Blog Post

It’s widely believed that a vehicle’s value plummets the moment it’s driven off the car lot. But does this claim hold water, or is it merely an urban myth? Essentially, what’s the real rate of depreciation for a car once it leaves the dealership?

Edmunds’ Research, a highly credible source, indicates that the average car’s value drops to 91 percent of its True Market Value (TMV) as soon as it hits the road.

But why does car depreciation occur so rapidly, and what implications does this have for you as an owner? Let’s delve deeper into the phenomenon of car depreciation and understand its effects on your automobile.

What is a Car Depreciation Rate?

It hardly seems just, upon reflection. You invest your hard-earned money into a brand new set of wheels, only to find its value plummets the moment you drive it off the lot. But why does this happen, and why so swiftly?

The key lies in perception. The very instant you complete the purchase and take possession, the vehicle transitions from “new” to “used.” This shift in status leads to an immediate loss of nine percent of its True Market Value—a costly minute indeed!

Logically, this rapid depreciation may not make much sense, yet it’s an undeniable reality. Humans, after all, are not always guided by logic in their purchasing decisions. Emotions and gut feelings often prevail, and these can have a significantly costly impact, particularly in the realm of car value depreciation.

So, you might think that after enduring the initial nine percent depreciation, your vehicle is set for the first year, right? Unfortunately, that’s not quite the case. Let’s delve deeper into this topic.

How Much Does a Car Depreciate Per Year?

Many consumers believe that after a vehicle undergoes its initial depreciation, its value should stabilize for at least the first year of ownership. However, these expectations often lead to disappointment. A car depreciation calculator reveals a different reality.

In the first year alone, a car’s value can plummet to 81 percent of its original price. The rate of depreciation, and how significantly a car’s value drops, can be influenced by several factors, including mileage. Additionally, depreciation affects various makes and models in different ways, highlighting the importance of using a model-specific car depreciation calculator.

For the purpose of this discussion, however, we will concentrate on general trends affecting the average car’s value over time.

What Is a Good Depreciation Rate for a Car?

At this juncture, you might be curious about what constitutes a reasonable depreciation rate for a car. To better understand this, it’s crucial to examine the vehicle’s value beyond its inaugural year.

By the conclusion of the second year, a vehicle’s rate of depreciation typically accelerates. After 24 months, the average car retains only about 69 percent of its original purchase price.

In simpler terms, anticipate your car’s value diminishing by 12 percent in the second year alone. Essentially, this equates to a monthly value loss of about one percent during the initial two years.

So, what implications does this have for those servicing a car loan? Consider a scenario where your monthly car payment stands at $395. Concurrently, the value of your car is decreasing by roughly $400 every month.

Hence, it’s imperative to view a car as a recurring expense, rather than an investment.

How Do You Calculate Depreciation on a Car?

As we navigate through this timeline, understanding how to calculate car depreciation becomes crucial. In the context of a vehicle lease, most agreements conclude by the end of the third year. Consequently, a significant number of pickups, SUVs, minivans, and cars enter the used market within this 36-month window.

At this juncture, as the owner, you’re faced with the disheartening reality that the vehicle, into which you’ve invested thousands of dollars, will now only retain about 58 percent of its original value—a stark illustration of car depreciation.

However, it’s important to note that this figure represents an average. The depreciation rate can vary significantly from one model to another, highlighting the importance of considering the specific model’s performance in terms of value retention over time.

Cars with the Highest Depreciation Rates

Ever wonder which cars lose their value the fastest? Leading the pack in rapid depreciation are the following makes and models:

• BMW 5 Series: 52.6% depreciation
• Volkswagen Passat: 50.7%
• Mercedes-Benz E-Class: 49.9%
• BMW 3 Series: 49.8%
• Ford Taurus: 49.7%
• Chrysler 200: 48.4%
• Volkswagen Jetta: 48.1%
• Audi A3: 47.9%
• Cadillac SRX: 47.2%
• Buick Enclave: 46.8%

Key to understanding car depreciation is recognizing how certain makes and models fare over time.

An interesting observation from the list above is the absence of Japanese cars. This suggests that if you’re looking to minimize depreciation, opting for a vehicle from Japanese manufacturers might be a wise choice.

Cars with the Slowest Depreciation Rates

Interested in knowing which car makes and models hold their value the longest? Here’s a list:

• Toyota Tundra at 37.1%
• Nissan Frontier at 37.8%
• Toyota 4Runner at 38.1%
• Chevrolet Silverado 1500 at 39.7%
• GMC Sierra 1500 at 39.9%
• Subaru Impreza at 42.3%
• Ram Pickup Truck 1500 at 42.7%

What accounts for the variation in depreciation rates among different car manufacturers? Japanese automakers have built a sterling reputation for producing reliable vehicles that withstand the rigors of time.

In contrast, while German and American vehicles enjoy popularity, they often necessitate more frequent repairs and maintenance over their lifespans.

What Is the Formula of Depreciation?

