#CarsDepreciation #CarValue #CarDepreciation #CarWorth
Have you ever wondered why cars seem to lose their value so rapidly? 🤔 It’s a common question among car owners and buyers alike. As soon as you drive your brand new car out of the showroom, its value starts decreasing. What’s the reason for such fast depreciation?
In this article, we’ll delve into the factors that contribute to the rapid depreciation of cars, and provide some tips on how you can mitigate the loss of value in your own vehicle.
###Understanding Car Depreciation
Let’s start by understanding what depreciation actually means. Depreciation is the decrease in the value of an asset over time. For cars, this decrease in value happens as soon as the car is driven off the lot and continues throughout its lifespan. Several factors contribute to this phenomenon, including:
###1. Supply and Demand
The law of supply and demand plays a significant role in the depreciation of cars. As new models are introduced, older models lose their appeal and demand in the market, causing their value to decrease.
###2. Age and Mileage
The age of a car and the number of miles it has been driven are two of the most significant factors in its depreciation. The older a car gets and the more miles it has on the odometer, the less it is worth.
###3. Condition and Maintenance
Cars that have been well-maintained and are in good condition will retain more of their value compared to those that have been neglected or have significant wear and tear.
###4. Brand and Model
Luxury brands and high-end models tend to depreciate at a slower rate compared to economy brands and mass-produced models.
###5. Market Trends
Economic conditions, fuel prices, and changes in consumer preferences can all influence the resale value of cars.
###Mitigating Depreciation
Now that we understand the factors that contribute to car depreciation, let’s explore some strategies to minimize the loss of value in your vehicle.
###1. Regular Maintenance
Ensuring that your car is well-maintained and kept in good condition will help preserve its value.
###2. Consider the Resale Value
When purchasing a car, consider its expected resale value. Some brands and models hold their value better than others.
###3. Avoid Overcustomization
While it may be tempting to personalize your car with aftermarket upgrades, excessive customization can actually hurt its resale value.
###4. Drive Responsibly
Avoiding aggressive driving and excessive wear and tear on your car can help preserve its value.
###5. Timing the Sale
Consider the market conditions and the age of your car when deciding on the best time to sell it.
In conclusion, cars lose their value so fast due to a combination of factors including supply and demand, age and mileage, condition and maintenance, brand and model, and market trends. By understanding these factors and implementing strategies to mitigate depreciation, you can minimize the loss of value in your own vehicle.
We hope this article has shed some light on this common question and provided some helpful insights for car owners and buyers. If you have any further questions or would like to share your own experiences with car depreciation, feel free to leave a comment below! Thank you for reading. 🚗
At what price is one willing to buy a used vehicle instead of a new one? When interest rate on loan is higher, when warranty coverage is less, and what is wrong that it’s for sale again? And a dealer is going to offer wholesale because they have expenses and profits to cover in a sale. Maybe you could get more selling by yourself instead of trading in, but how many buyers have the cash to buy an almost new vehicle and are willing to buy off Facebook Marketplace, etc?
Many, many people abuse the crap out of their cars. People don’t like to buy other people’s problems, which drops the demand for used cars.
If I had the choice between a brand new car for $30k, and an identical car that’s 1 month old for $29k, I’d pick the new car 10 times out of 10 so I don’t have to worry about what kind of hell the previous owner put their car through in that month. I wouldn’t even consider the used car until the price dropped to more like $25k, and most other people feel the same way, which is why the value of your $30k car that you’ve only had a month is $25k.
If you buy a new car from a dealership, it’s guaranteed to be perfect with the dealership, and ultimately the factory standing behind it. It hasn’t been used.
You don’t know what’s happened to a used car. Maybe a 16 year old owned it and used it to practice his Fast and the Furious cosplay. Maybe someone left the sunroof open and it filled with water that’s now rusting out the floors.
The reason cars depreciate so quickly is because cars wear down and have a limited lifespan. You have no guarantee the previous owner(s) took care of it well.
Answer: Your question is outdated, and this is no longer true across the board. Buying certain in-demand vehicles can actually immediately increase in value due to demand far outweighing supply. Others may diminish in price so slowly that they later sell for more even if their relative value has decreased somewhat.
Source: I’m shopping for small trucks and the only new model is the Maverick, which people are reselling for 5-10k over the retail price, and older 15-25-ish year old models like the Toyota Tacoma or Ford Ranger can go for more than their MSRP if they’re in decent shape.
This is not as true as it once was, but a big driver of this is a risk discount. The buyer knows there is a risk something is wrong with the car, and as compensation for that risk, they expect to pay less. At a price close to the original price, the buyer would rather remove the risk and buy new.
