Car Depreciation: How Much Value Will a New Car Lose?

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If you’re looking to put a brand new $40,000 car in your driveway, we’ve got some expert advice: Buy a vehicle with a sticker price closer to $45,000. That’s one way to look at depreciation.  Our data shows that cars can lose more than 10 percent of their value during the first month after you drive off the lot. The amount your car is worth will just keep falling, too.

According to current depreciation rates, the value of a new vehicle can drop by more than 20 percent after the first 12 months of ownership. Then, for the next four years, you can expect your car to lose 10 percent of its value annually. This means the average new car is worth just 40 percent of its purchase price after five years.

Of course, you may not be concerned about the “average car,” so we’re ready with information about how specific factors can affect vehicle depreciation.

What is Depreciation?

The modern concept of depreciation was developed in the 19th century so that the big railroad companies could show more profits. With a little accounting magic, the cost of laying track and building trains wouldn’t be subtracted from their yearly income all at once. Instead, the companies calculated how much a train, for example, was “used up” each year. They assigned a value for that use and then counted this smaller amount against their annual income until the train’s value was down to zero. In the same way, a car’s depreciation essentially represents how much of a vehicle’s value you’ve used over time.

Another important factor came into play as industries became more technologically advanced. At that point, corporations had to worry about assets that didn’t necessarily wear out, but did lose their value as more sophisticated replacements became available. Think of a business computer or, for car buyers, a vehicle without modern safety technologies. Both become less and less valuable as newer and newer capabilities are developed for the latest products.

What Else Affects My Car’s Value?

If you want to drive a new car, you usually have to pay more than that car’s really worth in the first place. After all, you’re not only paying for a vehicle, you’re also covering taxes, fees and the cost of running the dealership. The same goes for certified pre-owned vehicles and traditional used cars bought on a retail basis. When you compare your total outlay for a vehicle against its value, you’re running at a loss even before you get the car off the lot.

Then there’s the matter of perception. Luxury cars and cars from certain well-regarded mainstream brands can hold their value better than others simply because of their reputations. The way people perceive different types of vehicles can also impact their depreciation. For instance, when trucks and SUVs are in higher demand than cars, the former will have higher retained values, too, since people are willing to spend more money for them.

Can I Do Anything to Reduce Depreciation?

There are a few basic guidelines that will help your car hold its value. First, because depreciation is the price you pay for using your vehicle, you can soften the blow by using your vehicle less. The tipping point is right around 10,000 miles a year. Any more and routine wear and tear begin to really take their toll on a vehicle.

Which brings us to the importance of routine maintenance. By keeping up with service, such as putting in a fresh oil filter, you’re replacing worn and torn parts with new ones. This goes right to the heart of what traditional depreciation measures. If you’re worried about the impact of technology changes on your car’s depreciation, you can also guard against that. Carfax research indicates that if you buy a new car with high levels of safety technology, it will hold its value better over the first five years that you own it.

Side-view Mirror

Where Can I Find Out How Much a Specific Car Has Depreciated?

Typical car depreciation calculators can give you a rough idea of how much value a vehicle has lost over years. If you want more accurate information, however, you can rely on the Carfax History-Based Value tool. This starts with the generic factors that can affect value, like how old a car is and what features it has. Next, Carfax leverages the data from its Vehicle History Reports to see how that specific information impacts depreciation. This takes into account details like the service records, accident history and number of owners for that exact car or truck.

Getting a better handle on a vehicle’s “real” value can also help you save money when shopping. If you’re selling, it can also improve your chances of getting the best price.

Editor’s note: This article was originally published in December 2014. It has been completely updated for accuracy and comprehensiveness. 

By | 2018-11-09T15:39:46+00:00 November 9th, 2018|Car Buying|12 Comments

12 Comments

  1. Franics May 25, 2017 at 8:13 am - Reply

    I love the way you let the public learn ideas about buying cars! 🙂

  2. LNweaver July 10, 2017 at 9:47 pm - Reply

    I didn’t know that extreme colors were less palatable to buyers. I heard that bright colors are stopped by the police more often. Maybe that plays a role?

    • Martin August 10, 2017 at 2:48 pm - Reply

      I would favour an uncommon colour simply because they are easier to find in a car park.

  3. John S September 19, 2017 at 10:26 am - Reply

    We bought a car with lot’s of bells and whistle and it never helped depreciation. Clearly the vehicles that are popular hold their value more. Also steer clear of the long term loans which tend to keep you upside down much longer. If you decide that vehicle is not the best choice, you may be stuck with it for years until it gains some value over what you owe. Personally I think 60 months should be the max on a car loan, with 48 month being ideal for people who like new vehicles more frequently. Don’t get suckered into a 72 month or longer just to lower payment. Pick a cheaper vehicle you can afford with shorter terms.

  4. Alexa October 11, 2017 at 11:57 pm - Reply

    I wish I read about car popularity before purchasing my vehicle a few years ago. I purchased a certified pre-owned Volvo in 2014 with 22,000 miles for $26,000… 3 years later the car is worth $5,000 with 85,000 miles. The company stopped making the model of my car on top of the lack of demand for Volvo’s, it’s sad to know I stilll owe more in my 5 year financal agreement than the car is even worth. I bought the car because I had a honda civic prior and it was totaled from an accident at 10MPH. Honda and many other popular manufacturers do not produce vehicles that survive minor accidents and that is why I chose Volvo because of the safety and reliable construction Incase of a major accident. The depreciation though is beyond concerning… I chose a safe car because the “popular” cars on the road like civics and camrys are not safe in accidents. My Volvo will withstand an accident much better however is valued so much lower. How do we value cars that are cheaper to purchase and not safe as more valuable than a car that is?

