How Does a New Car Lose Value After Driving Off the Lot?

by Brandon M. Dennis

While you'd like your shiny new car to hold its value like a house or piece of land would, a vehicle will lose its value the second you drive off the lot. Vehicles depreciate in value so quickly because the optimal conditions that the car was guaranteed to be in before you purchased it can no longer be guaranteed by the seller.

Straight-Line Depreciation

The moment you rev up the engine and hit the gas pedal, the car and all of its components are now in use. This depreciation is best described by the straight-line depreciation method. To calculate the depreciation using this method, subtract the original cost of the car by the original value, also known as the fair-market or salvage value. Divide that amount by the number of years the car has been in use.

Used Goods

Once you drive off the lot, every part of the vehicle, from the engine to the seat covers, is considered to be in a “used” state, because they are no longer in the factory conditions that they were in before you purchased the vehicle. Over time, the effects of sunlight, rain, wind, heat and cold air will damage the vehicle in small, but measurable ways. Once a car has a history of repairs, even minor ones, the price of the vehicle depreciates. The only exception is high-end sports and luxury cars. Their value increases due to rarity and specialization.

Tip

  • Luxury cars can depreciate faster than their non-luxury counterparts in some circumstances. Because people often lease luxury vehicles, there's a constant supply of three- to four-year-old, high-end cars on the market, which keeps prices low.

The Effects of Aging

Age is a major part of a car's depreciation. The older a car gets, the less it’s worth. You must also consider that technology is constantly improving. A car that is be state-of-the-art today may seem like an antique in just a few years.

Be Realistic

A few rare circumstances can help your car retain its original market value, such as design features that make the car more luxurious or rare. A vehicle with undercarriage lights or vertical doors, for example, would hold its value better than an average sedan, because people will think it looks cool. Keeping the vehicle in good condition, with under 60,000 miles on it, will also go a long way to preserving its value.

About the Author

Brandon Dennis holds a bachelor's degree in mechanical engineering from the College of Central Florida with a minor in journalism. Since then, he has enjoyed working in the automotive aftermarket and has done so for the past six years. He is also currently seeking an ASE Certified Technician Certificate.