Why do 10 year-old luxury cars lose so much value?
"They are overpriced to begin with.  One reason is the fact that they are luxury cars.  A second, related reason, is that they tend to push the technology envelope.   All cars depreciate drastically the minute they are driven off the lot.  This a good argument for buying a car that is 1-2 years old.  The higher you are, the more you can fall.   Repairs and maintenance are typically still expensive on these cars, due to relative rarity and the lack of necessary expertise.  Here is where that advanced technology bites you.  This is a reason that a 5 year old Civic may be worth more than than a 10 year old Benz.  It may simply not be worth the hassle of maintaining/repairing a luxury car.  This is especially true for an aging luxury car.  There are some people that only buy domestic, precisely because of the maintenance costs.  Also, a 10 year old car is still a 10 year old car, regardless of the make.  (There are a few notable exceptions, like the NSX.) Hondas and Toyotas have a great reputation for reliability and (long-term) total cost of ownership. ""Better"" is a subjective issue, that depends on a variety of variables.  A Civic is certainly not better in terms of technology, comfort, etc.  But, it is likely better in terms of maintenance, reliability, etc.  Which ""better"" you focus on, is up to you." Few people actually buy BMW's. Most are leased, because if you're the type of person who wants to drive a BMW, you're going want a new one regularly.  Here's the lifecycle of a BMW or other luxury car: By the time you hit ten years, you have a rapidly depreciating asset because the average Joe doesn't really want an old BMW and hassles that come with it or any luxury car. That said, there are great bargains in this space. I used to buy 5-6 year old Cadillacs when they weren't cool for like $7-9k, and resell them a year later for about $1,500 less that I bought them for. (lower TCO than a Civic) You need to have patience though, because maintenance is always an expensive pain in the rear with luxury cars. +1 They are over priced to begin with - More specifically they are expensive to create exclusivity, which raises their value to people who value that kind of thing. Perhaps folks who buy those cars aren't buying them for value or quality or performance, but are buying them for the badge and the intangible factors.  I frequently hear about rich people who earned their millions driving around in cars Consumer Reports rank highly, so it isn't because they are so much better than a mid priced car. A car for $140,000 is either equipped for the A-Team or is a status symbol.  The status symbol notion is very expensive, but fades very quickly, hence the mighty depreciation. There is usually a bunch of reasons for this, some psychological and some entirely practical. Let's start with the latter: If I wanted an older luxobarge, I'd buy something from the early to mid 1990s in good condition. These cars tend to be a little less complex and thus a little easier to repair, plus you can find them for prices that makes them to 'disposable'. "I think this can be answered by answering the question ""Who buys 10 year old cars?"".  Generally speaking those buyers are very price conscious.  They are looking to save money on transportation rather than following the herd of people participating in the car payments merry-go-round.   The cost of parts, repairs, and gasoline for those cars do not go down over time.  Remember that many of those cars require the use of premium gasoline.  This drastically reduces demand for those vehicles, thus lowers the price. Luckily I have a really good and reasonable mechanic near me, and I can float repairs and the higher gas.  I love driving my 1999 Mercedes and it is one of the least expensive cars that I have owned while also being one of the most comfortable." Personally, I buy newer luxury cars for two reasons.   1) Status symbol Newer cars have the latest looks, performance, and features like heated side mirrors and sensors that adjust cruse control speed when in heavy traffic etc.   2) Older cars have more wear and tear. No one has spent any significant amount of time in the car before and therefore you know the history of what the car has been through, like buying a new pair of pants.  You know that no one has pissed in them ;). After I have pissed in and tore up my now older luxury car, I sell it off and get a new one.  Cars wear out and as they get older, they need parts replaced.  My brother's Mazda, for example, just blew the head gasket after buying the car new and driving 130k miles over a four year period.  Part of the luxury for owning a new car is the luxury of time, not having your car spend any significant amount of time in a garage being worked on, unless you buy a Land Rover of course ;). The answer is very simple. Part of the luxury is having the cutting edge technology with the very latest features. The price premium is not just from increased build quality; it's simply a perception. Additionally, 10 years takes its toll on a car. The smooth suspension gets rougher over time, and all the little features start to break down. Part of the price of that car factors in the expense of expected repairs. That's true of every car, but the repairs are more expensive when there are lots of gadgets to break down, especially on imports. They start at a higher price and repairs are more expensive than with a standard car. From my experience, many luxury cars get too expensive to keep after about 10 years due to increased maintenance costs. I believe one of the main reasons cars -- luxury or otherwise -- depreciate so quickly is that many auto accidents can cause serious engine/frame damage but are easily cosmetically repaired.  If you smash up the car but get the body fixed, and you don't go through insurance, it will be indistinguishable from the same car that hasn't been in a crash.
