Sighting the sweet spot in used car pricing

Generally, cars depreciate.  Once you drive your new car off the new car lot, it becomes less desirable for me to buy from you versus buying the same car from the Dealer.    Another way to think of it is that your car’s resale value goes from the retail price you paid for it to the wholesale price you could resell it for.

After a few years, a car’s depreciation starts to level out.  My current 2005 Cadillac is depreciating at around $1.5K per year.  At some point depreciation basically stops, and occasionally a vehicle starts to appreciate in value.  For the most part however in most cases cars lose a lot of value in the first year or two, then lesser amounts until you are ready to sell/trade/move on to your next vehicle.

I’m setting my sights on grabbing up a 2008 Cadillac STS-V, or a 2010 Cadillac CTS Premium Model.  Honorable mention to a 2009 Cadillac CTS Premium Collection, but there is a minor detail that drives me to prefer the 2010 because of the way that the keyless ignition is implemented (button vs switch).

Edmund’s offers a true cost to own analysis.  What they suggest is that a 2010 Cadillac Premium has an initial cost (with no other options) of $46K.  In the first year of ownership it will depreciate around $10K.  Now, no one is going to post their 1 year old car for sale at a $10K decrease, but that would be our target for grabbing up a 1 year old 2010 CTS Premium.

2010 Cadillac CTS Year 1 Year 2 Year 3 Year 4 Year 5 5-yr Total
Depreciation $10,425 $4,887 $4,301 $3,814 $3,423 $26,850

and, to get to closer to $30K as a target, we would need to wait and get a 2-year old 2010 CTS Premium in 2011.

Now, considering the 2008 Cadillac STS-V is a little more tricky, as it can only be evaluated by Edmunds as a used car, so we only see the further down the slope values.  Edmunds estimates that the STS-V is currently worth around $40K.  It originally sold for $78K+. Some examples are creeping into the low 30s but some are in the 50s still, so keep in mind that their estimate is an average. I changed the year #s to tie out with the way that they are evaluating:

2008 Cadillac STS-V Year 3 Year 4 Year 5 Year 6 Year 7 Total
Depreciation $4,826 $4,232 $3,723 $3,302 $2,962 $19,045

So the 2008 STS-V is depreciating at around $4-5K per year.  So if there are 2008 STS-V’s available now for $35K then next year they might be in the $30K range.

Conclusion:  In another 6-12 months one could expect to grab up a 2009 CTS Premium Collection or 2008 STS-V in the high 20s / low 30s if you hunt for the lower edge of the market / find a bargain.  Wait a year and the 2010 Cadillac CTS Premium Model might slide into the right range.

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