Car Depreciation: What Factors Affect Car Values?

For the Highest Resale Values, Heed This Advice

The moment you drive your new wheels out of the dealership, your vehicle is worth around ten percent less than you just paid for it, and it continues to depreciate every day.

Some models depreciate more, others less, but the general rule is that a new car depreciates between 15 percent and 25 percent each year in the first five years. After that, a vehicle is worth – maybe – one-third of its purchase price, which may be less than all the money you paid into it for maintenance and repairs.

So what are the factors that affect vehicle depreciation? Read on to find out.

If you're ready to buy a used car now, you can check out our used car listings or head over to our used car rankings to find the best used car for you.

Fuel Prices

A few years ago, when we were paying $4 a gallon, hybrids and smaller, fuel-efficient vehicles depreciated less than their big gas-guzzling siblings because they were in such high demand. Now that gas prices are back to “affordable” levels, that’s no longer the case, and smaller cars are depreciating at a higher rate than other categories, according to automotive analyst Black Book. Compact SUVs, crossovers, and subcompact cars suffered the highest depreciation rate in August 2016 compared with August 2015, more than 23 percent.

Mileage

Simply, vehicles driven less depreciate less. The industry standard is 15,000 miles a year, so if you literally drive your car into the ground, the wear and tear makes it worth less at trade-in time.

News Headlines

A few years ago, diesel models had better-than-average depreciation rates and paid back their additional purchase cost in three to five years of ownership, according to Green Car Reports. But that was before the VW “dieselgate” fuel economy and emissions tampering scandal became front page news in Autumn 2015. Now, diesels from any manufacturer aren’t doing so well.

Luxury Branding

The category called “prestige luxury car,” which includes Mercedes-Benz, Lexus, Audi, and Infiniti, tends to hold its value better than non-prestige brands. But within the category, depreciation rates vary by model and brand. A Hyundai Genesis, a luxury model from a non-luxury brand, depreciates faster than a Cadillac CTS or Lincoln MKS, and a Mercedes S-Class depreciates less than a Jaguar XK, according to auto shopping website iSeeCars.com. However, a $100,000 premium luxury model, the level above prestige, depreciates by half in three to five years.

Optional Features

Fully-loaded vehicles depreciate faster than less-loaded versions of the same model. The main reason for this is “that the typical used-car buyer is shopping for value rather than technology, which means the fully loaded model is often found near the similar price of a base model,” says Anil Goyal, VP of Automotive Valuation and Analytics at Black Book.

As an example, a fully loaded new model may cost $8,000 more than a new base model, but three years later, that premium may pay back only $1,500. Features that depreciate the most (or, if you prefer, pay back the least) include a power sunroof, leather, oversized chrome wheels, heated and cooled seats, rear entertainment systems, touring and sport packages, and turbo- or supercharged engines. 

Electric Car Subsidies

Used-vehicle website Carlypso.com predicts the vehicle to lose its value quickest is the Nissan Leaf, retaining just half its value after the first year. That sounds worse than it is, because buyers are eligible for a $7,500 federal tax credit and state and local incentives, taking the sting out.

At the other side of the EV price garage, Tesla has pulled the plug on its Resale Value Guarantee program, which assured a 50 percent return after three years. The program ended in July 2016, so it’s too soon to see what the effect will be on depreciation rates of the Model S. 

• Find 2016 Nissan Leaf For Sale
• Read the 2016 Nissan Leaf Full Review
• See 2016 Nissan Leaf Photos
• See Compact Cars Rankings

Tax Deductions for Business

The IRS sets limits for the amount of depreciation you can take for using a vehicle for business: First-year depreciation for cars is $11,160, and $300 more for trucks and vans, plus so-called “bonus depreciation”, that’s between you and your tax accountant to figure out.

What Models Have the Best Resale Values?

The Subaru Impreza loses the least value in its first year on the road, according to iSeeCars.com – just 3 percent. Other models that depreciate the least include the low-priced Nissan Versa, midrange Honda CR-V, and blocky, luxurious Mercedes-Benz G-Class. But that’s just the first year. After several years, these first-year winners lose about the same as other vehicles.

• Find 2016 Subaru Impreza For Sale
• Read the 2016 Subaru Impreza Full Review
• See 2016 Subaru Impreza Photos
• See Compact Cars Rankings

The Upside to Vehicle Depreciation

The good news about vehicle depreciation rates is that the ones that lost the most value become the best buy for a used car buyer, who can trade up to a three-year-old luxury model with all the latest safety technology for around the same price as a brand-new plain vanilla model.

If you're ready to buy a used car now, you can check out our used car listings or head over to our used car rankings to find the best used car for you.