Think about an iPad on Craigslist that was $500 at retail that somebody has had for a month and they are selling for $450. Is saving $50 worth the risk of there being something wrong with it and having no way to return it? Many would say no.
Now consider the fact that people can do tons of things, visible and invisible, to mess up their cars. The risk, and thus the risk discount, go up considerably.
Interestingly, [some economists are amazed that the used car market functions at all](https://timharford.com/2006/04/any-colour-you-like-as-long-as-its-lemon/). Sellers who know their cars are in good shape shouldn’t be willing to sell at a discount, and in turn the only cars that sellers should be interested in selling are ones that are in worse shape than the going price.
>As soon as you drive your brand new car out of showroom, its value starts decreasing. What’s the reason for such fast depreciation?
The value in the showroom isn’t the true value of the car. It is an over-inflated value; the value of the prestige of newness. Once the “new” wears off, the car drops to its true value.
It doesn’t always lots of cars stay the same or even go up in value depends on the demand and reliability of the model….
Well I paid 17k for my used car, the dealer sent me the wrong paperwork and I saw they bought it at an auction for 8k so I’d say a lot of the depreciation is due to all the dealer mark ups
Lookup “market for lemons”. A car is complicated and it’s difficult for a buyer to know what’s wrong with the car. The seller knows what’s wrong but won’t always be honest. So you’re taking a risk as a buyer.
When it’s new, you know there isn’t any damage / issues caused by wear or abuse. Also there’s a warranty.
Market forces may dictate used prices to be higher than new prices, though. But that’s the exception.
Retail prices of cars don’t reflect their actual value.
Large customers get huge discounts, allowing them to resell the cars later at little loss.
As such, the used-car market shows the actual value of cars.
Just like the market for used jewelry shows its true value….
Cars are consumables which typically decrease in value unless they are rare and desirable. Exotic sports cars like Ferrari or Lamborghini will actually increase in value when driving it out of the showroom.
Once cars are becoming rare and desirable due to old age their value typically also increases.
1. Car prices haven’t really increased with inflation as much as other goods. So that means a new car is within the budget of a greater number of people, decreasing demand for used cars.
2. ICE cars have a lot more running parts, so a greater number of possible problems for the buyer to invest more in after the initial purchase.
3. “Newness” is always going to have a markup.
It’s not a case of the lose your value quickly, it’s more a case their correct value equates quickly. Cars as a general rule of thumb are one of the most over valued items commonly sold.
Because it loses the feature that gave it high value – being ‘brand new’. Consumers value this feature and are willing to pay extra for it.
You don’t know what the previous owner did to the car. You don’t even know if the milage is correct, resetting it is very easy.
And over time the rates of failure increase, if your transmission kills itself after you buy the used car then you are paying more to fix it than a new car would have cost.
– the dealership is banking on you originally buying your car for less money than msrp so they assume they can offer less automatically (they’re not going to buy it back for more than you paid for originally)
– if you are trying to sell an old car there will be wear and tear on the car / if you are trying to sell a basically new car the potential buyer will think there’s either something wrong with it (a lemon) or it’s not a very desirable car (which lowers the perceived value)
– options exist (there will always be a slightly less used car like yours out there the second you drive off the lot)
There’s a couple of things going on.
First, new cars are sold at a premium. You can buy a new car, house, sofa, pram and it will be worth less the moment it is sold.
The price it’s sold at is the price the manufacturer needs to make money, knowing that it will often be sold on multiple times later and they’ll never see another penny.
Even if the car is unused, it’s still worth less than buying new.
Then there’s the unknown reasons. As the car is brand-new, it’s a risk to know if it’s right for that user. Maybe the steering is heavy or it’s not as fast as expected. So that first owner sells it on. They need to sell for less than the manufacturer because otherwise the next buyer would just go to the manufacturer.
The buyer doesn’t know what’s wrong with it. The previous seller will be trying to make it sound as good as it can. But the buyer doesn’t know if the previous owner just didn’t like it, or if they’d left it outside in the rain with all the windows open.
This is the cause for new cars depreciating substantially between new and almost new.
Later on, cars have been around for a while and it becomes known which ones are reliable and which ones aren’t. Brands have reputations and warranties start to run out. At this point some cars start to hold their value better than others. They’ll still depreciate as the new cars from last year become the used cars of this year and so the value trickles down from the top.
The next stage of depreciation is the final stage. There’s so many other cars all with similar ages and specs. There becomes a narrow price band the car can possible be worth based upon the condition of the car, its milage and its age. This is a pretty set going-rate, and it still goes down as it will always be getting more miles and getting older.
