How Much Does a Car Depreciate?

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 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 year of its life, the average new car will depreciate 19 percent in value, and half of that depreciation will happen as you drive the car off the lot. That means if you purchase the average $20,000 new car today, it will be worth only $18,100 by the time you pull into your driveway. 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.

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.

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 Cadillac, Volvo, Mercedes and Jaguar, 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.

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 Tacoma and Tundra, the Jeep Wrangler, the GMC Sierra and the Chevrolet Silverado. 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.