Depreciation is that moment when you drive a new car off the lot, and the car instantly loses a percentage 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. However, many models hold their value and are consistently regarded as reliable and safe.
- Cars can lose a large portion of their value the moment you drive them off the lot.
- High-end luxury 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), 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 formula that assumes average ownership of five years to determine its depreciation value. High mileage on a car tends to be one of the key factors in determining deprecation, while other sources can be poor quality of the car, bad design, and repair expenses.
Meanwhile, the public appetite for certain cars can impact depreciation. 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. Depreciation is also a result of the fierce competition in the auto industry today. The shorter redesign cycle is further increasing competition. Here are the models that depreciate the most:
Top 5 Cars that Depreciate the Quickest
Luxury sedans make up four of the top five cars that depreciate the fastest. The top car with the fastest deprecation is the BMW 7 Series. This car has an average deprecation of 72.6% over the course of five years, representing an average value reduction of nearly $74,000. The second is the BMW 5 Series, which has a five-year depreciate rate of 70.1%, or over $47,000 in value.
The issue with these expensive luxury cars is that they have features and technology that are not valued by used car buyers. These high-end cars are also often leased, which increases the supply of off-lease vehicles once the typical three-year lease period ends.
The third is the Nissan Leaf (not a luxury car, but an electric vehicle) that has a five-year depreciation rate of 70.1%, or nearly $23,500 in value. The decline in this EV is tied to government incentives, which aren't offered to used car buyers. But they also become outdated quickly with improvements in battery technology.
Fourth and fifth are other luxury sedans, the Audi A6 and Maserati Ghibli, both of which have a five-year average deprecation rate of 69%. All this isn't to say that lower-priced cars don't depreciate rapidly as well. Here are the fastest depreciating cars that are priced at less than $25,000.
Cars Under $25K that Depreciate the Fastest
Most of the cars that are under $25,000 and depreciate fast are either compact or subcompact cars. The top spot belongs to the Mitsubishi Mirage, which loses an average of 57.8% of its value over five years, amounting to around $9,300 in value.
The second and third are the Chevrolet Sonic and Volkswagen Jetta, both with a five-year average depreciation rate of 56.5%. The Kia Rio is fourth with an average depreciation of 55.8% over five years. Fifth is Nissan Sentra, which loses an average of $11,115 in value over five years, a 55.3% depreciation rate.
The above cars tend to depreciate quickly as they are popular rental or fleet vehicles, or they have higher ownership costs relative to their price.
Experts caution that if you are certain you will be trading your car 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, drivers who trade their cars every five years should not buy odd colors. 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 of 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 the consumer whims 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.