Depreciation: What Does it Mean for YOUR Vehicle?

Advice
February 12, 2021
Depreciation: What Does it Mean for YOUR Vehicle?

Depreciation refers to the difference between how much your car was worth when you purchased it and how much it’s worth when you decide to sell it. With a few (very limited) exceptions, all vehicles continuously depreciate — they never appreciate. All things being equal, selling sooner rather than later helps you get the most money for your vehicle.

What Factors Contribute to Depreciation?

A multitude of factors contribute to depreciation. Trying to take all of them into consideration can make anyone’s head spin, especially since most of us only really think about depreciation when it comes time to sell. Are you asking too much? Accepting too little? How do you know what your car is really worth?

The more miles you put on a vehicle, the faster the vehicle will depreciate. As a general rule, driving more than about 12,000 to 15,000 miles a year will significantly accelerate depreciation.

Generally speaking, you can expect a vehicle to depreciate as follows:

  • 9-11% depreciation the instant you purchase a brand new vehicle from the manufacturer and drive It off the dealership lot
  • 20% total depreciation from the moment of purchase through the first 12 months of ownership
  • 10-15% depreciation per year for the next 5 years

car-depreciation-gauge-automotive

This infographic from Edmunds provides a great visual breakdown of general depreciation.

Other Factors Affecting Depreciation

Mileage.

The more miles you put on a vehicle, the faster the vehicle will depreciate. As a general rule, driving more than about 12,000 to 15,000 miles a year will significantly accelerate depreciation.

Current & Historical Condition.

A normal degree of wear and tear won’t have a huge impact on a vehicle’s resale value, but substantial damage or excessive wear will definitely cause more rapid depreciation. For example, a few small rock chips on the hood from highway driving would be expected, whereas a large dent in one of the body panels will drop the value of the car significantly. The same applies for the vehicle’s interior: some minor grooving or creasing from someone sitting in the driver’s seat day after day would be considered normal wear, but rips and stains in the upholstery will cause a substantial decrease in resale value.

Previous accidents or damage will also detract from the value of your vehicle, even if the damage was solely cosmetic and/or has been correctly repaired by a qualified professional. If the accident or damage shows up on a vehicle report such as a CarFax, your resale value is automatically going to take a hit. Why? Because if the same vehicle with similar mileage but with no damage is on the market at the same time, buyers are likely to gravitate toward the one with no damage. (Tip: If your car has damage on the CarFax and you price it right based on that damage, you’ll probably be able to sell it faster than others that are on the market, especially if the damage reported is minor.)

Reliability & Brand Reputation.

Vehicles may lose or retain value depending on brand reputation. Brands that are well-known for their reliability tend to retain their value much longer than other brands. According to a recent study conducted by the automotive research firm iSeeCars, these are the lowest- and highest-depreciating brands on the U.S. market today:

depreciation-rates-based-on-brand
Vehicle Class or Segment.

You may be surprised to learn that luxury vehicles tend to lose value more rapidly than mass-market vehicles. According to iSeeCars CEO Phong Ly, “Luxury cars have steep depreciation because owners likely trade them in when they become outdated, and used car buyers don’t want to pay a high premium on a dated model.” Ly also adds that resale value for luxury vehicles is affected by higher costs of maintenance and ownership.

Electric or hybrid vehicles also tend to depreciate quickly, for a couple of reasons. First, technology for electric vehicles, or EVs, is quickly evolving, meaning the technology becomes outdated within a short period of time. EVs also have higher depreciation rates because emissions incentives that were in place when the vehicle was originally purchased are most often no longer in available when the car is resold.

Market Stability or Volatility.

Perhaps the most critical factor affecting vehicle values is market activity, both nationally and locally. Regardless of book values, the market will always have the final say: you can only sell any vehicle for the highest offer you ultimately receive. Today’s market is extremely volatile due to things like the political climate and the Covid-19 pandemic. Values are fluctuating month-to-month, week-to-week, and sometimes even day-to-day, making it nearly impossible for book values to keep up with actual transaction data.  

You can see that vehicle values can change hundreds of dollars week to week and don’t always depreciate smoothly. This is the main reason why dealers won’t honor an offer for more than 3-7 days; they know that the value will likely change every week. When book values drop, similar vehicles will be listed for less the following week, which in turn devalues the market for that particular vehicle.


You can also expect market values to change based on local considerations such as geographical location and time of year. If you live somewhere like New England or Colorado, where snow is typical during the winter months, there is going to be a lot less demand for your vehicle and buyers are going to be less willing to fork out a lot of money for a sports car or even a FWD sedan. In a scenario like this one, it’s important to weigh the depreciation risks of waiting until spring to sell your car vs. how much you might lose on price by selling a less in-demand vehicle in the fall/winter.

Both nationally and locally, current market activity is going to affect the value of your vehicle. If the market is stable, book values will likely be a lot closer to what vehicles like yours are transacting for on the market. But in a volatile or rapidly-changing market, be prepared to see a significant delta between book values and actual transaction prices in your area.

Taking all of these things into consideration, in most instances, your best bet will be to sell sooner rather than later. If you’re thinking about selling your car, be sure to research and calculate potential depreciation factors as far in advance as possible. If you have questions about depreciation or would like to see local market data for your particular vehicle, get in touch with a Gauge team member at info@sellgauge.com or (385) 330-8991.

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