    • John July 31, 2018 at 11:31 am - Reply

      The reason why many cars don’t survive or are “totaled” after minor accidents and worse is because of the crumple zones. They’re designed to absorb as much of the energy as possible so you and other passengers don’t feel it. Unfortunately, absorbing all that energy can have devastating effects to the car. In contrast, look at the car crashes in NASCAR or other car races. They’re designed to be rigid and w/o crumple zones so when the crash, the driver would die if not for the thousands of dollars of safety gear.

  5. Tom G. February 27, 2018 at 4:16 pm - Reply

    The resale value of a car is also impacted by the maintenance costs, and the current crop of Volvo’s have earned a reputation for having brutally high repair costs. Once out of warranty, their resale value plummets because the owner is now 100% on the hook if the car breaks.

  6. Janice Chiaretto July 3, 2018 at 2:39 pm - Reply

    For me, a committed used car buyer, my priorities are thus: Get a terrific, loaded car, well maintained with 60K or less mileage ; If worked out correctly, you should find something with 4-5 years of depreciation to keep the price low; pay cash or take a short term note if the interest rates are favorable but do not take a long note that puts you “upside down” as stated in this article; stick to what you really want and need and do not worry too much about resale. You may get to keep the car a good long time to the point where it isn’t worth much anyway (or if in good shape give it to your college kid). If you think you will turn cars over every 4-5 years then consider leasing, or worry far more about what makes the vehicle “popular”. Otherwise make yourself happy – life is short. 🙂 Why anyone buys a brand new car is beyond me. Just not a good use of funds.

    :

  7. Dominick July 17, 2018 at 12:25 pm - Reply

    Janice,I agree, it is not a $$ wise investment just piece of mind when buying a new vehicle. I loved leasing my trucks, then my commute to work became longer and could no longer lease. I financed my current truck, but need to go from a quad cab to a crew and I am considering buying used, but it baffels me as to trucks with 100,000 miles are selling in the $20,000 and up range?? I do 23,000 miles a year and would love to find a truck with low miles and keep it for two years three max then trade it in, any tips??

  8. Robert Downey August 30, 2018 at 11:52 am - Reply

    I think personally that it should be a crime for dealerships to sell their vehicles for what they do. I understand how depreciation Works however when I spend $40, 000 for a vehicle and 3 months later it’s worth half what I actually paid.. give me a break. Even worse you buy the car and one month later the auto manufacturer is now offering $12, 000 discounts on the vehicle? They know their cars aren’t worth what they’re selling them for to me that’s a form of embezzlement.
    what’s even more criminal is that if you bought a vehicle from a dealership for $40, 000 and you take it back to the same dealership a year later or two years later and want to trade it in, they don’t even use the standards like NADA or Kelley Blue Book to value your car. so let’s say that $40, 000 vehicle comes back on Kelley Blue Book at $19, 000 the dealership may only offer you 12 because they can buy it at auction for that. so what I bought the vehicle from you you’ve maintained the vehicle and know what condition is in which you will not know from an auction so you should give your customers a loyalty incentive to continue buying from you.
    in the 1980s and 90s you could buy a vehicle and the average depreciation was 5 to $6, 000 a year not per month.
    I think if everybody just bought the vehicle they want and just hang on to it till the wheels fall off the car dealerships would have no choice but to start making their cars a lower-cost. it’s completely ridiculous that a domestic vehicle now costs you an average of $35, 000 when the same car 10 years ago would cost you fifteen thousand. it’s no wonder the domestic manufacturers only bankrupt and needed a government bailout. and all those fancy bells and whistles that they tell you to get when you buy a car they don’t mean anything when you go to trade it in if anything it actually causes the owner problems because those bells and whistles are just more things that break on a daily basis that you have to constantly get fixed.
    My recommendation is this, do your homework and find the vehicle that you really want as your Forever vehicle. Save up to you can afford to put a down payment down and buy it and then keep it. Stop playing the dealership game. they want to make you think they only get $120 from the manufacturer for selling it and that’s garbage. even if it were true then the dealerships should start carrying foreign cars to force the manufacturers to drop their costs on selling the vehicles to the dealerships. With most of the factories being automated they don’t have hellacious labor costs so why does it cost so much?

  9. Charles Scaling October 5, 2018 at 3:41 am - Reply

    The only way to beat the system is to buy a used car or van and do your own repairs.I make $20.00 an hour so l’m not going to pay a shop $120.00 an hour to work on my vehicle .I buy my parts from Craigslist when used will do or Amazon when I need new parts. I drive a 1978 Chevrolet van with the wonderful 350 motor. I paid $900 for it in 1983. I also run a 1993 Dodge Caravan which I paid $750 for in 2006 Both vehicles run perfectly because when work needs doing I do it my self so all I’m paying for is the parts. If I need specialist tools I can rent or buy them. If I need information I can get Manuels from the public library or watch Utube videos. I’m not a trained mechanic but I get the job done and so can you if you want to learn and have the satisfaction of keeping more of your hard earned money in your jeans

  10. Gary VanRemortel October 22, 2018 at 6:26 am - Reply

    Charles is right. Buy a 3 to 5 year old luxury car in great condition and learn to fix it yourself.

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