It is common knowledge that automobiles lose their value rapidly when new: a just-bought brand-new car will lose an average of 25 per cent of its new-car price the moment it is driven off the dealer's lot.
For all the value lost in those first few minutes and kilometres, one may as well drive the car for several months—the numbers won't change substantially. There are exceptions to this rule, but they are pretty rare.
This rapid rate of depreciation does not level-off until the third year. At that point Autel MK908, given that the car is well maintained and accident-free, only a further average of 10 to 15 per cent of the car's value will be lost per year.
New car buyers often claim that the financial penalties of the increased depreciation rate on a new car are not substantially greater than big repair and maintenance bills paid by people who own older vehicles. However, only cars well past their prime, or which have not been well maintained during the first three-or-so years of ownership, would come close to costing their owners so many thousands of dollars in repairs.
If we follow the average percentages outlined above, a $15,000 new car just driven off the lot will only be worth $11,250 at the same dealership the next day. That's almost four thousand dollars which you will never see again, not counting the money spent on tax and other extra costs involved in the purchase.
Barring the need for a new engine or transmission— both of which should last the useful life of a car, given proper maintenance—that amount will never be spent on repairs in a year.
One could point out, though, that these figures may be a little exaggerated because one could find an ad for that year-old-or-less car, originally worth $15,000, being sold for $12,995 on the local dealer's used car lot. That's only 13 per cent less than when new.
It is not realistic to compare retail prices when buying versus the amount of money an individual can collect when selling. Even when dealing with private sellers on the retail-only level, one has to remember that we all try to buy for less and sell for more. That is where the 25 per cent price drop suddenly becomes real.
Of course, major depreciation like what we see above becomes less meaningful if the original owner keeps the automobile for its full useful life, which, for all intents and purposes, is about 10 years or 200,000 km.
Not many cars actually make it that far, though. The
average age of cars on roads is currently close to reaching seven years. In any event, a car kept for so long allows the owner to spread the depreciation rate over the full term of ownership, at which point, the numbers no longer matter.
While unavoidable, depreciation can be mitigated in two common sense ways: buying the new car more cheaply, or selling it for more when getting a new one.
Real-life transactions on the new and used car lots in repeatedly demonstrate discrepancies between what the used car value books say a car is worth and what
the public thinks a car is worth.
On paper anyway, the depreciation rates do not vary substantially between domestic and imported cars. Since book values are based on transactions made across the country Autel Maxipro MP808, they should be realistic. However, it has been pointed-out repeatedly that a Japanese import in good condition will sell for proportionately more than a comparable domestic car; a 'clean' low-mileage Toyota will inevitably sell for more than its book value—consequently skewing the depreciation rates outlined above.
These discrepancies are based on word-of-mouth
reputations of certain brands of cars. When asked to guess which car brand has the best reliability, a majority will say Toyota, or Honda, or name one of the other Japanese marques. Reliability surveys from organizations like the CAA confirm these views. The end-result makes the Japanese cars more desirable and, as the laws of supply and demand would have it, more expensive to buy.
The benefits in the depreciation game are obvious: if you buy a car of a brand which enjoys a great reputation, it will likely depreciate more slowly and be much easier to resell if it's in good condition. The two go hand-in-hand.
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