Vehicle Under $5K With Smallest Depreciation Downside

Factual Questions
1

I’m looking at buying a temporary vehicle:

  • need to operate from January 2010 to May 2010
  • will drive 20 miles each way, 3 days per week.
  • expecting to sell in May 2010. Wishing to take smallest possible depreciation hit, hence this post.

I’m thinking of a Toyota compact of some sort or a domestic pickup, but if anyone else has suggestions I’d love to hear them.
Mass transit is impossible in this application.
I assume depreciation will be my major ownership cost here.
What’s my option with the lowest total cost of ownership in this time period?

2

You could buy my 1966 Volv0 122s wagon for $1400–runs great, and it isn’t going to depreciate anymore!

3

I actually don’t think you have to worry much about depreciation. You’ll be putting less than 3,000 miles on the vehicle and any vehicle you’ll find for about $5K is going to be pretty high in miles anyway. Think about it this way? When you start shopping for a vehicle, how much of a deal is 3,000 miles going to make in your decision? Given the choice between two cars with simlar mileage, I’d be looking at condition and how well it was maintained more than a few thousand miles. What you don’t want is to sink more money into it a month after you own it for new tires, exhaust, timing belt, etc.

If you’re curious, go to Kelley Blue Book online and punch in the same info for a car you like but with a 3,000 mile difference. I doubt there will be much variation in the values. Since you mentioned a Toyota compact, I tried this with a 2002 Toyota Echo sedan, in good condition, manual transmission, with 80k or 83k miles. The difference was $100.

4

How about a long-term rental? The idea being that if there were a mechanical failure or untimely regular maintenance, the owner would absorb the cost.

Off the top of my head you’re going to have to pay for insurance, tax, title to get the car; repair & maintenance costs while you own it; and you’ll have the cost and trouble of selling it when you are done.

Just one quick rental search shows me $3000 @ Budget for Jan-May. Assuming a 7% sales tax rate, that’d be $350 in tax, probably another $650-1000 for liability insurance, figure $500 in miscellaneous repairs (that’s if little/nothing major goes wrong), and a $1000 loss for advertising costs, and an instant depreciation for needing to make a quick sale. Call it a $2000-2500 cost of ownership (and re-sale).

How much risk are you willing to take? How much is your time and peace of mind worth? You could get lucky and only have a $1000 cost of ownership (no repairs, sell to a friend for full value). Or, you could be unlucky and have all the upfront costs, $2000 in repairs, need to rent a car while yours is in the shop, and lose value on the deal.

If it were me and my money, I’d buy a car and take the risk. If someone else were to decide differently, I wouldn’t think s/he’s foolish.

5

As above, depreciation is tiny enough you can ignore it. Drive 5mph slower and you’ll save that much in gas money over the 5 months.

The three major factors in your roundtrip cost of ownership are where & how well you buy/sell it, the taxes/registration, and unexpected maintenance.
Buy/Sell:
If you buy from a dealer and sell to a private party, you’ll pay too much and sell too cheap. So buy from a private party. And negotiate like hell.

Selling to a PP is better than selling to a used car lot, but about equal to what you might get as a trade-in on a new car, although that introduces a host of variables as the amount of the trade-in is strongly coupled to how aggressively you worked the price of the new car.

Wherever & however you sell, negotiate like hell. You might even sell it for more than you paid for it *if *you’re better at this than whoever you buy from & sell to.

Also better to buy in a low cost area and sell in a higher cost area. I live at the far edge of suburbia and driving 50 miles out into the sticks I can often buy 5+ yearold genericmobiles for a couple hundred less than I could sell them for in inner suburbia. The volume wouldn’t support a real arbitrage business, but the difference is enough to matter on a single purchase.

Also, if there is a distressed area nearby, say, where a big factory just closed, you can snag some extra good deals there from desparate people. And again, when it’s time to sell, don’t sell there.
Taxes / Registraion:
If I was looking to own it for only 5 months I probably wouldn’t bother re-registering it if a) the plates weren’t going to expire in that interval; and b) I lived in a jurisdiction where the plates stay with the vehicle, not with the seller. That’ll save some significant money.