Finally it stops. The car either reaches scrap value, or it becomes desired for being a bit of a unicorn with better characteristics than standard cars and will actually start to rise in value.
You’re getting a lot of “close, but not quite” answers.
The real answer is that the car DOESN’T depreciate. Instead, the cars value is already that amount. But on top of it you have to pay the dealers fees: commission, salaries, transport fees if they aren’t broken out, rent… basically any cost the dealership has is in the price of the car. If you bought the car for $30,000, it’s worth $27,000 the minute before and the minute after you bought it. What changes was the amount of the money you paid that didn’t go toward the car.
The next owner is taking a risk even if the car is a few days-weeks old because the car could have hidden damage.
Because they are mass produced. Anything mass produced will lose value quickly as newer products replace the older ones. Same happens with $1K cell phones and other things.
Everything depreciates the moment you buy it.
If I buy a brand new drill from the store and never open it, then decide to sell it, are you going to pay me new price for it, or are you going to buy a new one from the store? There’s no return policy when you buy it privately. No receipt for warranty. Brand new comes with perks.
So the question is, how much of a discount is necessary for you to buy something you could just buy new?
For most people, they’d pay 60-75% of new price to give up the benefits and protections of buying new. Because cars are so expensive, that’s a lot of money.
Now, used cars are funny since the pandemic. There have been shortages. Some vehicles more than others. Some people were willing to pay more than new for a vehicle they couldn’t get otherwise. If you were fortunate to take delivery on an in demand vehicle, you could sell it for more than you paid, sometimes after several years. That is not normal, and as supply catches up, vehicles are going to return to reasonable prices.
Long story short, cars don’t depreciate any more than anything else equally complicated if you try to sell it immediately after buying it. Unless you have a high demand item that has shortages.
According to a Subaru salesperson: one of the big reasons this happens is because of factory rebates for cars. If they start offering $5K off of last year’s models to clear the lots, then the value of every just bought car from that year also drops by at least that much. They said part of the reason Subarus hold their value is that their factory never does this so the used market doesn’t take that hit.
It sounds correct to me (in addition to the factors others have mentioned.)
Use reveals the true value of the car. I doubt new cars are worth what people are spending on them.
It’s a lot of moving parts, under a lot of weight and giving off a lot of heat. A car is basically self destructing but at a faster rate than a house, and once the cost of the damage outweigh the price of the car it’s usually time to walk away and you can’t sell it and make some money back. All these things is what makes a car’s value drop
The car isn’t really valued at sticker price. And while we’re at it, a diamond ring isn’t rare, and won’t resell for much at all.
Maybe because they cost more than they are worth, yet people still buy them?
I feel like the best way to illustrate this concept is to ask you how much you’d be willing to pay for a used car.
Even if they just drove it off the lot, like literally a minute ago, I assume you wouldn’t pay full price when you could just as easily get one of the brand new ones sitting on the lot. Surely you’d want at least a few bucks below MSRP. Now imagine they’ve had it for a full 24 hours; it’s got 50 miles on it and you don’t know how they’ve been driving it. How much are you willing to pay now? I know I’d want at least a few *hundred* below MSRP before I’d consider it. What if it’s been a month, and now there are 1,000 miles on it? You have no way to know how they’ve been treating it. How much are you willing to pay now?
Farts. The moment you get in your car you are farting in it. That first fart costs the most, and each additional fart, while costly, is not as bad as the one before it in devaluation.
Because their initial value is inflated by the dealers. And people are willing to pay a premium for things that are “out of the box” new. The open market quickly gives it back its real value.
General consumer consensus is that used items are “worth half” of new items. This is a cultural thing, altered by condition of the item or supply/demand. Like when the factories stopped new vehicle production because of chip shortages causing used vehicle demand and prices to rapidly rise.
However, the main reason is … they depreciate in value because The Tax System depreciates their value. [IRS depreciation schedules](https://www.irs.gov/publications/p946). Businesses will write down their fleet vehicle value until “there is no value left” then auction them off for some residual amount and buy new depreciating assets. These vehicles flood the used market and thus consumers selling their used vehicle are competing against high supply and fluctuating demand, so used vehicles drop quickly in what other buyers are willing to spend.
Advice: don’t be fearful of used vehicles, they are “half priced” so you have ample room to pay for maintenance and even repairs to bring the vehicle up to your reliability expectations. If you buy a 30k mile used vehicle and drive it to 300k, is that really a problem? Remember you’re not paying financing charges every month on that “half price” you didn’t pay by buying the used vehicle. …. And parts stores carry bottles of “new car perfume”.