By the time a car reaches its fourth year, its depreciation rate hits a True Market Value low of 49 percent, meaning it has lost about half of its original value. This represents a significant depreciation, especially given the initial cost of vehicles.

For those who chose German or American cars, the depreciation curve is even steeper, with the vehicle losing half its value by the third year.

Five years into ownership, a car will typically retain only 40 percent of its original purchase price. This depreciation follows a consistent pattern, with the car’s value decreasing by roughly 10 percent annually.

Unfortunately, this annual 10 percent depreciation doesn’t decelerate. By the ninth year, the value of a car is negligible, and by the tenth year, it has plummeted to its lowest point. While it’s still possible to sell the vehicle and earn some cash, buyers at this stage should proceed with caution.

How Much Do Cars Depreciate When New Models Come Out?

The key to retaining a car’s value lies in its novelty. Consequently, when auto manufacturers unveil new vehicle models, the older versions tend to depreciate further in price.

Initially, this depreciation may appear minimal, but as the new models begin to populate showroom floors, the decline in prices of previous models accelerates. Dealerships aim to clear space for the latest offerings, prompting a more significant price drop.

The extent of this depreciation largely hinges on the nature of updates in the latest models. Significant redesigns or technological upgrades can make the new models more appealing to consumers, exacerbating the depreciation of older models.

External factors also play a role in determining how sharply prices fall. Media coverage of new models, for example, can influence consumer excitement and, consequently, the rate at which prices for older models decrease. Positive coverage typically results in heightened consumer interest, leading to quicker depreciation of outgoing models.

However, this price decline is generally modest, at about two to three percent in the initial weeks. Should there be a surplus in inventory, expect an even steeper drop in prices.

How to Slow Car Depreciation

How can you mitigate your car’s depreciation? While it’s impossible to stop, understanding the factors that influence vehicle valuation can help slow it down.

Firstly, prioritize taking excellent care of your car. Proactively prevent unnecessary wear and tear. Utilizing the services of a reputable auto transport company for significant relocations can help minimize mileage and maintain your vehicle’s condition.

It’s crucial to understand the benefits of auto transport services, their costs, and strategies for securing the best rates, as this can significantly reduce wear and tear and prevent mileage accumulation.

Moreover, adhering to your car’s maintenance schedule is vital. Consult your owner’s manual for a comprehensive service timeline, covering everything from oil changes to brake replacements. Diligently following these recommendations and maintaining records enhances your vehicle’s resale value, with platforms like Carfax making it easier to demonstrate your commitment to vehicle care.

Always choose a qualified mechanic for your car’s maintenance. Even if your car appears to be in excellent condition, sticking to the recommended service intervals ensures you’re proactive rather than reactive with maintenance.

Remember, replacing old and worn parts with new ones can significantly preserve your car’s value. By taking these steps, you can ensure that your vehicle remains in peak condition, thereby maximizing its resale value.

Maintain Your Car’s Peak Condition

To ensure your car’s performance and speed are preserved, it’s crucial to not only keep up with routine maintenance—such as oil changes, tire rotations, and brake pad replacements—but also to be vigilant about any alterations in its appearance or performance. Should you detect unusual sounds or changes in how your vehicle handles, it’s imperative to address these signs immediately, rather than waiting for the problem to worsen.

Consulting a reputable and seasoned mechanic at the first sign of trouble ensures your car remains in optimal condition. Additionally, be attentive to signs of potential issues, including reduced fuel efficiency, illuminated engine lights, or any other indicators that might suggest a decline in your vehicle’s performance.

Adopting a proactive approach to your vehicle’s maintenance will undoubtedly yield long-term benefits. Timely attention and care can significantly extend your car’s lifespan and performance. Moreover, maintaining cleanliness inside and out, and storing your vehicle in a garage to protect it from environmental damage, are equally important. Regular detailing will keep your vehicle in immaculate condition, enhancing both its appearance and value.

By investing a little extra time and effort into your car’s care, you can ensure it remains reliable, safe, and efficient for years to come.

Monitor Your Vehicle’s Mileage

It’s crucial to be mindful that the odometer of your car is an undeniable indicator of its history. The mileage it displays plays a significant role for potential future owners; higher mileage usually translates to a lower valuation. While your car’s value to you might not hinge on its odometer reading, especially if it still meets your driving needs, it’s worth exploring strategies to minimize accumulated miles.

For instance, opting to rent a car for long road trips can preserve your vehicle’s mileage and overall condition. Similarly, when relocating, choosing an auto transport service to move your car, instead of driving it across long distances, can prevent unnecessary wear and tear, as well as mileage accumulation.

Adopting these practices not only helps in maintaining your vehicle’s value but also ensures it remains protected from excessive mileage, deterioration, and potential damage.

Understanding Car Depreciation Rates

There are several strategies to shield your car from depreciation. However, certain aspects are beyond your control. Thus, exercise caution while choosing your next vehicle’s make and model.

In the midst of relocating? Let us assist you. Receive a complimentary, no-commitment quote for car shipping.