Why Depreciation doesn't matter
In 2019, it's hard to ignore financial responsibility. Our entire current generation has been shaped in the recession and post recession mindset of analyzing everything we do. It's a survival instinct. When you've grown up in a time where life was marketed to you as "Anything is possible", and you enter adulthood in a financial hunger games of looming student debt, higher rent to living costs than any time in history, and stagnant wages, you quickly get hardened into making every situation about the raw financials.
In the context of cars, people buy specs and numbers. It's the reason full size pickups have ludicrous towing power, why the latest supercars now have 0-60 times under 3 seconds, and even why the latest compact cars get 40+ MPG. These are all good things, they help push the boundaries of vehicles and make it so there's a progression. But, we live in a world where it's easy to get caught up in the numbers, especially when it comes time to making financial decisions.
One of the symptoms of this is the over analysis of vehicle depreciation. Consumers often limit themselves, all in the name of depreciation. So, what does this look like?
For starters, it starts with what vehicle they select. Gravitating toward neutral and dare I say it, more boring choices has become the fiscally responsible illusion of the post recession era. For most people, a vehicle isn't an investment, it's a means of transportation, and often, a financial liability. Consumers will rely on brand stereotypes of "good depreciation" to make purchasing decisions.
An easy example of this? The Mazda 6. While full size trucks are still the sales champions, sedans are still a sizeable portion of the market. The Mazda 6 is a critical darling, it's designed beautifully, is engaging to drive, and offers an upscale feel compared to a lot of the competition. Now, while Mazda isn't lower tier when it comes to depreciation, it certainly doesn't hold the resale perception crown like the Toyota Camry. The Camry, despite it's lackluster interior and poor driving dynamics, remains the sedan sales king. In 2018, the Mazda 6 sold just under 31,000 units in the US. The Camry? Over 343,000! No typo there, the Camry outsold the Mazda 6 by an factor of 11:1.
OK, so let's move on to the next example of buying to depreciation. Colour. Typically unless you're buying at the top or bottom of the market, your colour options are fairly limited. This is why you'll typically only see bright, vibrant colours on something like a Fiat 500 or the latest Lamborghini. Manufacturers cater to the markets, and the markets were saying that on mainstream vehicles, people preferred neutrals.
But, do people actually prefer neutrals? If you look at other aspects of our lives like fashion or home decor, the evidence suggests otherwise. Because you're not thinking of the resale when you buy your jacket or couch, you're more willing to buy a bright red parka, or a blue sofa. If you wonder why it seems like you're surrounded by beige Camry's, it's not your imagination.
Looking at overall sales in the US, Silver, White, Grey, and Black comprise over 70% of vehicle sales. The largest reason people cite when selecting a neutral colour option vs. something more bold, is resale.
So, what we're buying, and what colour we're getting it in, is largely influenced by perception of depreciation, and since perception is reality, why should anything change?
First off, from my own point of view, when you let depreciation dictate what model of vehicle you purchase and what colour you decide to get it in, it's like your toilet make the decision on what you have for dinner. Why would the second consumer ever dictate what you get? There are things that are obvious here, as the first owner of a vehicle, you're paying the most for the privilege of driving it. So, shouldn't it stand to reason that you pick what you like?
To take this further, I have a bit of a theory. While I understand that the majority of the population aren't vehicle enthusiasts, we do have a tendency to build emotional attachments to our possessions. The whole house vs. home thing.
Now, when you're buying a vehicle, and at the back of your mind is depreciation, you end up selecting a neutral coloured Toyota Camry. You justify this to yourself by saying, it gets good gas mileage, and when you need to sell it, it'll be worth more. It's the logical choice, right?
And you're happy, you've got a brand new car, you post a picture of it to Facebook and Instagram, and you get a bunch of likes congratulating you on your new car. Fast forward a year, and there's no more likes to be had, the newness of it has worn off, and it's just your car. In 2-3 years more, you see a newer version, and now it has automatic cruise control, or another gadget, just the thing you've been waiting on as an excuse to trade yours in. You have a Camry, so you get a decent trade in value. So, you do so, and you get your little hit of excitement, and it starts all over again. Sounds like staying rational and getting the neutral coloured Camry payed off. If you had traded in that red Mazda 6, you would have gotten $2000 less for it at the dealer! That's a beach vacation, which as I sit here typing this in -40C, is one hell of an incentive, right?
This is where that house vs. home thing comes in. Chances are, if you had bought the red Mazda 6 to begin with, the one you really wanted, but convinced yourself that it wasn't the rational choice to get, you wouldn't have been looking for a reason to trade it in. It's fun to drive, even on your 30 min commute every morning, and you can't help but look back at it in your driveway when you double press the lock button on the fob and the horn honks.
Because you developed a bond with it. It's your car, not a car. Because of this, you're more likely to service it on schedule, which in turn leads to it having a longer service life for you. And because you haven't traded it in or sold it every 3-5 years, you know what's no longer a factor? Depreciation.
The average vehicle age on the road right now is 11 years old. That's only getting longer as vehicle build quality increases. The bigger financial loss than depreciation is actually prematurely switching vehicles. So, instead of letting the person after you control your vehicle purchase, buy it for you. Buy the red Mazda 6 instead of the white Toyota Camry, because you deserve to love what you drive!
If you want to love what you drive and are looking for your next vehicle, we'd love to help! Go to www.ashhabibautoconsulting.com/contact to book your FREE consultation today!
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