Should You Buy the Latest and Greatest Car Model? Pitfalls to Consider
Buying a car that’s either a complete redesign or a brand-new model to the market can be tempting. The allure of having the latest technology, cutting-edge design, and “hot new thing” is powerful. However, there are several potential pitfalls you should consider before making such a purchase.
Pricing Challenges: The Hype Premium
Newly released or redesigned cars often command a premium due to their high demand and limited availability. Dealers frequently sell these models at MSRP (manufacturer’s suggested retail price) or even above it, especially when the car is receiving rave reviews or is considered a game-changer.
- Scenario: Imagine Car A, a newly launched model with a sticker price of $71,000, selling at MSRP or higher due to demand. Meanwhile, Car B, a similar vehicle that’s been on the market for a few years, is available at a discount of $65,500 or even cheaper as a certified pre-owned (CPO).
- Impact: By opting for the brand-new Car A, you’re not only paying a higher upfront cost but also risking a larger depreciation hit when the hype dies down.
Depreciation: The Hidden Cost
New cars, especially highly sought-after models, tend to depreciate faster once they’re no longer the “shiny new toy.” If you pay a premium for a newly released car, you could face significant financial losses when it comes time to sell or trade in.
Example: In three years, both Car A (purchased for $71,000) and Car B (purchased for $65,500) depreciate to $56,000. While both cars now hold the same value, the owner of Car A suffered a $15,000 loss, whereas the owner of Car B only lost $9,500.
Risk of Being Upside Down on Your Loan
Paying a premium for a new car may also increase the risk of being upside down on your loan—owing more than the car is worth. If you need to sell the car or trade it in earlier than planned, you may face financial challenges.
- Tip: Consider the total cost of ownership, including interest on a larger loan and how depreciation will impact your equity in the vehicle.
Early Reliability Issues
Brand-new models or redesigned vehicles often face growing pains. Even manufacturers with stellar reputations, like Toyota and Honda, have released new models with unanticipated reliability issues. Early adopters may find themselves dealing with:
- Software glitches: New cars increasingly rely on software-driven features, which may be buggy at launch. Infotainment issues, lagging touchscreens, and OTA (over-the-air) updates often take months to improve through software patches.
- Mechanical problems: New motors/transmissions can take time to truly identify design flaws.
- Recalls: Newly redesigned models often have higher recall rates as manufacturers work out early production issues. Checking NHTSA recall data or waiting for the second model year can help avoid early adopter headaches.
Why Wait? Cars that have been on the market for a few years often have higher reliability due to refinements made during their production run.
Better Value in Established Models
Established models often offer better value for several reasons:
- Lower Prices: Older models are frequently discounted or available as CPO vehicles, which include extended warranties.
- Proven Reliability: Known issues are often addressed, and reliability ratings are more predictable.
- Reduced Depreciation: Established models have already absorbed their initial depreciation, leading to better resale value retention.
Conclusion: Be Strategic with Your Purchase
While it’s your money and your choice, being an early adopter of a newly released or redesigned car comes with risks. From paying a premium to potential reliability issues and larger depreciation losses, the latest “knight in shining armor” may not always be the wisest financial move. By choosing an established model, you can save money, enjoy greater reliability, and reduce the long-term costs of ownership.
At My Car Insight, we specialize in helping buyers make informed, data-driven decisions. Whether you’re eyeing the latest model or considering a reliable used car, our expertise can aid you in get the best value for your investment.