Car Depreciation: The Mysterious Black Hole of Finance

Why do houses appreciate in value, when cars do not?

A house, with proper maintenance and an agreeable market, is one of the best investments you will make in your lifetime.

A car, on the other hand, is generally seen as a liability. Your typical run-of-the-mill Japanese subcompact will depreciate 80% over 15 years, regardless of how meticulously it is kept. It is a black hole.

For example, the aforementioned car in “fair” condition runs $1,842 according to Kelley Blue Book.

Now, if I spend $4,000 on a new paint job, $3,000 on mechanical parts, and $1,000 on body work and a good clean, that car will be upgraded to “excellent” and fetch $2,567.

And… just like that, my $8,000 has turned into $725. That’s about the worst ROI you’ll see this side of a South African Ponzi scheme.

I’m a suspicious fellow by nature, and numbers like these don’t add up. So I decided to run an experiment. I put my own meticulously maintained car up on Craigslist.

I’m a very pragmatic person. In 2007, I bought my first car for $7,000. It’s a 1999 Toyota Corolla LE with 85,000 miles on the odometer. It’s a manual, because I wanted to learn how to drive a stick.

I am the second owner. The first owner left me with the following problems:

• A cracked front fender.
• A deteriorating paint job thanks to a manufacturing defect.
• A clutch in need of replacement.
• A bad suspension.

Typically, such cars are bought, run into the ground, and then resold. Especially common-place brands like Toyota that hold their value and are easy to resell.

Today, that car has 169,000 miles on the odometer, and it’s in better shape than when I bought it. In seven years, it’s had…

• The front fender replaced.
• A new paint job (a full-body, stripped to metal, paint job).
• Two new clutches (one shortly after purchase, the other 80,000 miles after).
• New suspension and shocks.
• Two new sets of tires.

Yes, it still burns two quarts of oil per 3,000 miles. Yes, it has a small hole in the driver’s seat that I haven’t fixed. Yes, it’s a Corolla–not a Ferarri.

But there are perks. It achieves 38+ MPG on the freeway. Replacement parts (and labor) cost a fraction of what most luxury brands cost. It’s seen me through college, five internships, and into my first full-time job, without leaving me stranded once.

Proactive maintenance isn’t cheap. I’ve spent $12,600 on service and parts over the past seven years. That comes to $18,600 if you include the original purchase price. That’s as much as a brand new car.

But it’s a car that I trust. It’s a car that’s cheap to insure. It’s a car that I haven’t needed to finance. It’s a car without any expensive repairs on the horizon.

Kelly Blue Book says my car is worth $2,377. Perhaps that’s true, but for a meticulous (some might say “obsessive”) owner like myself, I expect to sell it for the same as my original purchase price. $7,000.

Why am I selling this car, if it’s so perfect? A few reasons…

• It’s not a family vehicle.
• It drives like a Corolla, not like the Mercedes I’ve always wanted.
• I don’t want (or need) two cars.

If you think I’m crazy for asking $7,000, move along. But if you want to buy a car that’s been well-maintained without respect to cost, and is–in fact–a better car than when it was first purchased, let me know if you’d like a test drive.

30 minutes later, I had my first response…

Your asking price is criminal activity is what I'd call it lol. This is where I would want government regulations enforced to the MAX. Absolute insanity, absurdity. bonkers. lol

Move along, young padawan. This is not the car you’re looking for.

An hour after the initial posting, my ad was flagged for removal. Haters gonna hate.

And so, in summary, even if cars don’t depreciate when improved, you probably won’t find someone willing to agree with you in cold hard cash.

Kelley Blue Book? You win this round.

Until next time,

- Daniel