Car depreciation isn’t a good thing for car owners.
This article will dig deeper into the subject of vehicle depreciation and maybe even help you protect the market value of your car.
Table of Contents
Why Do Cars Depreciate So Quickly?
Cars depreciate quickly over time; major reasons for this value hit come from new advancements, vehicle reliability, and how well you take care of your automobile, among others.
As a result, there is typically not a shortage of cars to buy, so the people who can afford to buy a brand new car will generally do so.
Second, vehicles require a lot of maintenance. Unless the used vehicle has receipts and records for all of the service performed, it is impossible to know if proper preventive maintenance has always been performed on time.
The older a vehicle is, the more of a chance there is that maintenance was neglected. This risk lowers the value of the vehicle over time.
How Much Do Cars Depreciate on Average?
New cars typically depreciate by 20% of their total value after the first year of ownership and 15% every year after that.
Every vehicle is different, so these figures may differ slightly from vehicle to vehicle and may also change due to market forces. These numbers are just averages in a normal market.
Also, after a certain point (which varies with each vehicle in different markets), a vehicle’s value will “bottom out” and no longer depreciate very much because it always has some base value. This is typically 10-20 years, depending on the model.
5 True Reasons Why Cars Depreciate So Quickly
Cars depreciate quickly due to 5 main reasons: new features, performance, fuel economy, maintenance, and buyer psychology.
First, brand new cars often improve included features every year. Features like auto start/stop, radar cruise control, etc., may only be available on a brand new model and make older models worth less by comparison. Even new paint colors or wheels may be a reason for buyers to look to the new market, further devaluing older vehicles.
Second, some new vehicles improve engine performance every year. Last year’s model may have 200 horsepower, while the brand new car may boast 250 horsepower, for example. Once again, as the average power of new cars is raised, older vehicles that make fewer horsepower continue to lose value.
Next, most manufacturers are striving to increase fuel economy every year. As the standard for fuel economy grows higher, used cars that use more fuel per mile are worth less by comparison.
Fourth, as I touched on earlier, every year a vehicle ages is another year it was potentially neglected in terms of maintenance. The older a car is, the more of a chance it has missed maintenance and is in worse shape mechanically, making it worth less every year.
Finally, buyer psychology plays a large part in vehicle depreciation. Many buyers like the idea of buying a shiny, brand-new car rather than purchasing an older used vehicle because they know they are the first ones to drive it.
There is a certain peace of mind involved in this, along with the status symbol of having a brand new vehicle rather than something five or more years old that has more potential for significant issues.
There are sometimes reasons for vehicle depreciation besides this, but these are the big five!
Why Do New Cars Depreciate Most Quickly?
New cars depreciate most quickly because as soon as a vehicle drives off of the dealership lot, it is immediately at risk of damage, neglect, and poor driving techniques that can reduce the mechanical integrity of the car.
New cars are worth significantly more than used cars for this reason, so as soon as it becomes a used car, the value drops quickly.
While the car may be in perfect shape, the next buyer can never know for sure how well the vehicle was taken care of. This reduces the car’s value to a prospective buyer.
What is the Best Age to Buy and Sell a Car?
If you are buying a car, the best value tends to be in the 5-7-year-old range; for selling a car, it is best to drive a car until its value bottoms out to get the most value out of it.
5-7-year-old cars have the best combination of reliability and modern features for the price.
With vehicles of this age, the risk of vehicle failure is relatively low compared to vehicles older than this age range. These vehicles have also depreciated enough to be a very good value compared to a newer car.
In terms of selling a car, it is best to keep a vehicle as long as you can in order to wait for the used value to bottom out. As long as you take good care of the vehicle, the cost to maintain is often lower than the additional cost to purchase a newer model.
Is it Possible to Slow Down a Car’s Depreciation?
The best way to slow down a car’s depreciation is to take extremely good care of it and have all preventive maintenance performed at the proper intervals by a professional shop.
If the receipts are saved to show all of the important maintenance work was always completed on time, the vehicle can be worth more to the next buyer when selling because the buyer knows that maintenance was not neglected.
However, if you are capable of doing your own maintenance work, you may need to decide if spending extra money to always have your vehicle serviced by a professional is worth the extra money that you may or may not get when reselling.
Also read: Does Jeep Hold its Value: 6 Models Compared
Which Car Brands Depreciate Most Quickly?
Most of the time, luxury brands such as Maserati, BMW, Lincoln, and Cadillac depreciate most quickly.
The first reason is because these vehicles have many more features and new technology than non-luxury vehicles. This means that they are more expensive to maintain, especially as they get older. There is also more risk of these features failing over time.
Luxury car buyers typically have enough money to buy a brand new vehicle without thinking twice about it. In that case, it makes perfect sense to buy new, and the market for used luxury vehicles is devalued as a result.
Luxury car buyers often place a strong sentiment on appearances, which buying brand new cars instead of used cars plays to. A Mercedes-Benz shopper typically wants the newest, nicest Mercedes instead of a used model.
By the way, if you want to see Mercedes-Benz’s depreciation in detail and reveal which Mercedes model depreciates fastest, go to this article.
Some luxury car brands are coasting along on name recognition alone and have poor reliability, poor build quality, and do not have enough extra features or performance to make up for their high price.
For instance, Maseratis are heavily overvalued as brand new models, and poor build quality means that the used value drops like a rock over time.
The biggest exceptions to this rule are Lexus vehicles, as they combine luxury features with famous Toyota build quality and reliability. Lexus vehicles tend to depreciate extremely slowly.
Which Car Brands Depreciate Most Slowly?
In general, car brands that are known for good build quality in conjunction with above-average reliability and low maintenance costs depreciate the most slowly. This includes brands like Toyota (and Lexus), Kia, Mazda, Hyundai, and Ford trucks.
I’ve prepared an article about Mazda depreciation under this link.
These vehicles have a reputation for superior reliability and a very high build quality for their price point when new.
Since these brands have to price their cars relatively low to stay competitive in the marketplace, they have less “excess” value to lose once they become used vehicles.
Buyers of these vehicles on the used market also know that they are more likely to get a quality, reliable used car despite the vehicle’s age. These brands can also be more forgiving when it comes to missed preventive maintenance than other brands.
Why Do Cars Depreciate at Different Rates?
Cars depreciate at different rates because of differences in build quality, initial value, perceived reliability, and market preferences.
Cars that have a very high overall build quality tend to stay in better condition over time, making them depreciate more slowly.
The higher a vehicle’s initial purchase price, the more likely it is to depreciate more quickly. This occurs because a more expensive vehicle may have more profit for the dealer built into the price when new.
Perceived reliability also plays a large role in depreciation. Vehicles and brands that used car buyers perceive as extra reliable tend to depreciate more slowly.
Vehicles like Toyota Corollas, Toyota pickup trucks, Mazda sedans, and Hyundai cars tend to be the most vehicles in many markets, so consumers believe that they are taking less of a risk in buying these used.
Finally, market preferences and supply/demand cycles greatly affect a certain vehicle’s depreciation.
For example, in the United States, off-road vehicles like Jeep Wranglers and Toyota Tacoma 4x4s depreciate very slowly because off-road capable vehicles are very popular in the market right now. Since these vehicles are in high demand, they hold their value longer.
My advice? Don’t worry so much about depreciation. It can be hard to predict, and you will be much happier if you buy a vehicle based on your wants and needs instead.