Nice cars don't even hold value

'I get so frustrated when I hear people try to justify buying an expensive car they really can't 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."

This was the opening paragraph of a column by Michelle Singletary in The Palm Beach Post. The article, sent in by a reader, is undated, but auto-purchasing fundamentals never change.

Singletary quotes Robyn Eckard, a spokeswoman for Kelley Blue Book, a leading provider of information on new and used vehicles. "Depreciation often is the greatest expense incurred by drivers during the first five years of vehicle ownership. The average vehicle retains about only 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."

Singletary continues, "Car valuations matter because an increasing number of consumers are upside down on their auto loans, meaning they owe more than the car is worth. It is financial lunacy. And making matters worse are risky lending practices similar to what we've been seeing in the mortgage industry."

This commentary is reminiscent of a lecture I gave last April to the graduates (future teachers) of the College of Charleston's School of Education: "Instead of buying a new car with monthly payments for seven or eight years, consider buying a two- to three-year-old vehicle and paying it off in 24-36 months."

Now, this similar advice from writer Singletary: "First, use a 48-month car loan (for a new car) as a benchmark for affordability," she said. "If you can't handle the monthly payments with a four-year loan, you probably can't afford the vehicle you'd like to buy.

"Next, you should research the resale value of the car you're looking at. Kelley Blue Book now provides a depreciation chart on its Web site that shows projected resale values for all new vehicles."

Singletary concluded her column with these sobering thoughts: "But even if the car you select has a good resale rating, it's still a depreciating asset. What I'm asking is that you change your thinking about what a car is worth. And I'm not quibbling over semantics," she said.

"There is a substantial difference between assets that have the potential to appreciate, or that truly hold their value versus those that depreciate year after year. Your goal should be to put more of your money in appreciating assets."

For those who would like to present an opposing view, write me at the address below.

George Spaulding is a retired General Motors executive and distinguished executive-in-residence emeritus at the School of Business and Economics at the College of Charleston. He can be reached at 2 Wharfside St., 2A, Charleston, SC 29401.

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