Depreciation is that moment when you drive a new car off the lot, and the car instantly loses 20% of its value. But some models hold their value better than others.
The cars that depreciate the most on automotive lists tend to be high-end luxury cars or cheap sub-compact cars. However, many models hold their value and are consistently regarded as reliable and safe.
- Cars can lose 20% of their value the moment you drive them off the lot.
- High-end luxury cars or cheap sub-compact cars tend to depreciate the most.
- Factors that determine the rate of depreciation include mileage, quality, design, and consumer whim.
- If you intend to trade your car in within five years, stick with tried and true colors such as black, silver, or blue, try to keep your mileage low, and keep up with maintenance.
Understanding Why Cars Depreciate
Many things factor in the true cost of owning a car. Depreciation is one of them. Automotive sources use a basic formula that spans an average five-year ownership of a vehicle to determine its depreciation value.
According to a recent survey by CarMax, high mileage on a car was the number one factor in its depreciation. Other sources, such as Popular Mechanics, cite poor quality, bad design, the expense of repairs and sometimes simply the public's appetite for a particular type of car. The Ford Edsel seemed destined for success when it was launched with a marketing blitz, but it bombed. Nothing was wrong with the car. In fact, it had state-of-the-art technology for the era, but consumers hated it.
Ford isn't the only carmaker that saw the value of one of its models sink like an anchor when it hit the lot. The Mazda RX didn't live up to its hype, and sales of the car dropped. The highly-touted Nissan Leaf, one of the first all-electric cars, left many drivers stranded because its power gauges were incorrect. Depreciation is also a result of the fierce competition in the auto industry today.
"The automotive industry is so competitive these days that you're seeing vehicles being redesigned every four or five years," said Eric Ibara of Kelley Blue Book. "If you see a vehicle that is in its fourth or fifth year and not doing well selling [new] retail, it would tend not to hold its value as well as its competitors."
Plus, those incentives to buy that car dealers love to lure us with will depreciate a vehicle very quickly, too.
Below are few models that depreciate the most.
This is a staid, timeless SUV that unfortunately used some very subpar electronics in a few model years. Word spread quickly, and that new Range Rover that was purchased for $60,000 can be now had for $5,500.
As the luxury carmaker tried in earnest to create a luxury SUV, gas prices soared, and interest in this gas guzzler died. Carrying a sticker price of over $80,000 new, you can pick up a low-mileage Escalade for less than $30,000 today.
Although there is nothing inherently wrong with the Jag S, its design looks dated. Originally selling for $60,000, models can be found for around $10,000.
Oddly, this model has taken one of the worst beatings in the depreciation department, with the ability to lose more than 80% of its value in five years. Again, it is an old, respected brand, and even the experts can't figure out why the value has dropped so significantly.
Mid-Size and Compact Cars
Experts warn you away from any carmaker that has financial issues, such as Chrysler and Saab. Values of models from both these manufacturers have plummeted, particularly the Chrysler Sebring and the Saab 9-3.
The values of the Chevrolet Cobalt and Mercury Grand Marquis drop a staggering 80% after purchase. One of the reasons is that the design of these models has not been updated in four years.
Subcompacts from Kia and Hyundai are now being sold to fleets—vehicles used by a business, government agency or other organization—and this instantly decreases their value. Others to avoid are the Ford Taurus and Chevrolet Malibu. Although experts consider the Malibu one of the most improved models, it seems no one wants it, and its resale value has tanked.
Experts caution that if you are certain you will be trading your car in within five years or less, you should not purchase a vehicle that was created for fleet service. A good example is the Ford Taurus. The aftermarket is littered with them, which drives their resale value down.
Also, for those drivers who trade their cars in every five years, don't buy an odd color. Stay with black, silver, white or dark blue. Stay on top of maintenance and limit your mileage. If you intend to keep your vehicle over five years, then depreciation isn't really a factor in your purchasing decision. The biggest decline in value occurs in the first five years. By the ten-year mark, the car has no significant value. Make sure to take all of these things into account when deciding to purchase a new or used vehicle.
The Bottom Line
There is no way to predict the depreciation on a vehicle. Their values drop the minute they are driven out of the sales lot. You can, however, research to see which models are the most reliable.
In the end, your care of the car, the mileage, and consumer whim will all determine how much value your car retains. First, find a car that fits your taste, needs, and budget. Make informed decisions before you get to the dealer, and not when you are standing in the showroom.