Trego's Mountain Ear

It’s been a long time since I was a teenager in a $150 car.  Part of it is inflation.  But there are still ways to get a handle on depreciation. Ramseysolutions provides charts that give a handle on the topic:

Initial Car Value	$30,000
New Car Value After . . .
1 minute	$27,000
1 year	$24,000
2 years	$20,400
3 years	$17,340
4 years	$14,740
5 years	$12,530

I got to listening to Dave Ramsey and his financial peace university driving across the great plains, listening to him as he gave advice to people who were in horrible financial binds.  AM radio has its programming, and his seems pretty down to earth:

“There’s a reason why the average millionaire drives a four-year-old car with 41,000 miles on it. By buying used cars, they let someone else bear the brunt of a new car’s rapid depreciation in its first few years. And they still end up with a reliable car that’ll run for years and years with proper maintenance.”

Spglobal  shows that the average car on US highways is 12.2 years old.  How things have changed. Stlouisfed begins with this: “In 1970, the average age of a car in use in the U.S. was less than 6 years. By 2016, the average age had climbed past 11 years.”  

The report goes on to explain:

Dupor also noted that new vehicle sales typically fall more heavily during recessions, which causes the average age of cars on the road to rise even faster. One of two things may happen during the subsequent recoveries:

• The average age of cars could drop if new vehicle sales rebound strongly enough.
• The average age could remain higher than its prerecession levels if new vehicle sales aren’t rebounding as much.”

Ramsey explains car purchases: 

How much car can you afford? And we’re not talking about car payments here. You should pay for a car—in full—with cash. Plain and simple. Yes, that means you’ll have a serious dent in your savings, but you’ll skip the stress of spending hundreds of dollars on car loan payments each month. Isn’t that awesome?

Let’s say you borrow $10,000 for a car with a 5% interest rate and a term of five years. You’ll end up spending an additional $1,322.74 in interest. Not so affordable anymore!

The truth is, you don’t need car loans. You can find reliable used cars in any price range.”

So it’s not just inflation – car depreciation, inflation – it makes for a complex topic.  Back in 1970, when the average car was 6 years old, mine was 11.  Things may not have changed all that much.