In a nutshell, the value of that brand new car comes down to a word—new. Once you drive it off the lot, that word, along with its perceived value, means a little less.
Who doesn’t love that new car smell?
That “first butt in the seat” feeling you get as you’ve closed the deal and are driving off the lot in your brand new car is hard to beat.
Oh… but did you feel that? As you drove out of the dealership parking lot, the value of your brand-spanking new car plummeted by a few thousand dollars. Ouch, that hurts!
Car depreciation is an unfortunate and tough reality when it comes to buying a new car. But why does a car’s value depreciate so much, seemingly in a matter of seconds?
What is “depreciation”?
Car depreciation can be understood as the amount of a car’s value that you have used over a period of time.
How much does a car depreciate?
According to current rates, a car can depreciate by more than 20% after just one year. The car will continue to depreciate at a rate of about 10% per year for the next four years. By the end of five years of ownership, you’re looking at the possibility of your vehicle being worth about 40% of the price you originally paid for it.
Vehicles continue to depreciate down to their bones, which would be their metal. This is known as the “scrap value.” So whether it runs or not, your car will always be worth something.
Why do cars depreciate?
Cars, as well as any other piece of equipment used, depreciate because they’re a resource that loses its value through gradual wear and tear. The more mileage your car racks up, the higher the probability of you having to pay to fix or maintain something. This is one of the reasons why your car’s value decreases over time. This loss of value is accounted for by depreciation.
Here are a couple of other causes of vehicle depreciation:
- Newer models. When you purchase your “new” car, the next model of your vehicle is already peeking around the corner (if it’s not already out). The newer features and gadgets of the latest model will reduce the value of the model you just bought.
- From “new” to “used” in one second flat. It’s amazing how much value words can hold sometimes—especially the word “new.” But the “new” label that’s on the car you just bought automatically switches to “used” as soon as you drive it off the lot. And that label can sometimes mean the loss of several thousand dollars in value.
You’re still waiting to know why depreciation happens, right? Well, it ultimately comes down to resell value.
If you wanted to turn around a week later and sell your vehicle to a dealer, that dealer isn’t going to pay you anywhere near the amount you paid for it when they know they can get it cheaper elsewhere . If you try to sell your car a week later to a used car buyer, who more than likely knows the depreciation game, then getting them to pay close to the amount you paid probably won’t work.
In conclusion, depreciation of your vehicle is inevitable. Are there a few things you can do to slow down the rate of depreciation? Sure. For starters, you should keep up with regular maintenance, try to slow down on your mileage usage, and take great care of your vehicle..
For all your automotive repair and maintenance needs, visit the Bryant Motors Service Department in downtown Sedalia, Missouri. Car depreciation is inevitable, but our experts can slow it down by making sure your vehicle is in tip-top shape. Our ASE-certified technicians service ALL makes and models.