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Ask Joanne

When is a car’s trade-in value at its peak? Add to ...

I was getting an oil change for my 2009 Toyota RAV4 and ended up chatting with a salesman at the dealership. He recommended trading in cars before they reach 100,000 km to maximize the trade-in value. My car is two years old and has 60,000 km. I was planning on keeping it for four or five years, but now I’m wondering if I should trade it in sooner because if I keep it five years it will have at least 150,000 km. Is the salesman right? – David in Ottawa

It doesn’t surprise me that the salesman is pushing for a trade-in; maybe he needs to hit his quarter’s target. But do you want, let alone need, a new model?

Until you heard his pitch, you were planning to hang on to your vehicle for a few years. During the course of an oil change, he attempted to change your mind.

His pitch is partly right. The value of a vehicle decreases with time and wear, so of course your car will be worth less in a few years. Assuming you purchased your vehicle new, you’ve already shouldered the biggest depreciation hit. Any gains you stand to make by trading now may be cancelled when you absorb the depreciation on a new model. Remember the adage about an instant 20 to 30 per cent decrease in value when a new vehicle is driven off the lot?

If you’re happy with your vehicle, why not derive more value by continuing to use it? If you look after it, experts say your car will still have solid trade or resale value in two or three years.

“In the old days, when a car went over 100,000 miles, it was sort of a trigger point, perceptually, that it had lost a lot of value. When we went to metric, suddenly the perceptual trigger point became 100,000 kilometres, which is only 60,000 miles,” says Bob Pierce, director of member services for the Used Car Dealers Association of Ontario.

“But cars are built better these days, they’re lasting longer, they’re rust-proofed better, and if you take care of them it doesn’t necessarily mean you’re going to lose that much just because it goes over 100,000 km. It comes down to how it looks and how it’s been kept.”

Several dealers I spoke with echo the belief that the demand for good, used cars will increase over the next few years.

“It’s an interesting marketplace right now. We’re in a time with such a downturn in lease return vehicles because two of the traditional Big Three got out of leasing, and the daily rental companies are keeping vehicles longer, so used cars are at a premium. If you’ve got a good one you’ve taken care of, and it’s not a U.S. flood vehicle or a seven-owner wreck, then I don’t believe in today’s market that 100,000 km makes a damn bit of difference,” says Pierce.

Most of us are at least somewhat recession-conscious these days. Ideally we spend our disposable income on things that are most important to us. If driving a new car is important to you, and you can afford to enjoy it, then perhaps you should trade up to a new model.

From a purely financial perspective though, when should you trade in your vehicle?

“When it starts to cost you more in repairs and maintenance than it would cost to buy or lease a new car. If it’s costing you $600 per month in repairs and you don’t know when it’s going to stop because things keep going wrong, then maybe you should look at a new car,” says Cynthia Kett, a principal at Stewart & Kett Financial Advisors in Toronto.

A 2009 RAV4 with 60,000 km is a good automobile. If it’s not causing you many problems and suits your lifestyle, enjoy it, and tell the salesman you’ll see him in a couple of years.

E-Mail Ask Joanne at globedrive@globeandmail.com

 

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