It is said that the moment you drive off the lot, your new car loses value. This can be (understandably) disheartening for anyone dropping tens of thousands of dollars on a brand-new vehicle. If you're the type to drive your car into the ground, getting as much use value as you can, then you might not mind the prospect of rapid depreciation.
If, on the other hand, you're the type to trade in after your warranty expires or you hit a certain age or mileage (10 years or 100,000 miles, for example), then you want to maintain as much value as possible. To do this, you need to understand how depreciation works, and what you can do to minimize waning value.
Value During the First Few Years
Brace yourself—this is a tough pill to swallow. When you take ownership of your vehicle and drive it off the lot, you lose an estimated 11% of the value. While different vehicles depreciate at slightly different rates, you can reasonably expect to lose somewhere in the neighborhood of about 20-30% of car value in the first year alone. That means your $30,000 vehicle is worth roughly $21,000-$24,000 a year after you purchase it. Within five years, your vehicle will lose about 60% or more of its original value. That $30,000 car is now worth $12,000 or less.
Why Do Cars Depreciate?
There are many reasons why cars depreciate in value, not the least of which is because new models come out frequently. In addition, your wear and tear and the mileage you put on a vehicle impacts value, as does any damage done, from scratches and dents to auto accidents.
Another factor in depreciation is the type of vehicle you own. Less expensive vehicles tend to experience greater depreciation, while luxury vehicles maintain the perception of greater value from the start, and throughout their lifespan. Then there are cars that appreciate in value, but unless you're buying a rare Ferrari or McLaren, you don't really need worry about that.
When to Sell
So, when should you plan to sell or trade in your car to get the best use value and actual value from it? If you go by the numbers, the best time to sell is before the five-year dip, so after about four years. The problem is, you might still be paying off your car, and you may still have added value in the form of warranty coverage. If you hit the five-year mark, it might be worth keeping your vehicle until just before the 100,000-mile mark, when it's likely to see another significant drop in value.
Your car will lose a lot of value in the first few minutes you own it, not to mention the first few years, but you can gain the most value by selling or trading it in before major dips, or alternately, by seeking out cars with a better resale value.