If you’re buying a brand new car, we have some sad news: By the time you park it in your driveway, it’s already worth hundreds less than you paid for it – maybe even thousands. And that’s only the beginning.
Carfax data show that cars typically lose more than 10% of their value in the first month after you drive off the lot, and it keeps dropping from there. Except for a handful of exotic and low-volume specialty cars, depreciation – the difference between what you paid for the vehicle and what it’s worth now – is simply a fact of life for virtually every car. It’s just a question of how quickly – and how much of – that value disappears.
The First Year Is the Worst
According to industry experts, the value of a new vehicle drops by about 20% in the first year of ownership. Over the next four years, you can expect your car to lose roughly 15% of its value each year – meaning the average car will be worth just 40% of its purchase price after five years:
- A 5-year-old vehicle that sold for $40,000 when new will be worth $16,000.
- A 5-year-old vehicle that sold for $30,000 will be worth $12,000.
When calculating depreciation, your starting point should be what the vehicle sold for, not the manufacturer’s suggested retail price; if you knocked $5,000 off the sticker price, that’ll come off its resale value, too.
Keep in mind that how much a vehicle depreciates varies based on brand, type of vehicle, how many miles it’s been driven, and other factors (discussed below), so these numbers are broad estimates.
Depreciation and Cost of Ownership
The sneaky part about depreciation is that it isn’t like making a monthly payment. You don’t see the money going out the door; the “bill” comes due when it’s time to trade in or sell your car. Any calculation of the cost of owning a vehicle should include depreciation, because that’s likely to be the biggest chunk.
The total of what you pay for fuel, maintenance, repairs, your loan, insurance, and state registration fees is your operating cost. Adding in depreciation gives you your real long-term cost of ownership.
For example, if that SUV you paid $40,000 for five years ago is now worth only $16,000 as a trade-in, you’d need to add that $24,000 difference to your operating costs over the past five years to discover the actual cost of ownership.
Calculate Depreciation With the Carfax History-Based Value Tool
Typical car depreciation calculators can give you a rough idea of how much value a vehicle has lost over the years, but if you want more accurate information, use the Carfax History-Based Value tool. It starts with generic factors that can affect a car’s value, such as how old it is and what features it has. Next, using its Vehicle History Reports, Carfax leverages data that affect depreciation, including vehicle brand, accident or damage history, title history, service records, and number of owners.
Results are expressed in resale values for the vehicle as a trade-in or as a private sale in three condition levels: excellent, good, and fair. You can then use that information to help you set a realistic selling price or, if you’re looking to buy, a baseline for comparisons.
What Affects My Car’s Value?
There are many factors that affect a car’s value, and some are beyond your control:
- Vehicle age: Every time a vehicle ages a year it depreciates more, and that clock never stops ticking.
- Miles: Driving an average of 7,500 miles per year over five years or more can reduce depreciation by thousands compared with driving 15,000 miles per year. That’s because a used car’s value hinges largely on how many unused miles it has left.
- Brand name: Brands that don’t heavily discount their cars tend to have better resale value than those that do. Among mainstream brands, think Honda and Toyota, both of which also have long-standing reputations for reliability and durability – two more favorable attributes that can slow depreciation.
- Luxury vehicles: Luxury brands charge more for their vehicles, but that doesn’t necessarily mean they’ll hold a greater percentage of their value than a lower-priced vehicle. On the contrary, some luxury cars costing $60,000 or more can depreciate faster than a $30,000 vehicle.
- Type of vehicle: SUVs and pickup trucks are today’s most-desired vehicles (they accounted for about two-thirds of U.S. sales in 2020) in both the new- and used-vehicle market. If you have an 8-year-old Ford F-150 with 100,000 miles on the odometer, chances are lots of people will want to buy it from you. As sedans and hatchbacks become less popular, their resale value is likely to depreciate faster than SUVs’ and pickups’, though that can vary by brand.
- Condition: A car that looks showroom-fresh will always command more money than one that looks like it survived a demolition derby. The cleaner a used vehicle is, the less reconditioning it will require – hence, the more it’s worth. Rust is a value-killer; it’s expensive if not impossible to repair, as well as being a sign a vehicle is infected with a cancer that’s only going to spread. A car that has bald tires, squeaky brakes, and blue smoke coming out the tailpipe isn’t just a used car, it’s a beater. A car that starts, stops, and runs well is obviously going to be worth much more.
- Service records: Proof of regular maintenance can also boost resale value, so having receipts documenting oil changes, tire rotations, fluid flushes, and other services is a plus.
- Accidents or damage: A vehicle that’s never been in an accident will be worth more than one that has. Replacing body parts and repainting often leave telltale signs of an accident (and used-car appraisers are good at spotting them), so even a minor fender-bender is going to speed up depreciation; it’s just hard to tell how bad an accident really was and what wasn’t repaired, such as frame damage.
- Number of owners: The fewer owners a vehicle has had, the less it will depreciate. Like a dog that keeps getting sent back to the shelter, a car that’s had multiple owners raises the question, what’s wrong with it?
- Fleet vehicles: A lot of late-model used cars started life as rental cars, which means hundreds of drivers have used the vehicle and treated it with varying degrees of care. A one-owner, privately owned vehicle most likely got more TLC than a rental car – often a lot more.
- Features and current technology: Convenience features such as Bluetooth, Apple CarPlay, wireless phone charging, remote start, and backup cameras (also a safety feature) are rapidly becoming standard. If your vehicle doesn’t have them, it won’t be worth as much down the road as those that do. The same goes for advanced safety features, such as automatic emergency braking, lane keeping assist, and adaptive headlights that swivel in the direction of turns. More shoppers want and expect to find those kinds of features on their next vehicle, whether it’s new or used.
Charles Krome also contributed to this article.
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If you have questions about this story, please contact us at Editors@carfax.com