customers.
