How Does Car Depreciation Work?

There is nothing quite like the feeling of driving a new car off the lot for the first time. While caught up in the moment, the depreciation of your vehicle is probably not on your mind.

Your car may seem like an investment (and it is a significant purchase) it is not an asset you can expect to gain value over time. The average new car depreciates by up to 15 per cent the moment you are off the dealer’s lot. After the first year, you own the vehicle, you can expect another hit of 10-15 per cent.

In Australia, car depreciation is the most expensive cost of owning a car. While this may seem unjust, it is an inescapable fact of car ownership. So, learning more about depreciation can help prepare you for what is in store for you.

About Car Depreciation

Aside from the initial depreciation when purchasing a new vehicle and the subsequent loss of value over your first year of ownership, you can expect that your car will continue to drop in value over time.

For example, a car with an average depreciation rate will lose 58 per cent of its value after the first three years. After 10 or 11 years, some models will have a value of close to zero.

Wear and tear on your vehicle are typical reasons for your car’s decline in value. Automakers also contribute to the fast cycle of depreciation. Like clockwork, cars with newer options roll off the assembly lines and into dealer showrooms. When this happens, your car becomes closer to obsolete. The faster-updated versions of vehicles appear the sooner cars currently on the road lose their value.

What Factors Lead to Depreciation?

Several conditions will lead to a loss in a car’s value. These include:

• The Make and Model – These details will significantly impact your car’s value. Australians are fond of Honda, Toyota, Mazda, and Ford. These brands are all big sellers, and SUVs are among the manufacturers’ top selling. These vehicles tend to hold value more than other types.
• The Vehicle’s Age – As cars age, their value drops. However, this is not purely judged on the year a car was built: the car’s appearance and the miles driven impact what is known as a vehicle’s age.
• Features and Equipment – All of the bells and whistles on a car can improve its resale value. However, adding new features with the hope of balancing some depreciation may backfire. So, unless you add touches you want for yourself, it may not be worth the cost.
• Maintenance – If your car is expertly cared for and is up to date with all tune-ups (from services such as Elite Tune), oil changes, and so forth, it may depreciate less than a similar model that was poorly maintained.
• Condition of the Interior and Exterior of the Vehicle – Just as maintenance matters, how your car looks makes a difference in its value. An auto with a pristine interior and exterior will depreciate a bit less.
• Fuel Efficiency – Cars that use less gas will generally have more value than those with poorer fuel economy.
• Manufacturer’s Reputation – There will always be a few brands of vehicles that retain their value better than others. While some of the value is based on perceived value, generally, superior manufacturers will rise to the top.