Affects of vehicle depreciation

[Poodroo]

Hey there everyone. Decided to put this subject up for discussion as someone who has recently just paid his car off. I own a 1993 Pajero which when I purchased and was loan approved 5 years ago cost me $18,000 less trade. I have often sat and pondered about the cycle that I have always managed to get into with cars in the past and just how much money I have lost through depreciation. Using the Pajero as an example I have realized that it is simply not worth it to go trading up. The Pajero by today's prices is now worth $10,000 if I am lucky so to trade it back in on a new or newer vehicle I would be lucky if I was offered $5000 trade for it so effectively losing $13,000 plus the interest I paid on top to the finance company. Now most people out there would have to do what I would have to do if trading up to a newer car and go get another loan which starts the cycle all over again. Banks and finance companies will not approve a loan for a vehicle that is 10 years or older so therefore if I wanted another 4x4 I would now have to in reality look at borrowing at least another $25,000 - $30,000 to get a car that the banks would lend out the money for. Is it any wonder people end up in financial ruin? So based on this even though my Pajero has now clocked up 350,000 klms and still going strong I have decided that it is by far a cheaper option to just maintain and keep the current car on the road. Even if the old motor dies and I have to rebuild it at a cost of $7,000 to $10,000 that is still much cheaper than borrowing for a new vehicle. What does everyone out there do and think? I am happy to be out of debt for a change. Regards,

Poodroo

[Brett1907]

Poodroo, I'm fortunate that me ute is a business expense. So I can claim the repayments and the depreciation as a tax deduction. On the other hand, I start losing money on a ute if I keep it for more than about 6 - 7 years as it has depreciated too much to claim.

My wifes car is a different matter. We are in the same boat there. Luckily for me she can't see the point of buying a brand new car and throwing away the GST and other on road costs. They are what make buying a new car rediculously expensive. So she is happy with a car a couple of years old.

Problem is, the money ww save on on roads and depreciation for those couple of years, I now have to spend on getting her a better used car!!

[Roughasguts]

Poodroo, I have a 94 Paj, and won't sell mine either cause I simply can't get the dollars back.

So now it sits in the garage all clean and shiny going no where until the next holiday or boat tow.

But if I find a late model Paj, one at a bargain price I will sacrafice mine an
do it all again, hopfully not lose so much next time around.

Thats Mitsubishi vehicles for you they Don't hold there value.

Toyota, on the other hand if you can keep the miles down hold there value once they are 3 years old. And then depreciate a lot slower to 10 years old.

After 10 years there still nearly worth double of what you would get for the Mitsubishi.

So I have 2 Toyotas V6's as well, on that does all the miles a 93 good car but disposable. And one late model that has all the bells and whistles, and will get traded up as soon as the latest model is around 3 years old.

[JasonT]

I pay cash as a rule, and thereby avoid high interest..
Actually, I avoid all interest!

The advantages of paying cash are obvious - no interest, no repayments, more bargaining power etc..

The best thing about it is that you're not paying something off long after the novelty of it has worn off. It's paid for before the enjoyment fades!

Of course, it's hard to get into the position to be able to pay cash, but with enough willpower and a a good plan anyone can do it!

I will never buy anything else on credit, if I can get away from it!
Except maybe for a house, although I have to admit, the feeling of being able to pay cash for a home is a very strong encouragement to do it without credit!

It's taken years to get into this position, but it is all worthwhile!
I am able to concentrate on the things I enjoy, not worry about where my next repayment is coming from!

As for depreciation, well it's one of those things!
It wasn't really a consideration in purchasing my current vehicle, as the Tata doesn't really have a resale value! Even when brand new! :-)
Good vehicle though, and I will be hanging onto it as I also believe it is cheaper to maintain than replace constantly!

JT

[murf]

When I upgraded the old 97 Hilux D/C to the new 05 Hilux D/C the cost of depreciation and inflation was over $70per week over the years I owned the 97 one. Just screw it up and throw it away (money) this did not include the cost of interest or service costs etc.
only cost of repair on 97 Hilux was gear box, done 5th gear. >
Murf

[chuckaroo]

93 cruisers not worth much now

was only offered 8G on a 25G XR8

I would rather drive it into the ground for that

cheers

chucky

[ShaneC]

Yeah, its a joke. Was offerred $12000 for an 04 V6 Camry with less than 50k on the clock when looking at trading it for the new Hilux. Needless to say, if the Hilux ever arrives (within a fortnight they say), there will be two cars in the garage, its just not worth flogging the Camrarri off for that price.

