Remember the day you drove her off the lot? That incredibly immense feeling of pride and anticipation when the salesman handed you the keys to your brand new piece of German performance engineering? Or was it Italian? Does it matter? It’s new and that is all that matters. Looks new. Smells new. Even the odometer says it is new. Aside from buying a house, few things can match the feeling of driving off the lot in something no one else has ever owned. Buying a new car gives a sense of accomplishment in our society. It says to you, and everyone around you, that you made it, baby.
A few months and a few car payments later, when the new car shine has worn off a little, there is another feeling you get from your brand new vehicle and it doesn’t feel quite as nice. A nagging feeling sets in that maybe your purchase wasn’t quite such a smart idea. You try to convince yourself that your new car couldn’t possibly depreciate as fast as other makes. After all, it is European.
Truth is how much a new car depreciates after it is driven off the lot depends more on supply and demand then it does on what kind of engineering it has under its hood.
The truth about new car depreciation
The moment you sign your name to the sales agreement and the salesman hands you over a set of keys to your new ride, the value of it pretty much takes a nosedive right off a cliff. New cars lose approximately 20% of their value in their first year. How much is that in dollars? Well, a $40,000 car loses around $8,000 the moment you drive it off the lot. Is this how you want to spend your hard earned dollars?
The good news is that the rate of depreciation levels out for the next few years meaning your three-year-old car is worth about the same as your one-day-old car. Around year five the rate of depreciation begins to speed up again and once you reach 150,000 kms on the odometer, you are now driving something worth about thirty percent of the original sticker price. Do the math and your $40,000 car is now worth about $13,000. There it will stay for a while.
How to keep your new car from depreciating
Make and model play a big role in how much a vehicle will depreciate. Luxury and top end vehicles often depreciate at a faster rate because the people that can afford the luxury replace their car more frequently. They want the latest and greatest and can afford to lose a few dollars over the deal.
More budget-minded people tend to keep cars for longer and will do their pre-purchase homework to learn about the reliability and resale value of their new ride. Read your consumer report before purchasing and don’t let the powerful engine and smooth handling sway your good sense if resale value is important to you.
Another consideration to make and model is how many rental car companies use those particular vehicles. Want an inexpensive economy-sized car? Have a look through a few car rental websites for what make and model are the most popular and don’t buy any of those. Buy something no rental company would touch. Every year car rental agencies flood the market when they replace their fleet and what does that do to the value of those models? Remember that big nosedive? Right. Now add jet packs and aim straight down. Avoid the cheap and the common.
You can also slow down the new car depreciation by treating it with a little TLC once you get it home. Body damage, marks on the interior or paint, and a heavy right foot all contribute to how much a new car depreciates after it is driven off the lot. You may not think that little bump or spilling French fries all over the back seat really makes a difference but guess what? Nothing says give a low ball offer for a vehicle then pulling greasy fried potatoes out from under the front seat of even the most luxurious of luxury rides. You don’t care about it? Then you won’t care about how much you get for it in the end. Protect it, treat it gently and keep it clean, just like you would if you had $40,000 of gold bullion sitting in the middle of your garage. Really, what is the difference?
Not everyone will experience the feeling of buying a brand new car in their lives and that is really too bad for them. For those of us that do? Do your research and look after your investment. You won’t feel quite as much pain when you go to sell it and find out how much your new car depreciated after your drove it off the lot.