5

This question made me wonder how, according to the OP of that question, a car that cost about $16,000 can be worth only $4,000–$6,000 after a mere three years.

Does a new car usually depreciate that much?

  • 1
    This person probably got a bad deal when they were buying it, probably put nothing down, included tax/title/license/fees in the loan, then is looking at dealer trade in numbers and is rounding everything. So the purchase price of the car was 16, then the loan was for closer to 18 or 19. An extended warranty would push the economics farther out of whack. – quid Mar 3 '17 at 21:20
  • 16k is actually on the very cheap end of new cars. I think a cheap car would depreciate more. Couple thousand when you drive off the lot and half that in 3-5 years, sure. Plus there's the possibility that the model is a POS that nobody wants at all and they'll be lucky to get 4-6k. – Xalorous Mar 3 '17 at 22:35
  • Smokers beware: appraisers at dealerships will easily knock off $100s (and often times $1000+) if you've tainted your vehicle with cigarette/cigar/pot smoke. The lesson? DON'T SMOKE IN YOUR CAR! – theforestecologist Mar 4 '17 at 4:55
  • Its good of you to ask this question and hopefully it impacts your financial decision making. – Pete B. Mar 6 '17 at 15:26
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    A new car loses about 30% of its value the second you drive it off the lot. That is why some people (myself included) buy only business seconds, those that were bought new by a company and sold three years later since they have their own bizarre guidelines to follow re depreciating assets. I could have gotten a new $40000 car or a 3yo $20000 car with 21000km on the odo. Needless to say, I chose the latter. – user10913 Mar 7 '17 at 4:14
10

It depends completely on the car. Some cars retain their value much better, and others drop in value like a rock (no pun intended). The mileage and condition on a car also has a huge impact on value.

According to this site, cars on average lose 46% of their value in three years, so seeing one that drops 62% in roughly 3 years does not seem impossible.

That value could also have been trade-in value, which is significantly lower than what you could get with a private party sale (or what you'd pay to get that same car from a dealer)

One example: a new Ford Taurus (lowest model) has a Kelly Blue Book value of $28,000. A 2014 Taurus (lowest model) with average mileage and in fair condition has a private party value of about $12,000, for a 57% drop in value.

Note: I picked Taurus because it's a car that should not have exceptional resale value (unlike BMW, trucks, SUVs), not to make any kind of judgement of the quality or resellability of the car)

  • This, along with the "Drive-off the lot depreciation"-factor is why my dad told me to always buy almost-new cars instead of brand-new. I did buy my first car brand new though because I didn't wan't to deal with any surprises and wanted a single entity (the dealer) I could blame if anything went wrong. Fortunately my car has only depreciated by 40% in 4.5 years, so I think I got off lightly. – Dai Mar 3 '17 at 21:44
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    @Dai Sometimes you feel it's worth it, and at those times, maybe it actually is worth it. (That's for you to decide.) As long as you are aware of the depreciation, and perhaps treat it as a large, semi-unknown, up-front insurance premium, buying new shouldn't be categorically ruled out. People regularly pay extra for peace of mind, and for items that you more or less depend on, doing so can be a viable strategy. – a CVn Mar 4 '17 at 12:10
  • "no pun intended"? I'm not entirely certain there's a pun even in there. – user10913 Mar 7 '17 at 4:16
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    @paxdiablo Chevrolet's slogan for its trucks used to be "Like a rock". – D Stanley Mar 7 '17 at 14:19
3

It's possible the $16,000 was for more than the car. Perhaps extras were added on at purchase time; or perhaps they were folded into the retail price of the car. Here's an example.

2014: I'm ready to buy. My 3-year-old trade-in originally cost $15,000, and I financed it for 6 years and still owe $6500. It has lots of miles and excess wear, so fair blue-book is $4500. I'm "upside down" by $2000, meaning I'd have to pay $2000 cash just to walk away from the car. I'll never have that, because I'm not a saver.

So how can we get you in a new car today? Dealer says "If you pay the full $15,000 retail price plus $1000 of worthless dealer add-ons like wax undercoat (instead of the common discounted $14,000 price), I'll eat your $2000 loss on the trade." All gets folded into my new car financing. It's magic! (actually it's called rollover.)

2017: I'm getting itchy to trade up, and doggone it, I'm upside down on this car. Why does this keep happening to me?

In this case, it's rollover and other add-ons, combined with too-long car loans (6 year), combined with excessive mileage and wear on the vehicle.

1

It isn't common to lose that much value in 3 years, but it is possible.

If you don't take care of small dents, scratches, etc., you can quickly reduce the value far beyond what you might expect looking at graphs.

Another big factor is the trim level of the car that you purchase. If you spend $30,000 for the highest trim level of a car, instead of $22,000 for the lowest trim level, the higher trim car could lose 50% of it's value while the lower trim car loses only 35%.

There's no way to know why the OP of your linked question had such a large loss, but again, that's not the usual experience. It is definitely a good idea to consider used though.

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    In my experience shopping for used cars, the higher trim levels seem to depreciate slightly more slowly than the base models. Probably because they're more in demand for some of the features, or because they can be limited edition trim packages, or stuff like that. – Xalorous Mar 3 '17 at 22:37
  • @Xalorous Shopping at dealerships or private party? – Nathan L Mar 4 '17 at 0:15
  • @Xalorous Dealerships usually wholesale the lower trim models that are traded and only keep the high trim level used cars to sell on their lots. I just picked a Honda Accord and took the Touring trim and the LX trim and compared private party prices on KBB.com. The Touring was down 44% and the LX was down 38%. That's the Accord which has great resale value. On other cars you'll see bigger differences. – Nathan L Mar 4 '17 at 0:27

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