Thu, 11 Aug 2022

Is a New Car Purchase Ever Truly an Investment?

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03 Aug 2022, 18:24 GMT+10

Every year in the states, around 17 million cars roll out of the showroom with proud new owners behind the wheel. However, it is the used car sector that is growing while sales of new models slow down.

Last year used car sales hit a record level with 40.9 million pre-owned vehicles being sold in the US alone. This may have been partly due to financial constraints caused by Covid or it could have been the supply chain.

A huge shortage of automotive semiconductors brought many production lines to a screeching halt. The demand for new vehicles didn't abate though, so buyers turned to the used market instead for an alternative.

However, it may not be the supply issues that turned many away from a new car purchase. Used car sales may have risen due to new vehicles being seen as an unsound investment.

Is a new car a poor financial investment?

There are some clear reasons to think twice about buying a new car. These include high insurance for some expensive models, not being able to make repairs easily due to newer cars being more complex, and the initial outlay.

Put simply a new car is likely to be far more costly than a used model. This wouldn't be an issue if the car held its value the way property can. Yet, they don't. It is unusual for someone to buy a car and then be able to sell it later for a similar value or more.

Will you lose money on a new car?

Certain investments have the potential to grow in value. Stocks, mutual funds, and property can all go up. Of course, they can go down too.

Cars though are far more likely to see a drop in value than any increase. Some limited edition supercars will turn into modern classics and appreciate. But, by and large, once a car has the keys put in the ignition and is driven away, it is already losing value.

The Automobile Association of the UK states that a new car can lose between 10% and 40% in the first year. If any financial advisor said that your potential new purchase would be worth 40% less by the end of the year, you would be looking around to spend your money elsewhere.

However, there is one other consideration here. Different cars will lose different amounts of money over time. For instance, if two differently priced cars lose 20% in the first year, the more expensive one will lose more.

A $50,000 car losing 20% will only be worth $40,000 after 12 months. Whereas a $20,000 car would only lose $4,000 in a year. The more pricey the car, the heavier the depreciation. Yet millions of people are persisting in buying new cars, and the production lines continue to roll.

So, why buy a new car? If it isn't for financial gains, are there other reasons that make a new car purchase a positive investment?

Reasons why a new car might be a good buy

Taking aside the depreciation aspect of a new car, there are plenty of other reasons to choose one over a used model if your budget suits.

Some dealers such as Lum's Auto Center in Warrenton Oregon believe there are reasons that new cars are a better investment than a used vehicle. Certainly, there have been many advances in technology in the automotive industry. Some new cars barely resemble models from twenty years ago now.

Perhaps then, other reasons make a new car a good investment even if the numbers don't add up. What follows are 5 reasons why a new car could still make a good purchase in 2022.

A new car could be an ok longer-term investment

When you drive away in that shiny new automobile you can almost see the value dropping. This is more concerning for the shorter term though. If you want to switch cars every two years you will lose a lot of money.

If you buy a new car intending to keep it for a longer period than 2 or 3 years then the depreciation matters less. The older the car, the slower the depreciation and it can be traded in against a new car further down the line.

Investment for the family

A new car is likely to be far more reliable than an older pre-owned vehicle. It will also have modern safety features that can bring peace of mind when traveling with the family. Newer cars even have such features as tire-pressure monitors and telematics where emergency services are automatically notified in the event of an accident.

Anti lock brakes, more advanced safety belts, forward collision warning, and child-proof internal locks, all help to keep passengers safe. For any parent, these modern safety features are vital and cannot be matched by older cars.

More efficient with fuel

Modern cars don't only have better performance than many older versions, they are also more efficient. Right now, the share price of oil companies is up as beneficial tax breaks come in and fuel prices across the world are soaring.

Gas guzzlers of old are not economically viable now, and with fossil fuel reserves in decline, more efficient motor cars are needed. Newer cars have to meet certain standards to help the environment also and these include reducing emissions.

Alternative fuel sources

A modern car doesn't have to rely on petrol or diesel. This is good news when considering inflation and those rocketing petrol prices. In many regions gas is at a record high, and this is hurting drivers' pockets.

Thanks to Tesla and other manufacturers, electric cars are a reality and a genuine consideration when buying a new vehicle. Shares in Elon Musk's car manufacturer have been on a rapid upward trajectory as electric vehicles are seen by many as the only way forward. Searching for a used car limits the possibility of your fuel source, and an old car could be harmful to the environment.

There could be an argument that old cars already exist whereas new models require manufacturing. This means creating more emissions and greenhouse gases. However, it has been proven that even with the manufacturing process, an electric car is still the most environmentally friendly vehicle on the market now.

New cars are more comfortable

There are some beautiful old classics on the second-hand market now. But, not all of them were built for comfort. There were some serious bone rattlers in the past that were not the most family-friendly of vehicles.

Today, cars are built with better suspensions to ensure a smoother ride, and inside things are different too. Cars are quieter than in the past. Seats are more adjustable, and even seat belts are more comfortable than they used to be. Air conditioning improved heating systems, and simple things such as electronic wing mirrors & windows, parking assist, and automation, make driving simpler and more relaxing.

Modern cars can come with plush interiors that can make the longest drive comfortable still. For passengers, there can be extras such as headrest TVs to make intercity trips more bearable.

Summary

A new car is highly unlikely to turn into a financial asset, although it will hold the bulk of its value for the first couple of years. But, they can be sound investments for other reasons.

They are likely to be more comfortable than an older model, and they will be more efficient and environmentally friendly. Perhaps most importantly though, a new car could be an investment in your family's road safety as they are fitted with modern features to protect the driver and passengers.

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