Any car buyer has heard the old saying that once you’ve driven a new vehicle off the dealer lot, it depreciates by 50%.
That’s nowhere near true, but like many old saws, there’s a grain of truth in the comment, as new autos do lose value once they hit the open road, and that depreciation tends to hit the gas pedal harder the longer you’ve owned the vehicle.
A case in point.
According to a new report from iSeeCars, price depreciation is the “most expensive” component of car ownership, especially with the “drastic rise in car prices over the past two years.”
In late 2022, iSeeCars noted that in a high-demand, low-supply vehicle market, the average new car loses 16.9% of its value after three years and 33.3% of its value after five years. That's a bit slower than the previous year when new cars were averaging a five-year loss in value of 40%.
Of course, some vehicles lose value more quickly than others.
According to the study, the lowest vehicle depreciation vehicles after five years include the Jeep Wrangler (with an average 7.3% five-year depreciation rate), the Porsche 911 (14.6%), and the Toyota Tacoma (14.9%).
On the flip side, the models with the highest depreciation rates include the BMW 7 Series with an average 56.9% five-year depreciation rate), the Maserati Ghibli (56.3%), and the Jaguar XF (54.0%).
The report also noted that as a sign of the times, “there are five models that have actually appreciated over the past three years, meaning their current used value is now higher than their original new manufactures retail price.”
Which Vehicles Tend to Depreciate Most and Why?
There are a lot of reasons why a vehicle depreciates over time (i.e., mileage, care of the vehicle, and model demand, for example), but once it starts the price descent, deprecation is literally taking money out of the car owner’s pocket.
“Auto depreciation is the gradual loss of value that a car experiences as it sits on the market or is in use,” said. The Driver Advisor founder (and long-time auto mechanic) Stefan Kleinekoort. “This happens because cars are subject to wear and tear, which includes everyday driving, accidents, damages caused by weather conditions such as floods or snowstorms, and theft.”
As a car loses value over time, Kleinekoort said, its owner may be required to pay higher insurance premiums or make other repairs that burden their wallet.
“Additionally, car owners who trade in their old vehicle at the end of its life may experience lower appraisals due to depreciation - this could lead to them receiving less money for their old car than they expected,” Kleinekoort told TheStreet. “Auto depreciation can be difficult to predict and forecast; however, drivers and owners of vehicles alike need to understand to make informed decisions about financing and owning a car.”
One of the most important auto depreciation factors is how often it has been driven.
“Cars that are driven more frequently tend to depreciate faster than those parked or kept in storage,” Kleinekoort said. “This is because they wear down faster due to exposure to sunlight and other elements.”
Additionally, cars with older engines typically experience more significant fuel efficiency losses and detonation ( destructive combustion), which damages engine parts over time. “Ultimately, it's essential to understand your vehicle's history so you can identify any issues early on and take appropriate action before they cause significant financial harm,” Kleinekoort noted.
In general, luxury vehicles have historically depreciated the fastest.
“Purchasers of new luxury vehicles are paying a premium for high-end features that may not even be available in lower-priced cars and trucks,” said CARid.com product training director Richard Reina said. “As these vehicles age, the percentage of value tied to the luxury features drops more quickly for two reasons.”
1. Those features are not directly related to the car’s operations, and so are viewed as extravagances.
2. Purchasers of used cars generally will not want to pay for luxury features that they feel they could live without."
On the other hand, vehicle make and models which are the most popular when new tend to depreciate the least over time.
“For example, pickup trucks, which have been big sellers for years, tend to hold their value very well,” Reina said. “Brands with excellent reputations for quality and longevity, such as Honda and Toyota, have had many of their models depreciate very slowly.”
Meanwhile, the Covid pandemic shutdown changed the playing field when the new car supply dipped to historic lows, and used cars were sought out as alternatives. “This caused depreciation to slow down for almost all used vehicles, and in some cases, even caused values to rise as the vehicles aged,” Reina told TheStreet.
Tips to Slow Depreciation
The most important factor in minimizing auto depreciation is taking care of the vehicle.
“Make sure you keep up with all the manufacturer’s recommended maintenance and service,” said Tred CEO Grant Feek.”Additionally, take care of the paint and the interior, as keeping it clean, and maintaining a good coat of wax will ensure it looks like new for a long time.”
“Keeping miles as low as possible is also helpful in mitigating depreciation,” Feek told TheStreet.
