Reminder: Your Car Is Not An Appreciating Asset

Reminder: Your Car Is Not An Appreciating Asset

The used market is hot right now, very hot, leading some people to think that used cars might now be appreciating assets. Friends, I implore you: They are not.

We know, of course, that almost every car depreciates in value every year, almost no matter what you do, but now, according to The Wall Street Journal, used cars are gaining in value. That is because of very strong demand, which is because of the global chip shortage and low new inventories, in addition to low used inventories because people are holding on to what they have and fixing them. And also people are holding on to leased cars longer, thus partially depriving the used market of a consistent source of new product.

A dealer wonders: Are cars now appreciating assets?

The average price paid for a preowned vehicle hit a record of $US25,463 ($32,381) in April, about $US2,800 ($3,561) higher than in the same month last year, according to research firm J.D. Power. It also was the first time ever that the average used-car price had exceeded $US25,000 ($31,793), the firm said.

The climb, which began last year, has surprised some dealers who say they don’t see the trend ending soon.

“What is normally a depreciable asset has been appreciating,” said Phil Maguire, who owns Maguire Family Dealerships, a group of 13 stores in New York state. “It’s certainly surreal, and I guess we can all agree that it’s an anomaly.” Dealers say they are having to pay more to keep their lots stocked.

We can agree that it is an anomaly, Phil, while buyers should probably stay on the sidelines.

“If you don’t need that vehicle right now, just wait,” said Ivan Drury, an analyst for car-shopping website Edmunds.com. “You are not going to get anything you want, whether that be the price, the selection or those little things that you really don’t want to compromise on.”

You might have even been tempted yourself to sell in recent times and if you have an extra used car in decent shape lying around that you don’t need, that would likely be a good decision. But, for everyone else: This is a once-in-a-generation blip in the market due to extraordinary circumstances that does not change the fact that cars, as a rule, are terrible investments. That’s even if you think you know where the market is going, because you don’t, and I don’t, even if sometimes I think I do.