Remember the day you drove her off the lot? That incredible 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 really matter? It’s new, and that’s all that matters. It looks new, smells new, and even the odometer says it’s 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 you a sense of accomplishment in our society. It tells you, and everyone around you, that you’ve made it, baby.
A few months and a few car payments later, when the new car shine has worn off a little, there’s another feeling you get from your brand-new vehicle—and it doesn’t feel quite as nice. A nagging thought 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 others. After all, it’s European.
The truth is, how much a new car depreciates after it is driven off the lot depends more on supply and demand than it does on what kind of engineering it has under its hood.
The Truth About New Car Depreciation
The moment you sign your name on the sales agreement and the salesman hands you the keys to your new ride, its value 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 really how you want to spend your hard-earned money?
The good news is that the rate of depreciation levels out over 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. Once you hit 150,000 kilometers on the odometer, you’re now driving something worth about thirty percent of the original sticker price. Do the math: your $40,000 car is now worth about $13,000. From there, it will stay at that value for a while.
How to Keep Your New Car From Depreciating
Make and model play a significant role in how much a vehicle will depreciate. Luxury and high-end vehicles often depreciate faster because the people who can afford them tend to replace their cars more frequently. They want the latest and greatest, and they can afford to lose a few dollars on the deal.
More budget-conscious buyers tend to keep cars for longer and do their research beforehand to learn about the reliability and resale value of their new ride. Read your consumer reports 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 with 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 to see which makes and models are the most popular—and don’t buy any of those. Buy something that no rental company would touch. Every year, car rental agencies flood the market when they replace their fleets, and what does that do to the value of those models? Remember that big nosedive? Now imagine it with jetpacks and aimed straight down. Avoid the cheap and the common.
You can also slow down depreciation by treating your new car 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 might not think that little bump or spilling French fries all over the backseat really makes a difference, but guess what? Nothing says “give a low-ball offer” for a vehicle like pulling greasy fried potatoes out from under the front seat of even the most luxurious of luxury rides. If 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 worth of gold bullion sitting in the middle of your garage. Really, what’s the difference?
Not everyone will experience the feeling of buying a brand-new car in their lifetime, and that’s really too bad for them. For those of us who do? Do your research and look after your investment. You won’t feel as much pain when you go to sell it and find out how much your new car depreciated after you drove it off the lot.
