The Smell of New Car…What is it Worth?

Ahhhh.  That fresh scent of leather, plastic, and carpet that exudes a wonderful feeling when you get into a new car.  It's the smell of a new car.  It is so good that manufacturers have bottled up that scent in a bottle so you can spray it in your old car and get the same effect.  There is only one question to ask yourself.

Is the legitimate new car smell worth it?

The goal of this series on value is to look at everyday items that are used by everyone and pick apart the valuation of various parts.  Regardless of your school major, job occupation, or background, many people use the same items without thinking twice about the value of them.

Now, let me preface today’s post by saying this is not to discourage anyone from buying a new car.  New cars are great because if you plan to drive your car for years to come and get old together, then it makes sense to buy a new car.  Buying a new car also makes perfect sense if you take pristine care of your car (better than anyone else) and do not want to risk getting a car that has not been treated with the same loving care.  

Let's get right into cars.

 

By taking some of the most popular 2015 cars (and adding some), we can see the value of the new car premium put on the car by the market.  The cars that were chosen range from mid-size cars, sport, vans, and trucks. 

 

If you would like to see the entire list of data I used you can click here.

I also made some scenarios such as if each car had been driven for 5,000 miles a year for the length of time I looked at.  In the data, a car that was a 2012 make would make it 3 years old since currently we are in 2015.  

Lastly, I compared this 5,000 miles driven a year (lightly used) to 13,476 miles driven a year (U.S. average) to see what the difference in value was and to see if mileage driven was a factor in the first year and if it wasn’t, to see which year that mileage driven started to dramatically affect the car’s resale valuation.

In order to get the Kelly Blue Book (KBB) value for these, I went to kbb.com and chose some models of the above cars.  I used the most basic model and add-ins where possible (except for the Mustang; I used the GT specs).  I also chose for the condition as “Excellent” which according to KBB only the top 3% of all cars are in this category.  77% of resale cars fall into the “Very Good” or “Good” category so this would lower the valuation of the cars shown here.  By selecting the sale to a private buyer and not a dealership I noticed that there was a slightly higher valuation (private buyers do not need to build in a profit margin to resale).  Therefore I used the private buyer in the below values.

Let’s take a look (yellow is 5k miles a year and red is the national average):

Right away, a few things jump out at me.  Some cars hold their value much better than others (I’m guessing this is because those cars have been bought less which equals less supply in the resale market), and other cars lose as much as 30+% of their value in the first year!  I am also attributing this large decrease to the fact that these cars are more popular given the functionality, cost, and use of them.

It is also interesting to know that I can drive a brand new car for 8,000 more miles and it does not dramatically decrease the value of the car.  It’s only until the third year when the car was 20,000 more miles on it do you see that the value of the car is dramatically affected.

The “new car premium” has a different value for each year but we can also see that some cars tend to lose almost as much in value during the second year as the first year. 

 

The actual new car premium is effectively the decrease in price after the car is one year old (therefore, the 2014 model decrease in price would be the last year’s new car premium when compared to this year’s price).

   

I was shocked when I found that the Chevy Impala and Buick Regal lose approximately 50% of their value by the second year regardless of how much they are driven.  Therefore if you are looking to buy one of these cars and don’t care about having a pre-owned car, it might be worth to wait and get the car at a 50% discount to the brand spanking new price.

As a last word, if you did buy the two year old Chevy Impala, you would have saved $14,816 and this invested at a 7% interest rate would yield $29,145.  Which means in ten years you might still have the car, but you would also have $29,000.

On a side note, the spray bottle of new car smell is $11.89 on Amazon.com.

To Your Success,