Shane

[Roughasguts]

ShaneC, that's why I buy em at 3 years old.

You paid what 34K for it.

[Poodroo]

I have to agree there fellas. Just going to keep the faithful Pajero on the road and just keep giving it a new lease of life. Spending money on the old girl has to be cheaper than getting into debt again just to get something newer. Kind of glad I am in the position to get out of that money spending cycle every 5 or so years.

Poodroo

[choppa]

a lot of good info here,,, but to throw a couple of ""reality"" points forward

i've been involved in the finance and insurance industry for over 20 yrs,,,and of that time 90% has been involved in someway around the car industry,,,

depreciation effects every uyer in some manner,,,some vehicles depreciate faster than others ,,,some don't,,,,the reason why relates mainly to """fleet sales""",,

that is,,, picture the local government contacting Toyota Australia,,Ford,,Holden,,Mitshubishi etc etc and requesting a quote on say 20 cars,,, the winner of the quoute is the ""cheapest price"" which is always below retail price,,,,after all they ae buying 20 cars,,

these cars (along with the infinite of other vehicles sold to OTHER FLEET buyers for that period) are generally kept for a 3 year period before updating is required,,, then the cycle repeats

NOW,,, the general public also buys this particular car,,, and when mr & mrs smith purchase there NEW pride and joy,,,life is great,,,, until they go to trade,,, BECAUSE THE DEALER HAS A FURTHER 20 OR MORE IN STOCK,,,OR ABOUT TO LAND,,, so your trade value is reflected in value due to ths ongoing scenario

99% of all manufacturers fleet,,

those that don't, hav excellent resale,,,,MAZDA is a prime brand that holds exceptional resale,,

some dealers refuse to BUY BACK there vehicles once sold,,,regardless of age,,(Hyundai/Daewoo)

the normal/popular way to break this cycle,,,if your financing,,,is to simply STRUCTURE your loan accordingly,,,,like myself,,,my past 4 cars have been financed,,,,and i have had not 1 cent of minus equity problem when updating

easy structure would be to place your purchase over a 60 month term,,,30% residual,,, and look at updating at the end of the 3rd year,,,or when 100k is about to kick over on the speedo,,

this allows for your trade, to be of equal or better value than your payout,,

if your self employed,,,and keep your vehicle for a longer period than 5 YEARS,, as what was posted above,,,,to put it simply,,,SACK YOUR ACCOUNTANT<<<AND HIRE SOMEONE ELSE WHO KNOWS WHAT THERE DOING,,

depreciation on a business vehicle bottoms out around 38 months,,(on most structures),, hence why you see so many small business operators updating there vehicles each 3 year period,,if the loan is a chattel mortgage/hp style structure,,, what they claim back on the vehichle ( which can equate to 150% minimum of there repayments) also botto out around this period due to the amount of depreciation that they have claimed

to LEASE a new car in this day and age is also of a concern,,simply because of the amount of what you can claim back opposed to the alternative structured loans available

for the mum and dad style loan,,, cars are now regarded as a disposal item,,,once upon a time they held value,,,,then we got lumped with the GST,,,,and the used car market collapsed over night,,,,this also has a great bearing on resale values,,,,for instance,,, why pay 15k for a 3 year old car with say 60-70 thou on the clock,,,when for a few dollars more a week,,,buy new

i could honestly go on and on with regard to this subject,,,,there are heaps of reasons why cars depreciate the way they do,,, but i need a smoke,,,and scotch is running low,,,

hope this sheds a bit of light

oh and by the way,,, finance companies DO FINANCE older vehicles,,, but you are generally penalised with a shorter term contract,(to maintain some security value over the loan),,,higher interest rate,(due to the risk value of the vehicle,, and whether or not the loan is secured or unsecured),, and by the relationship you hold with the lender if any on going fees or charges are applicable to the loan,,,,

[ar-we-ther-yet]

depreciation on a business vehicle bottoms out around 38 months,,(on most structures),, hence why you see so many small business operators updating there vehicles each 3 year period,,if the loan is a chattel mortgage/hp style structure,,, what they claim back on the vehichle ( which can equate to 150% minimum of there repayments) also botto out around this period due to the amount of depreciation that they have claimed

Please explain to me the difference between chattel mortgage and hp???? some one tried once but i didn't get it.
I have a small business and bought a new truck on hp about 8 mths ago and will up date in 3 years or so.....and yes all new cars loose value.....but hell there nice to drive .....plus you can get a lower interest rate on a new vehical

[woodchopper]

Hey guys

This may be off the track (pardon the pun) but why would anyone buy a 4wd for its intended use and expect a good resale value? Is'nt the purpose of a 4wd to be able to reach remote and inaccesable areas in a reasonably safe manner whilst maintaining the basic necessities?
( excusing the many grey nomad/ lucky bugger with big boat or trailer) Why does anyone pay over 20- 30k for a vehicle that is designed for off road use and possible/ likely damage?.

