Car Depreciation: Why do cars lose so much value?

You have probably seen on AutoTrader, eBay or even Facebook Marketplace cars for sale with only six months prior ownership and limited mileage, and thought…why on earth are they selling it already? What’s the problem? Buying a newly-used car can bring a lot of benefits, not only with warranty and a new car reg, but ultimately price or “new car depreciation” as it’s often referred to. 

The significant depreciation of a car’s value when it is taken away from the dealership is primarily due to several factors: 

New Car Depreciation

The moment a new car is driven off the dealership lot, it becomes a used car, and its value typically drops significantly. This initial depreciation is often referred to as “new car depreciation” and can be as much as 10-20% in the first year. 

Supply and Demand

The law of supply and demand plays a role in the depreciation of cars. New cars are in high demand, and dealerships often charge a premium for the latest models. However, as soon as a car is sold and becomes used, the supply of that particular model increases in the used car market, potentially leading to a decrease in its value. 

Market Perception

Consumer perception plays a crucial role in determining a car’s resale value. Some car models may have a reputation for rapid depreciation, while others may hold their value better over time. Factors such as reliability, brand reputation, and market trends can influence how consumers perceive a particular model’s value. 

Technological Advancements

Rapid advancements in automotive technology can contribute to the depreciation of older models. Newer cars often come equipped with the latest safety features, improved fuel efficiency, and updated technology. As a result, older models may lose value more quickly as consumers seek the latest innovations. 

Wear and Tear

The physical condition of the car plays a role in its depreciation. Wear and tear, mileage, and any damage can affect the perceived value of the vehicle. Potential buyers often prefer low-mileage, well-maintained cars, and any signs of wear can lead to a lower resale value.

Financing and Incentives

Some buyers take advantage of financing options or incentives provided by dealerships when purchasing new cars. While these options can make buying a new car more affordable, they can also contribute to faster depreciation, as the initial value may be inflated by these incentives. 

It’s important to note that not all cars depreciate at the same rate, and some models hold their value better than others. Additionally, factors such as market conditions, economic trends, and regional demand can also influence the depreciation of a specific car model. 

Are you considering buying a newly used car with a 2024 plate?