By: Bob Gummersall
INTRODUCTION — My intuition has led me to believe for several years that used previously loved, RV’s represent the best value in the market today. I have performed a study using NADA and Kelly’s Blue Book prices to understand the effect of depreciation. Dealers depend on both the NADA and Kelly’s Blue Book to establish values of all RV’s, so I believe that these reference books provide a valid basis for evaluating deprecation. I have studied luxury, entry-level diesel, Class A, Class C, and Class B motor homes as well as travel trailers, fifth wheel trailers and campers. The results show that across all RV’s, depreciation follows the same curve. Evaluating the "Best RV Value" must include other factors. Cost of money (interest on loan or lost investment interest), maintenance, insurance and licensing are the major other factors. I think the amount of use must also be included in this study. This method of evaluation will allow you to decide which RV provides you with the best value.
This study showed that the total cost of ownership of a used (3 year old) RV is approximately half of the cost of owning a new RV. This argues that if one is concerned about ownership cost, you should seriously consider buying a previously loved RV. The total cost of ownership will be about half what driving off the lot in a new rig will cost. Other factors are important for some people. If money is not a consideration then factors like: Wanting a brand new coach with it’s "new" smell; Not wanting to sleep in someone else’s bed; Owning the pride value of a bright shinny new coach; Not wanting someone else’s problems; Etc. may be more important to you.
DEPRECIATION - Starting with MSRP the depreciation is 30% driving it off the lot, another 10% at the end of the first year, and 6% for each year following. We all know that no one pays MSRP for a new coach with typical discounts of 15 to 25% depending on the model. So here’s a typical actual depreciation schedule.
YEAR
DEPRECIATION
VALUE
1
18%
65,6000
2
10%
57,600
3
7%
52,000
4
6%
47,200
5
6%
42,400
6
5%
38,400
7
5%
34,400
8
4%
31,200
9
4%
28,000
10
3%
25,600
11
3%
23,200
12
2%
21,600
13
2%
20,000
... And so forth until about 20 years old.
Thus at the beginning of the 6th year of ownership the RV is worth approximately _ of its net purchase price. Obviously they use all the techniques to make you feel like you are getting a good deal if you are trading in your old RV. I have tried to normalize this effect by using wholesale prices or low-retail prices in the analysis. As shown in the table, depreciation stops when the scrap value equals the depreciated value. In the case of RV’s this happens when coaches get very old and require significant investment to keep running. For example, a 20 year old Winnebago or Fleetwood is going to be worth about $6000 for the foreseeable future.
This is true as long as it is running well and most of the features are working. Evaluating depreciation as related to value means you have to consider the yearly depreciation as an absolute expense. Money that is lost the same way it would be if you spent it on a vacation. The money is gone and has no possibility of increasing in value.
If the asset you purchase with cash is appreciating then this is new money called income. Investment income is equal to that you might have made in salary on a job. We invest in the Stock Market because we believe that our investment will appreciate and provide dividends. Appreciation, dividends and interest are examples of new money. There are few, if any RV’s that appreciate in value so they cannot be considered an investment any more than the cost of going out for a nice dinner and movie. A classic RV, like the FMC or GMC coaches, may have reached a point where they may be appreciating and therefore can be considered an investment.
COST OF MONEY — Understanding the "cost of money" requires an evaluation technique called "present worth". Whether you finance or pay cash for your RV, there is a cost of money that must be considered. Paying cash requires you to theorize how much interest the "cash" would have made if you had not spent it. The lost interest, dividend or appreciation of the alternate expenditure is considered the "cost of money". If you finance your RV, you must consider two components to find out your cost of money. First the down payment must be treated as above in the cash method. Secondly you must add to that, your interest cost on the loan. Each year as you pay off the principal of the loan, your equivalent cash value must be increased and depreciated.
COST OF SERVICE AND MAINTENANCE — The cost of owning an RV must include the cost of service/maintenance, repair and refurbishing. Maintenance and service cost go up as the unit gets older. Repair and refurbishing increase significantly as the RV gets to be 8 or more years old. Depending on the type of RV the repair cost can be very significant. For example, gas V8 engines like the Chevrolet 454 or Ford 460 typically need to be rebuilt after 50,000 to 70,000 miles. For a typical gas motor home that translates to about 10 years. The engine rebuild cost can be $4,000 or more. Automatic Transmissions used in gas vehicles last about the same length and can cost $2000 to rebuild. Diesel Engines and heavy-duty transmissions are just getting broken in at 50,000 miles so their repair or rebuild costs are moved out in time. Most diesel motor homes go several hundred thousand miles before any major repair is required. Things like tires, brakes and filters are directly proportional to mileage. Cost of Batteries is dependent on use, maintenance and time.
COST OF INSURANCE AND LICENSE — Liability insurance cost are proportional to the mileage and drivers record. Casualty and comprehensive costs are proportional to the price of the RV. Licensing cost is usually a flat fee, except in States where RVs are taxed as property through the licensing process and then the license is proportional to the value of the RV.
EXAMPLES:
LUXURY COACH — This evaluation considers the ownership of a luxury motor home for 10 years. The ownership cost of a new coach is compared to a used 3 year old coach. Typical of this category would be a 38’ Country Coach Intrigue or Monaco Dynasty. It is assumed in all cases that a new coach can be purchased for about 80% of the MSRP. That reduced price is used as "new" coach price.
Click here for a spreadshet providing details
As you can see there is a significant difference in the cost of ownership and operation of new verses used. Many owners of this class of coach with deep pockets trade up regularly and there are many very good used coaches available to choose from. Basically the cost of owning a used coach is around one half the cost of owning a new one.
PREMINUM GAS CLASS A — Same comparison. Winnebago Adventurer, Fleetwood Bounder (gas) or Holiday Rambler Endeavor (gas) are examples of this class.
Click here for a spreadsheet providing details.
The ownership cost of a used Premium Class A runs and average of 60% of the cost of owning a new one.
FIFTH WHEEL — Same analysis with a fifth wheel like a Fleetwood Savanah towed by a dually pickup. The depreciation schedule of both the Fifth Wheel and the Pick Up are very close, so I have used the same depreciation schedule for all examples.
Click here for a spreadsheet providing details.
Again the ownership cost for a 3 year used Fifth Wheel/ Pick Up runs about 60% of the cost of owning a new combination.
SUMMARY — These three examples show that it is between 40 and 50% better to buy a previously loved RV. It is obvious that the older the RV is the lower the ownership cost will be. It is up to each of us to decide how much "value" a brand new shinny RV means. Maybe a new mattress and a good scrub on a used rig is a better bet. If you want the spreadsheet to do you own analysis, drop me an email at bobg@cmn.net. I wish you all safe and happy camping.