Although depending on how agressive the local DMV & police are, you might be running some risk of getting caught. 30 years ago this was done all the time. Nowadays I just don’t know if detection is 100% certain, a coin-flip, or no chance in hell. In my current jurisdiction the plates stay with the seller, so I can’t test the local enforcement quality.
Unexpected maintenance:
Don’t have any. Easier said than done.

But going for bottom dollar on the buy-in is probably setting up to have an ugly surprise. *If *you have the cash, better to park $5K in the car for 6 months & get it all back on sale than to park $3K in the purchase and then be faced with either a total writeoff or a $1000 new transmission halfway through your ownership.

For your fixed $5000 budget, that translates into buying a better condition low end car versus a worse condition higher model. But avoid Yugos no matter how good the condition.

6

The biggest thing you’re going to have to worry about isn’t depreciation per se, but how readily you’ll be able to sell it when you’re done with it. So for example, you might be able to get a domestic pickup for $5k, but turning around and selling it for $5k or a little less might be hard because there’s not a huge market for those. Eventually you would probably find someone who wants one, but it might take months. So you might end up having to sell the thing for a lot less than it’s “worth” in order to get it sold quick. Of course if you’ve got some flexibility with selling it, that might be less of an issue.

I would think something like a Toyota or a Honda would be good choices for cars that are consistently in demand and ought to sell pretty quickly.

7

A used car under $5k is not going to depreciate much in 5 months. The majority of depreciation occurs in the first 3-5 years of car ownership (cars lose 40-75% of value during those years compared to new) and slows down rapidly after that. Depreciation mostly follows an L-curve, and for under $5k you are already past the biggest and most steep decline. The cost difference of a 1999 vs 2000 model is minor compared to 2007 vs 2008.

Your biggest concerns are resale market (how easy will it be to get rid of), gas mileage and reliability/maintenance issues. Although gas may not be a big deal if you are only using it 120 miles a week for 5 months. A 40mpg car will use 3 fewer gallons a week than a 20mpg car, so about $8/week in extra fuel if you get a 40mpg car over a 30. But that does add up to $200 in extra fuel over the course of 5 months. But one repair can easily cost more than $200. A low mpg car with good reliability is better than a junker with high mpg.

Your best bet is to find a car that has those things, and shop around on craigslist, cars.com and autotrader until you find a great deal. Then buy it, then try reselling it at a more average price (aka more than you paid for it). Car prices can fluctuate wildly. One seller may have a 1999 car with 130k miles for 6k and another may have the same year and model with 110k miles going for 5k.

Craigslist usually has the cheapest cars from what I’ve seen.

The ford ranger is low cost & low maintenance. But it gets poor gas mileage and I don’t know how good the resale market is.

8

I disagree that deprecation is a minor consideration. Depreciation does slow down, but that is simply because older cars are worth less. The rate of deprecation, selling costs included, stays at roughly 20% per year for all cars, except really old ones. For a $5K car that’s 7% or $350 over the OP’s four months.

9

But depreciation by age is more or less a year-by-year thing, so since the OP is only going to own the car for part of a single year it shouldn’t matter. For example if he buys a 2002, it’ll be 8 model years old when he buys it and 8 model years when he sells it so all things being equal it shouldn’t depreciate at all, other than because of increased mileage and other issues mentioned above.

10

The 15-20% a year rule is a rule of thumb though, and not set in stone. You can’t get around maintenance or gasoline costs, but if a person shops around and buys a car for a good deal, depreciation over 5-6 months on an 8 year old car should be minor. Plus it varies from model to model. A Chrysler or Kia depreciates far faster than a Honda.

People sell cars for higher than nada value, at the value and below. So its really hard to say car X will cost you $350 in 5 months until you know what year and model it is, and how much you intend to buy and sell it for. I sometimes look at used car prices for fun, and its not uncommon for one year and model car with 180k miles to go for the same as another seller selling one with 130k. Or for a 1999 and 2000 model to go for about the same price. Depreciation rates, Nada and blue book values are general rules of thumbs and can vary.

11

I recently had to rent a car for a few days, and I used kayak.com to do my search.

I noticed that Enterprise (not one of the cheapest places) has a section on their website that says they have monthly rentals available, and to contact them for pricing.

That leads me to believe that other auto-rental agencies might do this as well. Instead of just adding up their daily or weekly rates from online, call them directly and see what’s available.