Released: April 29, 2007

Don’t chase equity with a pricey automobile

Source: Michelle Singletary, Washington Post (Free Registration)

I get so frustrated when I hear people try to justify buying an expensive car they can’t really afford by saying, “Well, it’ll hold its value.”

The truth is no vehicle holds its value unless it’s a classic or rare car.

That Mercedes-Benz E-Class you desire may depreciate at a slower annual rate than a Mercury Monterey, but both cars will lose significant value the second they leave the dealership.

“Depreciation often is the greatest expense incurred by drivers during the first five years of vehicle ownership,” says Robyn Eckard, a spokeswoman for Kelley Blue Book, a leading provider of new- and used-vehicle information.

The average vehicle retains only about 35 percent of its original value after a five-year ownership period, meaning that a car bought new today for $20,000 will be worth $7,000 after five years. By the way, a Mercedes E350 retains only 36 percent of its value after five years, according to Eckard. The Mercury Monterey fares worse, retaining only 21 percent.

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