Understanding Car Depreciation and How It Affects Your Car’s Value

Most of us have heard the old bit of wisdom that a car depreciates the minute it’s driven off the lot. Indeed, it’s true. In fact, some research suggests that cars lose between 20 and 40 percent in their first 12 months of ownership. That means that if you bought a new car today for $40,000, you might only be able to sell it for between $32,000 to $24,000 in a year. Scary, right? Sure, but most people don’t look at cars—at least not their daily drivers—as investments, and most don’t intend to make anything on a sale. 

No, you likely will not make money on your car, unless of course, it’s a rare, collectible, or special model. With that said, there are some great things you can do as part of your car maintenance plan to keep the deprecation to a minimum. Reference this guide to learn a bit about car depreciation and find some great ways to keep it within reason so you still get max value when you go to sell.

How Much Do Cars Depreciate?

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How much your car will depreciate depends on a variety of factors, such as the type of car, how much you drive, and the region in which you live. Here’s a general idea of how much a typical vehicle will depreciate in a decade:

  • Month 1: Research shows that cars can lose as much as 10 percent of their value within a month after driving them off the lot. So, your $40,000 car might only be worth around $36,000 after you’ve only driven it for a few weeks.
  • Month 12: A loss of between 20 and 40 percent is a good rule for the value of brand-new cars after a year’s time. From there, the experts say your car is likely to depreciate by between 15 and 25 percent each year until it reaches the five-year mark.
  • Year 5: The five-year mark is when your car is likely to take the biggest hit. That’s when it will lose about 60 percent of its value, potentially selling for less than half of what you paid for it to begin with. At this point, your $40,000 car would only be worth around $20,000. 
  • Year 10: Once your car is a decade old, your car value may technically be very low, but that doesn’t mean it has no market value. If it’s in good condition and has relatively low miles, it can still fetch you a good chunk of money, and maybe even enough for a down payment on a new car. 

Why Do Cars Depreciate in Value?

Cars are like any other commodity in that they lose value because they accumulate wear and tear. Vehicles are constructed from thousands of tiny little components, so a lot can—and will—go wrong. On top of general wear and tear, even the best-maintained vehicles lose value because the market interest for them drops. A car of a certain color, make, or body style might be a hugely popular one decade and quite unpopular the next.

And don’t forget about the reputation of the maker! Car manufacturer’s reputations are constantly ebbing and flowing. If your maker has taken a hit in the time since you bought it, there may be less of a market for your vehicle when you go to sell later on. The opposite can be true, too. Manufacturers that once had less-than-ideal ratings can regain favor, which could help your car maintain some value in the future.

Minimizing Depreciation: Is There a Way?

So, with all this in mind, one thing is clear: Depreciation is inevitable. It’s just a simple fact of life. However, there are definitely some things you can do to keep the depreciation to a minimum. Though it’s highly unlikely that you’ll get anywhere close to what you paid up-front—and virtually impossible to turn a profit, unless you’re in the business of buying and restoring collectibles or rare cars—you can still minimize depreciation somewhat. Here’s how:

  1. Invest in a Good Car Cover – If you don’t have a garage or an option for indoor storage, be sure to cover your vehicle with a high-quality outdoor car cover. These can help keep the exterior of the vehicle pristine while defending against UV damage, moisture damage, bird droppings, and potentially irreversible storm damage. Even if you do store your car in a garage, a car cover can help keep it in excellent shape and keep the finish well-preserved.
  2. Keep a Maintenance Schedule (and Records) – You probably already know how important it is to keep your vehicle on a good maintenance schedule. Regular oil changes, tune-ups, and alignments ensure that your car’s sensitive mechanical components stay working at their best. When you keep detailed maintenance records, you’ll be able to show potential buyers everything you’ve done so they can also keep it in good shape.
  3. Buy the Right Makes and Models – Some makes and models historically tend to stay in good shape and remain favorable among buyers, which can help keep depreciation down. Some cars that tend to depreciate the least include the Jeep Wrangler, Toyota Tacoma, Toyota Tundra, Toyota 4Runner, and Porsche 911. All of these, it could be argued, are considered “cult follower” cars, with a huge fanbase and tons of collectors who love them any year. With the exception of the 911, they’re also all utility vehicles.

Accepting the Inevitable

Unfortunately, there’s no real way to prevent your car from losing at least some value over time. The more time it spends on the road, the less it will be worth at the end of it. With that being said, understanding why cars depreciate and doing a few simple things to prevent it can undoubtedly help you get the most out of it when you go to sell later on. Remember, cars are a luxury and, if you enjoy your time with yours, you shouldn’t think of it as money wasted!

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The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of SpeedwayMedia.com.


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