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.

In pursuit of the perfect $30K Cadillac

The total cost of owning a car includes a variety of factors.  The actual price of the car is not directly a factor, unless you keep the car forever.

The difference in price of a car between when you buy it and when you sell it form the simple depreciation of the car while you owned it.   For example, if you were to purchase a car (we’ll call it car1),  for $45K, drive it for a year, then sell it for $40K, you might say that car1 cost you $5K to drive for a year.  On the other hand, if you purchase car2 for $25K, drive it for a year, then sell it for $18K, it cost you $7K to drive car2 for a year.  So although car1 had a higher price, car2 had a higher depreciation, and so cost more to drive for the year.

For my next Cadillac I plan to target an expense range of $400/month for the car.  I plan to drive it for 60 months.  At the end of the 60 months I anticipate that the residual value of the car will be no greater than $5K.  This means I will be looking for a vehicle that has a purchase price of $24K (60 mo x $400) plus $5K, or $29K.

Since the new CTS starts at $35K, that seems difficult as a budget for a Cadillac.  But I will not be shopping for a new car this time out, but rather for a 2 year old model with under 25K miles.  I also know that I drive an average of 15K miles per year.  Keeping in mind my 5 year horizon, if I purchase a car with 25K miles, after 5 years it would have 5×15=75K + 25K = 100K miles, and should still be in relatively good shape, and not require excessive maintenance or repairs.

My favorite target that is just coming into the 30Ks is the 2008 Cadillac STS-V.  As I have previously noted, the STS-V with every option known to man and a 469 hp supercharged DOHC Northstar V8 seems an amazing value, and it a high-weather mark in STS development.  I am hopeful that by this summer I will be able to find an excellent example within my price range.  Alternates would be to shop a fully loaded 2008/2009 CTS Sedan, or STS V8 Sedan, but the power and suspension tuning of the STS-V fit my idea of fun better.

2006 Cadillac STS-V

STS-V Interior Tango Red option shown

Now it is just the matter of finding the right STS-V. Total sales in 2008 of this model was under 500, but as the V-Coupe arrives this summer hopefully more of the STS-Vs will be coming out of the woodwork.

I have not lost my love for the new 2nd Generation CTS-V of course, and once prices for the Super Car CTS-V are in the mid to low $30Ks I will be looking very hard at them for the next Cadillac V.

Appeciating depreciation from the outside in

The 2008 Cadillac STS-V sold new for US$78,775.  A high price, but the vehicle was literally one of the zeniths of the Cadillac line, with every possible option in the STS family, as well as a hand-made Supercharged Northstar power train, track-tuned suspension, and Brembo brakes.

Now in 2010, the same vehicle in Good to Excellent condition would receive a trade-in offer from an average Dealer of around $28-29K.   That my friends, is depreciation.  Heartache.

[Note: values taken from the Kelly Blue Book, via, April 2010]

Now, if the owner chose to sell the vehicle privately, it would be worth somewhat more.  For a private sale in good to excellent condition the owner could expect to garner $31-32K.

On the other side of the table, after purchasing said car the Dealer would prep it then offer it for sale around $36K.

Although a 2008 model seems NEW, remember that this model would have been manufactured in 2007, and is almost a 3 year old vehicle  now in 2010, with the 2011 models on their way out soon.  Still, even at 3 years that is a sharp, sharp depreciation per year.  We all know the joke that a car depreciates as soon as you drive it off the lot.  Part of the reason for that is if you pay full retail for a vehicle, you could not possibly resell the same vehicle for full retail — you would only get the reduced, near-wholesale value.  So the difference between what you could sell the vehicle for and what you purchased it for is part of the depreciation, and happens as soon as you take possession.

Another cause for depreciation over time is the public perception of a vehicle’s reliability, appearance, and utility.  The STS-V did not sell as well as Cadillac had hoped it would.  It was always intended to be a limited production vehicle.  The looks of the new STS when released in 2005 never popped with the public.  It was redone visually in 2008, but by then too little too late.  I have always thought that the STS went wrong in the hood/front end treatments, and this is the key part that Cadillac addressed in 2008 as well, restying the grill, but leaving the flat hood lines.   The STS-V however gets a domed hood to help fit the Supercharger, which fixes the look of the front nicely.  But looks definitely effect depreciation, as beauty is in the eye of the beholder for resale.

In the case of the STS-V Cadillac during these years has had very good reliability.  However, the public’s perception of Cadillac reliability still has not caught up with the facts.  Buyers are shy to purchase used cars that they perceive as likely to require costly repairs.

Thirsty:  The 2008 STS-V is a powerful car.  It is also a relatively thirsty vehicle, scoring just 13 mpg city and 19 mpg highway in the current EPA measurement system.  It requires premium fuel only.  Those are both hard sells in the used vehicle market.

Comparison shopping:  Pricing a 3 year old STS-V alongside a new CTS is a very hard sales proposition at the Cadillac Dealer.  The average buyer would certainly prefer to have the new CTS.

From my point of view however, here is a jewel-like masterpiece of a Cadillac, largely hand made, with a unique, powerful engine and track tuned suspension.  And due to the magic of depreciation, it has almost fallen to a price point where it is attainable.  Yes, I feel bad for the Owners who wrote a check for $79K in 2007 and want a new CTS-V but are shocked to find that their prize STS-V is worth less than 1/2 as much now.

But be assured that these wonderful Cadillacs will find good homes.  At least if I can find one in my price range that one will.