"It's all about what you value personally. I'm mid-30s and drive a $40K ""luxury"" sports car.  I also happen to wear a $6K wristwatch every day.  I purchased both of these items because I thought they were beautiful when I saw them. On the flip side, because I spent 6 years living below the poverty line, I instinctively spend almost nothing on a daily basis.  My food budget is less than $50 a week, and I never go out to eat.  I wear my clothes and shoes and coats until they have holes, and I drove my previous car (a Toyota) into the ground.  My cell phone is 5 years old.  The walls of my apartment are bare.  I don't have cable TV, I don't subscribe to newspapers or magazines, and I don't own a pet.  In all of these cases I don't feel like I'm ""sacrificing"" anything; food and clothes and cell phones and pets just don't matter to me. If you truly feel that you're missing something in your life by not having a luxury car -- that owning one would be more satisfying than owning the corresponding tens of thousands of dollars -- then go for it.  Just be sure to consider all the other things that money could buy before you do. Lastly, buy in cash.  Don't make monthly payments unless you enjoy giving money away to the bank!" Assuming that luxury goods like cars are currently owned by the rich, taxing them further would simply raise the prices of the goods further on the market. I would suggest giving a small number of goods like cars to random members with low cash, who can then bring down prices. They will then have more cash too. Many Web sites and articles warn against buying former rental cars,   because people renting these cars often mistreat them. Rental cars are typically driven by people over 25, these are typically people with some financial means (air travel, credit card). Additionally, rental cars are subject to frequent inspection and likely to be on tighter maintenance schedules than many owners would keep. So while some people may drive a rental harder than they would their own car, it's not typical, and not likely to result in some hidden damage that makes a rental less desirable (all else being equal) on the used-car market. Does the fact that they sell the car mean during this time suggest that they know the car's cost of further maintenance or other costs will be higher? Or is there another reason they sell at this time which, has a calculated advantage to them, but which is less than idea statistically for me, the purchaser? Rental companies buy at incredible volumes, as such, some manufacturers have programs where they will buy back used cars from the rental company at a set price and/or time. Other incentives are guaranteed depreciation, wherein the manufacturer will make up the difference if the used vehicle doesn't sell for a set percentage of it's purchase price after a set amount of time. Outside of these incentive programs, rental companies also get substantial volume discounts, and they typically are buying base models which hold value better than their higher-trim counterparts (according to KBB market analyst). So the conventional wisdom about depreciation doesn't really apply. The timing of their sales is primarily based on their purchasing arrangements and their desire to keep an up to date fleet, not on projected maintenance/repair costs. The best you can do with any used-car purchase is to test-drive, get a pre-purchase inspection, and review whatever history is available. A used luxury car coming out of lease is usually very affordable. They are usually in good condition, still look relatively new, and are within the same price range as a newer Toyota or Honda. Tesla is not planning to sell 100k cars in 2015, they plan to have an annualized run rate of 100k by the end of 2015.  Also, the luxury market is pretty close to 50/50 between large sedans and SUVs, so Tesla figures they can sell as many SUVs as they can sell sedans, and they can almost certainly sell 50k sedans considering they're easily selling 35k without advertising whatsoever and with long wait times and barely having penetrated China or RHD markets.  Also, that 100k is worldwide, not just in the US. If everyone bought used cars, who would buy the new cars so that everyone else could buy them used? Rental car companies? Your rant expresses a misunderstanding of fundamental economics (as demand for used cars increases, so will prices) but economics is off-topic here, so let me explain why I bought a new car—that I am now in the 10th year of driving. When I bought the car I currently drive, I was single, I was working full-time, and I was going to school full-time. I bought a 2007 Toyota Corolla for about $16,500 cash out the door. I wanted a reliable car that was clean and attractive enough that I wouldn't be embarrassed in it if I took a girl out for dinner. I could have bought a much more expensive car, but I wanted to be real about myself and not give the wrong impression about my views on money. I've