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Depreciation beyond 5 years?

The link below only shows Depreciation for 5 years:

It shows depreciation as $702 on the 5th year. I am wondering how it might go beyond 5th year?

I dunno. I haven’t looked at that for years. You can do your own calculations just by referring to the used car book or Blue book prices for various years. Usually after 5 years most cars depreciate close to 50%. After that its still a downward spiral but not as steep. Depends more on mileage and condition though. I’d expect the second five year period to depreciate another 25% or so so that after ten years., a car would be worth maybe 25% of the new cost.

I plotted the depreciation numbers and the resulting vehicle values, and if you follow the trend lines, I would anticipate the vehicle being worth about $3,500-$3,800 in Year 6, because the rate of depreciation seems to be leveling out.

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Why the two lines are not starting at the same time - not aligned?

…because year one depreciation is calculated at the end of the first year of ownership. Depreciation cost is zero when the car is worth it’s initial price. Here is the chart that I used to plot the data:

The 2012 model was a complete redesign of the Mazda5. It wasn’t available in MY2011. You could look at the estimated sales price for the older generation Mazda5 and calculate the depreciation if you want to. Make sure you use the same value that Edmunds does so that a comparison the the True Cost to Own is valid.

Please notice the rather huge drop in value in year 1, and not so much but still large in year 2. This is why financial experts recommend buying 2 or 3 year old used cars instead of new. As financial guru Dave Ramsey says, only rich people should buy new cars, everyone else should buy used cars, for cash.

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Not to argue and I appreciate what Ramsey has done for some people after climbing out of bankruptcy himself, but if you keep a car for 5 years, whether bought new or not, the first several years of depreciation are meaningless. Its just a math calculation like stock values going down that are meaningless if you don’t sell. Sure there would be some slight advantage of depreciation after five years if bought two years old, but you would also lose the advantage of a warranty, sometimes lower interest rates, good maintenance, and so on. Buy a new car and sell it in a year though is a loser. Buying a new car and keeping it five years with a warranty for most of the time isn’t so bad.

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Dave Ramsey, has one main goal. Sell books, seminar tickets and make a lot of money for Dave Ramsey.
A contrast is Suzy Orman telling people to check her book out from the library and saving money that way.

Edit: We have never purchased a new vehicle and worried about depreciation. That is going to happen so why worry about it. What we chose might remain popular or become a discontinued model name.

@Whitely - how did u come up with the depreciation values & also initial value?

My post has a link to Edmunds - during the 5th yr it already reached depreciation level of “$702” - do u expect it to jump back to a new car level of $2,869 (source Edmunds) - I don’t think so?

I would think that the used car would depreciate under $702 until it reaches the residual value.
@Bing states it is more like 25%. This car is around $18k - so might be $2-$4k

Also Edmunds has the following values at the end of first 5 yrs:
Trade in $5,859* Private Party$7,673*
Dealer Retail$9,467*

You and I must get different numbers when we click on the same link. I think it is because we live in different parts of the country.

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Interesting that both Dave and Suzie were financial disasters before they got their acts together. That’s OK and I know Ramsey has helped a lot of people. I disagree with his idea of being scot free and selling their cars and buying a $1000 beater. Nothing wrong with reasonable debt for appreciating assets and a decent car if it can be easily handled and no credit cards or second mortgages and so on. But the people he has helped were in severe financial shape. Suzie I just can’t take I think manly because I don’t like people that talk with their hands. I’ve never been in financial trouble myself though. Broke yeah but I’ve always kept a cool head.

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The first years of its life a car will depreciate greatly. However, as Bing pointed out, it’s all just theoretical. I believe that unless one trades cars every few years it’s meaningless. My car is over 12 years old. It’s depreciated most of its value. But to me, it’s been free for many years, and that makes it far more valuable than its market price. Without it, I’d be paying $20,000 or more for a new car. Every year I keep it running saves me thousands.

A few years ago I stopped at a dealer for other reasons than to car shop. The salesman came out and gave me his pitch. I just smiled and said “no thanks”. He passed me to his dad, the owner, who proudly announced in the showroom “I can save you thousands if you trade today”. I responded loudly in the showroom “I can save many thousands more… by NOT trading”!
They hustled me out of the showroom.

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Depreciation is not theoretical, it is real. It affects the total cost of the car over the life of the vehicle. There is also the consideration of being upside down on a loan at any given time. The math works. No matter how short or long you keep the car, you are paying for that first year’s depreciation over the time you own a car.

It is up to the buyer to determine if it is a cost they wish to bear. Same for owning a car under warranty. It seems to me that it is effectively like buying an extended warranty because that depreciation is paying for your manufacturer’s warranty. And money gurus also recommend not to buy extended warranties.

We tend to keep our cars for a long time and I’ve bought both new and used as well as leased cars. The cheapest nice car we’ve ever owned was a SHO Taurus we bought at 2 years old for about 55% if the value new. We sold it before the huge service required at 90K. Actually, the cheapest were 3 beaters we bought for a total cost of $600.

As for Dave Ramsey vs Suze Orman; It matters not, they both have effectively the same philosophy - getting out of debt is the key to financial freedom

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My biggest hang up with Ramsey is that he doesn’t seem to realize there are people out there who use credit wisely. I’ve had credit cards for 20 years now. I have yet pay to a dime of interest on any credit card. I pay my cards off in full every single month. I rarely use physical cash money. I do agree with paying for cars in cash (cashier’s check), I’ve never financed a car in my life. Dave Ramsey would have you believe that credit is devil, but I suspect that because he was very irresponsible with it earlier in his life, and got burned by it. Really though, he doesn’t tell you anything that a well-adjusted, functioning adult shouldn’t already know.

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I listen to Ramsey, and to his callers, credit IS the devil.

;-]

I’m the same way. I would never enjoy “owning” something that hasn’t really been purchased. Also, I believe that many of the people who buy on credit actually buy more than they need because it’s easy.

Are you familiar with “the marshmallow test” ? I believe it can be used to predict which children have a good chance to grow up to be “well-adjusted, functioning adults” and which ones are going to struggle trying to do that. :wink:
CSA

funny. the total cost to own chart says the fuel costs more than the 5 yr depreciation. fuel and taxes are pretty much the same for a new car and a 5 yr old car. yes, the insurance might be a tic less.

I’ve used credit cards for over 40 years and we never pay interest, either. Credit cards are bad news for people that can’t control their buying habits. The only things we buy with credit are things that appreciate in value and there is a reasonable expectation that the interest will be repaid with the increased value.

Young folks can use car loans to build credit for more expensive purchases, like a home. IMO, for me to buy a vehicle with a loan would encourage me to spend way too much. That $94,000+ 2018 Ford F450 comes to mind as one of those purchases.

Credit cards are a necessity if you travel. Car rental agencies and hotels won’t rent to you without one. They’re also essential to have for emergencies… especially ones away from home. The key, as already mentioned, is to keep them paid up and not pay interest. Of course, if an emergency happens that costs more to get past than you have available you may just have to pay the balance down.

Life is what happens to you while you’re making other plans. Sometimes it deals up a whopper of a surprise.