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It is the same reason that retail always sells things for more than you can. There is value in branding your existence and making yourself known as the place to go for X item. If you are known to always have inventory of what you happen to be looking for, have a reliable level of quality, be findable and available to other people’s whim and schedule, those things have value and you are charged for that value. It is the value of being a marketplace. They have put work into the difficult problem of “finding a buyer” through marketing and findability. As soon as you drive that car off the lot, you being the owner has removed all that value.
Additionally they can put in more value like operating warrantee plans and acting a middle men to the manufacturer, but those things are a distant second to the value of being a marketplace. Your car lost its value so fast because finding a buyer is a hard problem and you are competing on price against other individuals who would rather attract a buyer with cost instead of marketing. One great example of the reverse showing that this is true is during the car shortage of 2020. Finding a buyer was easy because buyers were motivated to look and individuals could sell their used cars at prices comparable to dealerships.
Most people are bad drivers. Most people are also not diligent with their maintenance on cars. Car supply is huge and people have many options. Buying used has too many unknowns since an owner could have caused catastrophic damage that is not yet obvious. People are not trusting, hence the depreciation
Financing is huge too. 0 down on a new car means sales tax, title, license, dealership fees, and markups go into the loan. The value of the car remains the value of the car, but your loan is bumped up so much you’re instantly negative.
I always thought that the difference between the on-the-lot price versus the just-drove-it-off-the-lot price was the dealer’s profit.
Buyer perception. Once a car is used, you’re “buying somebody else’s problems”, so instantly devalued. Sadly, the reverse is true as well. If you buy a car, treat it carefully, garaged, dealer maintained on schedule when you sell you won’t get much more for it than the average car that looks and seems okay.
It’s not that they necessarily lose their value – you simply pay a lot more than they’re worth from the dealer. As soon as you drive it off the lot, reality takes over.
It’s to drive profits in the car industry.
When limited edition cars come out they often sell for more on the 2nd hand market so it’s pretty straightforward.
Depends on the car. When I bought my 2022 c8 when I drove it out the dealership its value skyrocketed technically cuz I could’ve sold it for 50-75k more than what I paid for it.
Inflated market value. The sticker price represents the money the dealership and manufacturers would like to divvy up between them in order to continue their profitable businesses. The resale cost is closer to the actual value of the car as a production item in the economy.
Here’s an example:
New Toyota Camry: $27,400 MSRP (estimated)
Invoice (‘price’ the dealership paid Toyota): $25,100 ish
This means there is a profit of about $2,300 IF sold at MSRP (rare unless you’re in a crazy pandemic with shortages)
You buy this Camry from your dealer, and let’s say you paid $26k +tax, title, fees, so you’re looking at out the door pricing of prob close to $28k.
Then, two weeks later, your wife says “We’re pregnant with triplets!” and you need a bigger vehicle.
You drive to the dealership to sell/trade it. What can they sell it for used with 400 miles on it? They can buy BRAND new ones from Toyota for $25k right? And they sell those new ones for say $26k.
They have to price the used one under their invoice price, let’s say they’re super cool and plan to sell it for $24k. The typical difference between what a car sells for on the lot and what the dealership pays for it is around $2,500. That typically allows for any reconditioning which can be pricey, as well as paying the salesperson who normally gets 25% of the ‘profit’ made on the sale. Obviously, your car is still mint, so maybe they can look at giving you a higher amount, instead of giving you $22,500. they give you $23,500. Then they put it on the lot for $24,995 and hope to sell it quick, maybe even for just a $1k or so profit.
In this case you spent $28k and might get back $23,500.
Now, look at it in another way, this same car you paid $26k for. You come back in a couple months, and Toyota has just introduced a $1000 rebate on remaining Camrys. NOW your used car just dropped another $1k.
I see it as the dealerships mark up the price so high that as soon as the car is off the lot, they’re only willing to pay what it’s actually worth to take it back.
After that it just goes down from there based on wear and tear.
I think if you ask yourself some questions you could probably figure it out yourself. For example:
Would you pay €30,000 for a brand new car, with the exact extras and colour you want?
Or would you pay €29,900 for a car that’s few days/weeks old, that’s not exactly what you want? Like maybe it doesn’t have a sunroof, or parking sensors, etc.
Or would you pay €29,500 for it?
Or €29,000?
Or €28,000?
But the fact is, a car this new will probably go back to the dealer for resale, so they’ll have to make a bit more profit from it too, as well as checking it over, doing the paperwork, while also making it worthwhile for a new customer to buy it.
So if the first owner wanted to get rid of it quickly, their only choice is to lose more money than necessary on it.