When faced with the opportunity to purchase a car, most people think of leasing or getting a new car off the lot. It is the classic American gift, a semblance of the American dream to own a sleek mode of transportation. That new car smell is second to none, except for the feeling of sole ownership. However, there are dozens of typically overlooked options when looking for a car, like renting, buying a used car, or car share services, that pose more cost-effective alternatives for select opportunity costs. With the exponential growth of technology, a new vehicle now can look like a thing from the past just a year later. Although purchasing or leasing a new car can feel exciting, technological innovation, vehicle depreciation, and overabundance of supply of older cars present stronger arguments to not invest in new cars for personal use.
Owning a new car poses great initial risks with depreciation and how that might affect the ownership experience. On average, a car loses 30% of its value the moment it is driven off of the lot, and so does the new owner. That means that if the owner decides to sell the car even right away, they will have to sacrifice a significant sum of money. Additionally, the car owner is fully responsible for the vehicle and will have to incur any and all costs to maintain it, and when paired with the already depreciated value of a car, it makes it difficult to justify fixes or upkeep that exceed the lowered value of the car. For example, if a car is worth $20,000, and it’s drive-off value is $12,000, any repairs that could be over $6000 would already infringe on over half of the car’s value. Leasing a car offers some levity, as most deals come with dealership perks to cover upkeep. However, at the end of the lease, you are returning a car having borrowed it for a few years, paying a significant amount of money and leaving in the same place you were a few years back. Both options are not the most financially savvy because of the lack of control customers have over the economics of their vehicle ownership.
Buying a used car typically comes without much depreciative value, as most used cars are 3-4 year old models that have experienced most of the brunt of depreciation. For example, a Mercedes S550 can depreciate up to 50% in the first 4 years, and only 20% more in the next 4 years. Generally referred to as a reliable car for over a decade, it would make sense to pay less than half of the car’s value for the reliability after just a few years of it being on the market. Additionally, companies have been starting in the past few years to help customers actually lease used cars, which is a relatively new concept. Companies like shift.com are making it easier for customers to analyze the depreciation trends of cars they are interested in, and finding a better fit for their economic capabilities than the traditional leasing market. By understanding the monolithic structure of buying and leasing new cars, companies like Shift are able to introduce sustainability into the auto market by finding ways to destigmatize used cars.
It is clear that technology overall improves every year, in style and functionality. Every year, the new iteration of a car model will be multitudes ahead of the previous year, and this contributes to the depreciation of the older models all the while inflating new car prices. Up-cycled technology like the fully-recycled BMW i3 are proving to be more cost effective and economically sustainable every year. Tesla was able to increase the car battery range from 200 to almost 400 miles per charge in a matter of years, which would make their older models effectively obsolete. With ever-growing automotive tech, cars are no longer future-proof and better models are going to supersede them. After a year or two of owning a new car, it would feel like owning a used car of 5 or 6 years, making it difficult to justify purchasing a new car.
While owning a new car might feel nice, there are countless costs and decisions to be made when trying to find the right fit. It might be the correct option for some, but because of how technology is changing and the world is moving towards more innovative models for car ownership, there are far more decisions to take into account.
Consumer Reports, “Leasing vs. Buying a New Car.” 19 Sept. 2017. https://www.consumerreports.org/buying-a-car/leasing-vs-buying-a-new-car/.
Car and Driver Research, “New vs. Used Car: Everything You Need to Know.” https://www.caranddriver.com/research/a31520182/new-vs-used-car/.
Mims, Christopher, “How Electric Cars Could End Car Ownership As We Know It.” 15 Jan. 2017. https://www.wsj.com/articles/how-electric-vehicles-could-end-car-ownership-as-we-know-it-1484488803