Every year in the late summer or early fall car manufacturers start rolling out their new models. This generally translates into some sort of ‘clearance’ event at dealerships as they try to sell off their old stock. But does it pay to buy last year’s car? According to a recent article on CNN/Money, the answer depends on what type of owner you are and which car you’re buying.
The main issue here is depreciation… If you buy the older model year, that extra year will cost you when it comes time to sell your car or trade it in. Moreover, if the car has been redesigned for the new model year, then you’ll take an even bigger hit. The bottom line here is that last year’s cars are marked down because they’re actually worth less, at least in the short term. So when should you consider it? Here are some rules of thumb…
If you’re a short term owner (? 5 years) and the car has been redesigned for the new model year, then you’ll be better off paying a bit extra for the newer version.
If you’re a short term owner and the car hasn’t been redesigned, then you might come out ahead with the older model year, but only if you can get a pretty big discount.
If you’re a long term owner (? 5 years) and the car has been redesigned, then buy whichever one you happen to like better — the difference in resale value will be minimal by the time you finally get around to selling. But keep in mind that the newer design might have some bugs that have already been worked out in the older version (thanks Blaine!).
Finally, if you’re a long term owner and the car hasn’t been redesigned, then it’s a no-brainer… Buy the older model year. You should save a bundle up front, and you’ll only take a minimal hit on the back end when it comes time to sell.
This last scenario fits us to a T… We tend to drive our cars forever (if not longer), and the 2006 Honda CR-V is exactly the same as the 2005 CR-V that we ended up buying. By the time we decide to sell, that extra year will cost us next to nothing, but we were able to save a substantial chunk of change up front.
[Source: CNN/Money]
Other things to consider are the direction of interest rates and the willingness to deal on the part of the manufacturers.
I don’t agree 100% with avoiding new redesigns… manuafacturers usually put more effort into the first year of a redesign (‘knock it out of the park’ mentality) and pare it back as the design ages… the errors are covered in warranty, sure there are bigs, but there are lots of recalls on 3-5 year-old models too…
Some of the best vehicles we’ve owned have been new redesigns, frankly.
Blaine, that’s an excellent point, and it was actually something that we considered when we bought our Odyssey in 2004. They were redesigning for 2005, and we wondered what sorts of kinks might be introduced in the new model that had already been worked out through several iterations of the old model.
Of course, if the car has been redesigned, then you should not buy that model year anyway, because there are bound to be some flaws with the new design that could take a year or two to work out. Why should you have to pay for their mistakes?