Trading Down
A reader asked about “trading down” – lowering their car-related expenses (especially repair and maintenance expenses) by trading in their current vehicle (a luxury-brand vehicle) and rather than digging themselves a new and deeper hole by using the proceeds as partial payment on another such, using the proceeds from the sale of their old vehicle to buy something that costs less.
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Both to buy (outright, no payments) and to maintain.
As Gomez Addams used to say: That’s a capital idea, old man!
Cars are not investments.
They are depreciating consumer appliances.
And the amount of money you will lose on your “investment” is usually proportionate to the original new car purchase price. The higher it is, the worse it will be.
Luxury brand cars are notorious examples. They cost the most to buy when new and are worth the least – proportionately – after five or six years, about the length of the typical new car loan.
Why are the most advertised Gold and Silver coins NOT the best way to invest?
For example, the base price of a new (2017) BMW 7 Series sedan is $85,295. The depreciated average retail value of a 2012 BMW 7 today is about $35,000.
When it was new, its base price was $71,000.
Over the course of just five years, the car has lost about half its original value. Which – to a great extent – was based on its being new. The “latest” thing. As soon as you drive it off the lot, it no longer is. After a couple of years, its snob appeal has faded like Madonna’s youth.
And its desirability (and value) accordingly.
That is an “investment” you don’t want to make.
And, it doesn’t take into account a peripheral issue – the cost to repair and maintain the car.
This is a factor with any car but luxury cars are – once again – notoriously awful in this respect. Post warranty, they are infamous for being money pits. It’s the nature of the beast. To make their case for your dollars when they are new, luxury cars beckon with lots of gadgets not generally found in lower-priced cars. These gadgets (for example, the “iDrive” mouse controller input and hands-free gesture control in the new BMW 7) will impress your friends, but can end up costing you a fortune when they fail.
Pretty much everything is more expensive when it comes to luxury car repairs and maintenance, even basic things like oil and filter changes. High-cost synthetic oil is often mandatory, as an example – or the “minor” repair involves a very expensive part and very expensive dealer hourly labor rates.
Because of “proprietary” software – and the “proprietary” diagnostic machines necessary to access the car’s computer (ECU) lower-cost independent repair shops sometimes cannot work on some of these high-end cars. You have to take it to the dealer for service – or a shop that has the necessary equipment, which they have to lay out a bunch of money to acquire.
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