I personaly hate seeing the upper middle class mothers driving her kids to school in a large 4wd that has never seen the hint of a dirt road let alone a steep scree hill slope with large boulders and washouts. This marketing scheme has diverted the manufacturing companies to cater more for blacktop than dirt and mud. Come on take a look at the new range of large and medium 4wds and tell me if they have off roaders in mind???

Sorry if any offence was given but 4wds are for an intended use and depreciation should be expected. Now days the 4wd market is driven by economics and not the needs of 4wd enthusiasts.

I'm open for comments

Beno

[Poodroo]

Woodchopper that gets on my nerves as well when I see people buying 4wd's with no intentions of engaging the front diff. My Pajero has been offroad heaps of times but I never use it to the point where it will sustain damage. The only tree branch scrapes it has suffered in the past have polished out anyway. Regradless of whether a car goes offroad or not they still cannot escape depreciation so in my books you may as well have fun with them and get them dirty once in a while. Here is mine in being used in the way it was meant to be earlier this year at Fraser. Thanks Choppa for your input from a finance company view of things too and too all of you who have replied. Some very good points raised.

Poodroo

[choppa]

[quote author=choppa link=1162502258/0#9 date=1162556498]
depreciation on a business vehicle bottoms out around 38 months,,(on most structures),, hence why you see so many small business operators updating there vehicles each 3 year period,,if the loan is a chattel mortgage/hp style structure,,, what they claim back on the vehichle ( which can equate to 150% minimum of there repayments) also botto out around this period due to the amount of depreciation that they have claimed

Please explain to me the difference between chattel mortgage and hp???? some one tried once but i didn't get it.
I have a small business and bought a new truck on hp about 8 mths ago and will up date in 3 years or so.....and yes all new cars loose value.....but hell there nice to drive .....plus you can get a lower interest rate on a new vehical[/quote]

without going into a ""war & peace novel "" size reply mate,,,chattel mortgages allow you to claim:

depreciation,,(in most cases at tier 1 level,,23.5%), interest that accrues to the account,,wear and tear,,running costs,, and it becomes an asset to the company,,ie YOU OWN IT,,, GST rebates are allowed immediately upon delivery,, or can be claimed back each quarter/financial year end

to put it in reality,,,your monthly claim on the vehicle SHOULD BE 150% of what your repayments are MINIMUM,for the first 12 months,then they decline along with the depreciation value each year,,,,by the end of the third term,,,your normally line balling in values,,,so you upgrade and start the ball game all over again,,, there are of course a host of other advantages over hp/lease,,, but its wise to check with your accountant here prior to making your decision,,,

as a footnote,,,business style loans have a 94% preference to chattel mortgages,, according to the RB release 2004/2005 financial report,,,,,but keep in mind,, the larger your fleet,,,and the larger your company also has a predominant factor in what style of loan structure you may decide on also,,

new cars always have a cheaper interest rate,,,,why,,,because they have better loan security values due to no loss in deprciation when initially purchased,, and are generally dearer to finance,,,

the old catch 22,,, you finance 50 grand,,,your rates going to be better than if you financed 10,,


oh and thats another thing,,,, always finance 100% of yor business asset,,,,if you have a trade/deposit,,have this value reverted to your first installment,,, (like having a residual upfront and at the back end of your loan),,you still finance the same value,, but your doing yourself additional benefits which includes tax,,,,,THIS also relates to interes rate,,, don't be foolhardy and jump into a loan at say 8%,,,,when you could be cutting your own throat and missing out on tax enefits that would have been greater if written at 9,,(as an example only)

so much for a quick reply

[ShaneC]

ShaneC, that's why I buy em at 3 years old.

You paid what 34K for it.

Nah, not quite that much mate, had some change out of $30k, but still a big fall in value. I prefer to buy things new so I know where they have been, may not be particularly smart money wise, but each to their own. I think if the squeeze drives the Camry for another couple of years, it could probably still get sold for $8-$10k, so I think thats what we'll do with it.

Shane