When you shop for a new car, not only do you have to choose the make and model, but also decide what options you are willing to pay for. And options don't come cheap.
According to Black Book, which provides vehicle valuation data to thousands of dealers and auto wholesalers, just the navigation package will bump up the sticker price of a luxury sedan more than $3,000.
Manufacturers, of course, push fully-loaded vehicles on their dealers because of their high profit margin. Dealers, in turn, push them on buyers.
“One of the reasons why new car transaction prices have gone up in the last few years by 3% to 5%, when the inflation rate is less than 2%, is because of the high options content in those vehicles,” Anil Goyal, Vice President of Automotive Valuation and Analytics at Black Book, told ConsumerAffairs.
Quickly lose value
But while option packages are a big part of the initial expense of a new car, Goyal says they quickly lose value. Options and add-ons that raised the cost of that new car by $5,000 may only be valued at $800 three years later when it's time to trade it in.
“It's a much steeper discount, where the car may have lost about 60% of its value but the options package lost up to 85% of its value,” Goyal said.
But this fact cuts two ways. Yes, it's not so good for consumers who buy new fully loaded vehicles. However, used car buyers usually can get these expensive options for a song.
Adding no value
Goyal says some options add no value on the used market – things like premium audio, power windows, custom paint, and remote keyless entry. Those are now so common they're almost expected.
“On the other hand you have features like power sunroof, leather, DVD system, and those are the options that are still bringing value, because they're very visible, they still provide a premium feel to a used buyer,” Goyal said.
Different types of buyers
Goyal says the difference comes down to preferences that new and used car buyers have. The new buyer may desire a particular option, or option package, as part of the new car experience. The used buyer, however, is a little different.
“When it comes to the used market, the used buyer is not really looking for customization, or even options, they're looking for value.”
In other words, the used car buyer is guided in his or her choice mostly by price. If a car happens to have a nifty package of features, that's great – but it isn't going to make or break the sale.
The lesson for new car buyers?
“The more you customize, the less the car is going to be in demand in the used market,” Goyal said.