done all the maintenance, and the car is still very nice even after 105K miles. It will handle at least that many more miles barring any crashes. Could I have purchased a nice used car for less? Certainly, but because it was the last model year before a redesign, the dealer was clearly motivated to give me a good deal, so I didn't lose too much driving it off the lot. There are a lot of reasons why people buy new cars. I didn't want to look like a chump when out on a date. Real-estate agents often like to make a good impression as they are driving clients to see new homes. Some people can simply afford it and don't want to worry about what abuse a prior owner may have done. I don't feel defensive about my decision to buy a new car those years ago. The other car I've purchased in the last 10 years was a four year old used car, and it certainly does a good job for my wife who doesn't put too many miles on it. I will not rule out buying another new car in the future either. Some times the difference in price isn't significant enough that used is always the best choice. If you're a few decades older, your generation is mostly to blame for this reversal of fortunes in the US.  1969 was the peak of American culture.  Not since 1969 have more cars been sold in the US despite a doubling in the population.  The average age of a US vehicle used to be between 3-5 years now it is between 8 - 12 years old.  A poorer population cannot afford a new car as often anymore.  How do you expect consumes to shop at Sears and give them high profits if they don't have jobs themselves. A premium car rental agency will sell a car which is working very well and quite far from the verge of breaking apart. They don't want to take the risk that one of their premium customers paying premium rates receives a worn-looking car which runs less than absolutely perfect (or even breaks down). They need to keep up their premium reputation. These premium agency also have a major marketing impact for the car industry. That's probably the main reason why they receive such massive discounts (see thelem's post). Obviously, the Mercedes Benz AMG Edition rental car will have a lasting impression on the driver (and the people not renting it, but seeing the boastful ads of the car rental company). So both the car industry and the rental company want this lasting impression to be a perfect one. A holiday car rental agency may have much lower standards. They often don't have recurring customers. They don't rent premium cars to premium customers but cheap cars to cheap customers.They don't receive the discounts the premium agencies receive. And they will milk their car to the max. You will notice that they windows fall out of the car when you bang the door shut. You will find that opening the door will be more difficult than breaking into the car. The seats may be stained - at least in the spots where some of the upholsters is still present. On the plus side, if you are lucky, the heating still works. On the minus side, you might not be able to turn it off. Water might leak into the car when it's raining, but that's not much of a problem as it will drain out through the holes in the bottom. No fear that water might rush in through these holes when driving though a puddle - the engine will not start during humid weather, so that's a non-issue. In any case, car rental customer might have mistreated the car. The engine has most probably not been run in. However, this appears to be less than an issue with modern car than it has been in the past. And very very few rental car drivers think that they really have to absolutely emulate Michael Schumacher just because they drive a car which is not their own. And anyway, that is a risk you take with about any used car. "How can people afford luxury cars? The same way they can afford anything: by finding it cheaply, saving for it, or adjusting their priorities. Company cars - either paid for by the company, or as part of a bonus/compensation/salary sacrifice scheme. I have friends who drive luxury cars, but they pay £200/month - not much more than, for example, finance on a used Honda People who have paid off their mortgage. There are people who spend a decade pouring every cent they have into a mortgage. Once paid off, they have £500-1500 a month ""spare"" People who have different priorities to you. I'm not bothered about big houses and holidays, but I love cars: I'd rather spend an extra £100/month on my car and have a holiday every 2 years, not every year People who only run one car in the family: if you're running two cars at £200/month, then discover one of you can work from home, you could have one £400 car and still be saving money on running costs. People who don't have (or want) children. Children are expensive, if they aren't part of your plans then you can save a lot of money for luxuries." "Many Web sites and articles warn against buying former rental cars, because people renting these cars often mistreat them. Many of those are also written by unqualified individuals for publication on blog farms and encourage all sorts of odious financial practices. That's not even considering the interests of who is paying to advertise on said blogs-- I'm sure their interests align with making sure you always pay top dollar for a new car. Because those icky used ones are so mistreated! Never trust financial advice published on the internet (or in the media, for that matter). Edit: One caveat on further thought-- never, never buy used vehicles from government auctions (impounds, asset seizures, old police cars, etc). Anybody irresponsible enough to go to jail or abandon their car long enough to lose their assets likely isn't a responsible owner of such, and cops and crooks alike do absolutely beat the snot out of police cars.  