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Overpriced used cars

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Hi Scotty,

 I was once told a golden rule about used cars. Typically most used cars and minivans depreciate at 20% per year based on the value at the beginning of the year; for example, a $30k car is worth $24k at the end of year one then $24k - $4.8k = $19.2k year 2 then $19.2k - $3.84k = $15.36k year 3. Is this a good formula to follow at a time when everyone is trying to state used minivans are worth 75% of MSRP after three years and 40k miles? Can you help car buyers understand this 50% of MSRP in 36 months to help all of us stop paying outrageous used car prices in this market? Dealers keep telling me they don't have thousands in a deal, yet I saw a 2013 Chrysler Town & Country Touring-L that I sold for $5,200 listed for $9,500 a week later with ZERO work done on the car (yes, I verified the vin number). Help stop the madness in the cat buying!

7 Answers
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The value of a car is worth what people are willing to pay. In general Edmunds is usually dead on for book value I've found. Kelley Blue Book maintains two values, One being a car's value if you are buying from a private seller, the second is about 20% higher and is the car's value if you are buying from a dealer. Now anyone with common sense should know the value of a car shouldn't fluctuate based upon who you ae buying it from. Dealers try to say they "Certify" used vehicles. As a private seller it would be no different than me saying "trust me, I checked this car over and it's 200% perfect and good to go" Would you trust me?  Many people with good credit don't realize they can get approved at their bank for a loan and buy a car privately. Dealer's prey on those who don't know any better and people with marginal credit who have no choice. Virginia came down hard on the Dollar down places charging 40% interest rates years ago. Now those places charge decent interest rates, but sell 4,000 buck cars for 15,000. They thrive on the poor. 

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Your formula is nowhere near real world accurate, even before Covid. Whatever depreciation model you knew before; you can just throw all that out the window. The used car world that exists today due to the pandemic and all it's fallout/ripple effect had caused used car prices to go through the roof. As a result it's a good time to sell but lousy time to buy a used car.  

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https://www.coxautoinc.com/market-insights/used-vehicle-supply-dips-as-sales-pace-quickens/

 

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That method lacks logic in my honest opinion, and is not a good guide by any means for buying used cars, especially with the inflated prices of today's market. A car will depreciate most in its first 3 years. Toyota Honda Subaru and these kinds of brands with good resale value maintain value so long as the generation continues (a couple - few years) but after 4 5 years their value also plummets, and then stays farely level and fluctuates depending on condition and miles as they age into the 10 - 15 - 20 year range. However, some cars like Korean and American brands will depreciate heavily (loose as much as 50% of their value) in 1-2 years, and then depreciate on a leveled basis. Generally speaking, the average car will loose half its value after 3 years, but that changes depending on many factors; most importantly make and class of vehicle. Before the pandemic started, we bought a minivan 7 years old with 12.000 miles for 1/3 msrp, granted it was a salvage title, but now most clean titles with more miles are around the same price. This is the previous generation. Price should depend on generation, and then take age in account. My market mostly accounts for that. For example, if a generation spans from 2016 until today, then there should be a significant price drop between 2015 & 2016 model products, and when the 2022 new generation comes out, the 2016-2021 models will loose value. On a case by case basis, we can answer you question. Chrysler Town and Countrys have terrible resale value. That 2013 model was heavily inflated at 10 grand, 5 grand is closer to its real value. On the other hand, Toyota Sienna and Honda Odyssey minivans from the same era are going for triple that because they are exceptionally better in terms of quality, safety, reliability, efficiency, and performance. Your question outlines details vaguely, so I will give you a straight to the point answer. There is no golden rule. If there is, it can not be that precise. The best we can say is "generally" this or this or "mostly" that happens... etc... Price would be dependent on so many factors, some dealers, sellers, and online appraisel sites like KBB do not put into much significance, that you should ask here and the forum could help you out. I remember a member saying KBB was highly inflated but for older used cars Edmunds was more reliable. I tried it out and Edmunds is a better tool than KBB and generally matches private party samples. If you are looking at these sites, give a look at the trade in value as well as if you want to get rid of the car, the dealers will give you something around those, not the inflated private party values which are often triple or quadrouple the trade in quotes on older makes and models.  If you are looking for a minivan, we can help you out further regarding any inquiries. - Californiaguy21.

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Supply and demand is causing the current market abnormalities. The new car manufacturers can't get the parts they need to make new cars. People are, by nature, impatient, so rather than wait they purchase a used car instead. Theoretically that puts 1 in, 1 out of the market. But then there's dealers buying dozens at auction, accidents removing vehicles from the roads, aging vehicles giving up the ghost, people shopping for cheaper cars due to job loss....many factors are at play and none of what you see currently is normal. However, it is unsustainable and the time will come where the new manufacturers catch up with production and you'll start to see all those fresh trade ins hit the market, which will raise supply and lower demand. Timing is key. I have a small room off of my office I dubbed the "war room" where I go and sit and literally just analyze the car markets and see what is happening. Super, SUPER dry stuff, boring and will definitely give you a headache as it is all math, graphs, and charts with phone calls mixed in. But absolutely necessary as the swings in price are moving like the ocean right now. 

I consider myself fortunate as the higher end vehicles I deal with are mostly low production anyway, so supply and demand hasn't necessarily changed much. However, prices sure have as many owners want too much for their cars and many buyers want better deals than can be offered right now. It's a real Catch 22 because I have cars, and I have buyers. But it's been hard meeting in the middle on price to connect the two.

If anyone wants a stock tip, buy Pepto Bismol and Captain Morgan Rum stock. I'm driving both of those through the roof right now single-handedly. Definitely looking forward to the market smoothing back out, though I have a feeling it is going to be next year at the earliest. 

I agree. When unemployment is high, people get used cars instead of new. I'm investing in Hornitos Tequila.

Lol oh NO...I don't do Tequila. Not good for my "behavioral mannerisms."

Not even tequila ribs?

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With COVID car prices have gone crazy, both new and used, although it seems like used especially.

I just read on Bloomberg that Hertz and Enterprise are now buying used cars to rent out, as they can't get new cars. That ought to jack up the price for clean used cars even more.

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how bad is it?

https://greenville.craigslist.org/ctd/d/mauldin-1960-studebaker-champ-pick-up/7317083316.html

advertisement claims " The seat is missing other then that it looks all there."

I see:
- no radiator
- no distributor
- no battery
- no intake
- no belt
- no wipers
- no side mirrors
and so on ...

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