Never buy a new car

You’ve probably heard many personal finance experts tell you this – never buy a new car. But with all that has happened over last year (with the auto sales crash), is this piece of advice still valid today?

There is a lot of wisdom behind the advise. First thing that you need to keep in mind is that cars are not assets. It’s all about depreciation anyway. They very rarely go up in value (unless you’ve chanced upon a future classic which, chances are if you’re buying a regular family sedan, not likely) and you’d often loose as much as 20-30% in depreciation as soon as you drive it off the lot.

Then you’d begin to lose money every year since, not to mention the maintenance costs and gasoline/diesel costs. Some would say that at least you get a three to five year warranty with a brand new car but mind you that warranties only cover the bigger pieces of mechanics like engine and the transmission. Almost everything else is “consumable.”

However, dealerships are enticing you with quite a lot of “good deals.” Hyundai, for example offered buy-back programs just in case you lose your job with no impact on your credit rating. They even threw in a year’s worth of free gas. These combined with the cash for clunkers program last year enabled buyers to save more than what they’d lose on first year depreciation. Which is actually pretty good.

So does the advice still hold true? In my opinion. Yes. The cash for clunker’s long gone and the car market is doing better. So those deals might just be long gone as well. A much as possible buy a one-year or two-year old car. At least biggest depreciation has already been absorbed by the first owner.