When it comes to government-owned vehicles (police cars, schoolbuses) municipal governments are notoriously stingy and will squeeze every last minute of use out of them before putting them on the market. If you're buying a government vehicle, assume it's being sold because it has intractable problems. But from a financial point of view, I notice that rental agencies sell cars within the first two years, during the time when they depreciate the most. Bingo. I figure many large rental companies will have mathematicians who calculate the best time to sell. Does the fact that they sell the car mean during this time suggest that they know the car's cost of further maintenance or other costs will be higher? Or is there another reason they sell at this time which, has a calculated advantage to them, but which is less than idea statistically for me, the purchaser? It doesn't take a PhD to realize it's bad for business if your model revolves around renting out 1970s rustbuckets that run the risk of breaking down and leaving customers stranded in inopportune or dangerous places. Uhaul in particular has a terrible reputation for this, and it shows in the condition of their trucks-- relics of the 90s, all of them. Uber won't let you drive for them if your car is older than 7-10 years for the same reasons. Yes, as a car ages, the chance of having to make repairs increases. Rental agencies are in the business of renting vehicles, not running service centers and garages. It's more aligned with their core business model to just dispose of cars once they've squeezed the most reliable years out of them and amortize the vehicles' depreciation across the tax deductions and fleet pricing they enjoy when buying new ones.  This gets them out of the service game and lets them focus on their core business-- procurement and rental. There's no calculated ""time-to-lemon"" that they're trying to skirt here; they're just trying to avoid having to make any repairs whatsoever." You calculate the loss by adding back the interest that was made off the car loan. This is usually mitigated through down payments and longer loan terms (the 7 year auto loan is becoming popular). After a downpayment and a year's worth of payments (which are interest front loaded) I doubt that finance companies would have huge losses. I'll read between the lines: you're (justifiably) feeling smart about how you manage your money: debt-free, smart about your spending, saving for retirement, etc. But you're looking at all those fancy cars and feeling a little left out. And Americans especially have a love for automobiles -- it's not just transportation, a car is a status symbol. Yes, some of those people afford their cars just fine. But a lot of people out there are AWFUL about saving and spend recklessly. Americans are notoriously bad at saving for retirement, for example.  So if they aren't saving, where does that money go? They buy stuff they don't need. They live paycheck-to-paycheck. They run up debt. They buy cars. Overspending on cars is so easy to do: leases have low payments, or you can get a 6 year loan. There are many financial tricks for people that think only in terms of monthly payments. So instead of lamenting that the grass is greener as all those BMWs whiz by, smile deeply and enjoy that feeling of sleeping well at night instead of stressing out about the next credit card bill and car payment waiting for you in the mailbox. (And at the same time, if you really want a luxury car and want that to be a priority, you can make it happen and not go broke. Get a late model year certified pre-owned vehicle just out of lease, for example. Saves a ton of money, is still under warranty, and satisfies the lust for luxury.) It depends completely on the car.  Some cars retain their value much better, and others drop in value like a rock (no pun intended).  The mileage and condition on a car also has a huge impact on value.   According to this site, cars on average lose 46% of their value in three years, so seeing one that drops 62% in roughly 3 years does not seem impossible. That value could also have been trade-in value, which is significantly lower than what you could get with a private party sale (or what you'd pay to get that same car from a dealer) One example: a new Ford Taurus (lowest model) has a Kelly Blue Book value of $28,000.  A 2014 Taurus (lowest model) with average mileage and in fair condition has a private party value of about $12,000, for a 57% drop in value. Note: I picked Taurus because it's a car that should not have exceptional resale value (unlike BMW, trucks, SUVs), not to make any kind of judgement of the quality or resellability of the car) Alternative: buy a recent-model used car in good condition. Or buy an older car in good condition. Let someone else pay the heavy depreciation that happens the moment you drive a new car off the dealer's lot. I use GnuCash which I really like.  However, I've never used any other personal finance software so I can't really compare.  Before GnuCash, I used an Excel spreadsheet which works fine for very basic finances. Pros Cons