Buying a Used Car - Case Study
Buying a car? Here's how to save 30 per cent on your next car by letting the first owner bleed all over it - financially
The Buying a Used Car Bottom Line: Save 30% Over New
You can halve the absolute cost of depreciation by buying a two-year-old used car. You’ll get essentially the same model as the ones on sale now (in general) and 30 per cent off the price. It’ll still have a year’s worth of warranty, or more, and very low kilometers on the clock. (The average used car in Australia has about 15,000km under its wheels for every year of service.)
This is the case for buying a two-year-old used car, below.
For this ‘buying a used car’ example we’ve used one of the most popular cars on Earth – the Toyota Corolla. It’s a favourite used car for those buying on a budget because it’s cheap to run and the cost of spare parts won’t usually involve a bill you can’t jump over. It’s cheap to service, too, plus safe, well-built and dependable.
If you buy a two-year-old (2009) Toyota Corolla Ascent hatch (1.8 manual) it’ll cost you about $14,900 in a private sale. That same car was $21,500 new (plus on-road costs). Leaving the on-road costs to one side, the depreciation in the first two years is about 31 per cent in relative terms, and $6600 in absolute terms. Only a train-spotter could tell the used one in good condition from the brand new one on the showroom floor today.
Ouch.
That $6600 is $3300 annually, or $63 per week – that’s more than many Corolla owners pay for their fuel, weekly. If you’re considering buying a used car, however, it represents a massive discount funded for you by the first owner.
If you look at a four-year-old Corolla and apply the same logic (ie assuming it loses 31 per cent in the first two years) you get e pretty interesting result:
A 2007 Corolla Ascent sedan cost $21,840 new. By 2009, let’s assume that dropped by 31 per cent to $15,100 in a used car private sale. Two years later (ie today) it will cost you $11,750 in a private sale. In other words in the second two years of its life the depreciation represented just 22 per cent, or $3350 – which is just half the absolute depreciation in the first two years of its life.
The values in this analysis come from respected industry reference guide, Redbook. (It’s a free resource for research purposes.)