How Much Does a Car Depreciate?

by Robert Morello, Demand Media Google
    New cars are one of the worst investments you can make.

    New cars are one of the worst investments you can make.

    Don't even think about resale values if you're in the market for a new car or you might scare yourself right out of the showroom. Cars are unlike most investments in that they are susceptible to wear and relatively rapid depreciation beginning the moment they're driven off the lot. Although some models hold their values better than most, they all lose big.

    New Cars

    New cars fall precipitously in value almost immediately after purchase. In fact, on average they lose about 9 percent of their value the moment you step in and drive them home for the first time and 15 percent per year after that. Over the first five years of its life the average new car will depreciate 65 percent in value according to Kelly Blue Book. That means if you purchase the average $20,000 new car today, it will be worth around $7,000 when you go to sell it five years from now. No one could call this a sound investment, and unless you plan on keeping your car for an extended period or until it just stops running, new cars are not the best way to go.

    Used Cars

    When you purchase a used car you avoid much of the depreciation that occurs in the first few years of ownership. The older a car gets, the less it depreciates year over year. As a result, the used car market delivers better bargains, a more affordable product and comparable reliability when set against the new car market. Certain factors cause used cars to depreciate more quickly than the average including a change in body style or other significant feature by the manufacturer and an overall negative brand reputation.

    Worst Offenders

    Surprisingly some of the most expensive cars on the market are among those that have a hard time in the resale market. For example, many of the most respected brands in the world including BMW, Mercedes, Cadillac, Audi, Maserati, Aston Martin and even Bentley drop in value so dramatically that you can expect to recoup only a fraction of the original cost after just a few years on the road. The reasons for the curiously high rate of depreciation in luxury vehicles are the high cost of operation and maintenance and the reduced liability of cars that have all the bells and whistles. With more equipment and more options on board, there is more that can break and result in a costly repair.

    Safest Bets

    Not all vehicles depreciate at the same drastic rate. There are some brands and models that have earned higher resale values thanks to their history of build quality, reliability and lack of required maintenance. Among the best performing vehicles on the market are the Toyota Camry and Rav4, the Honda CRV, the Scion xB (another Toyota product) and the Mini Cooper. Even these safe bets depreciate at a rate somewhere in the 60 percent range over the first three years, but they do hold their own far better than most of the cars out there.

    About the Author

    Robert Morello has an extensive travel, marketing and business background. He graduated with a Bachelor of Arts from Columbia University in 2002 and has worked in travel as a guide, corporate senior marketing and product manager and travel consultant/expert. Morello is a professional writer and adjunct professor of travel and tourism.

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