Depreciation is that moment when you drive a new car off the lot and the car instantly loses 20% of its value. Some cars hold their value better than others. The cars that depreciate the most on automotive lists tend to be high-end luxury cars or very cheap sub-compact cars. However, there are many models at both of these levels that hold their value and are consistently regarded as reliable and safe.

Many things factor into the true cost of owning a car. Depreciation is a major factor. Automotive sources use a basic formula that spans an average five-year ownership of a vehicle to determine its depreciation value. According to a recent survey by CarMax, high mileage on a car was the number one factor in its depreciation. Other sources, such as Popular Mechanics, cite poor quality, bad design, the expense of repairs and sometimes just that the general public doesn't like the car. Do you remember the Edsel? Born from a marketing blitz, the Ford Motor Company created an entire division around the car. It seemed destined for success, but it bombed. Nothing was really wrong with the car. In fact, it had state-of-the-art technology for the era, but consumers hated it.

Ford isn't the only carmaker that saw the value of one of its models sink like an anchor when it hit the lot. The Mazda RX didn't live up to its hype, and sales of the car dropped. The highly-touted Nissan Leaf, one of the first all-electric cars, left many drivers stranded because its power gauges were incorrect. Depreciation is also a result of the substantial competition in the auto industry today.

"The automotive industry is so competitive these days that you're seeing vehicles being redesigned every four or five years," said Eric Ibara of Kelley Blue Book. "If you see a vehicle that is in its fourth or fifth year and not doing well selling [new] retail, it would tend not to hold its value as well as its competitors."

Plus, those incentives to buy that car dealers love to lure us with will depreciate a vehicle very quickly, too.

Car depreciation

No Comments