Car Depreciation: A Closer Look

Car Cost

There’s a good chance some of you had a father who traded in the family car at a specific time, such as when it had a certain amount of mileage on the odometer. Others might have decided to trade every two years or every four years, or according to another personal schedule they felt gave them the best value. While it’s true that as a car gets old, it’s value decreases, you might want to give this subject a bit more thought. You may be surprised at how the guidelines for when to trade have changed with the passing of generations.

Studies in the past decade show this process in detail, using the old technique of “pencil selling.” In this technique, the person making the sale, or making a financial decision, breaks down a total cost to smaller increments. Rather than using the “60,000 miles” guideline, or the “every three years” standard car owners determine how much a new car depreciates in a specific amount of time, then reduce that to how much the vehicle depreciates each month. They believe this gives them the accurate numbers they need to make a wise decision.

Hang On?

If you purchased a certain car, with a value of, say, $31,000, drove it for two years with careful maintenance, you might find your car is worth about $13,000 less than it was when new. This breaks down to somewhere in the $550-per-month range. If you drove the car for another year, the total depreciation might be less than $5,000 for the additional year, with average monthly depreciation of less than $500 per month.

As you extend this time further, keeping the same car for four years, you’ll find the average monthly depreciation is reduced in a significant way. The monthly figure is now closer to $400. Essentially, your vehicle loses value more slowly the longer you have it. The question, of course, is: Is this detailed information helpful? The answer: Yes, and no.”

Take Care of Your Car

Obviously, when you take good care of your vehicle it’s going to be worth more, no matter how long you keep it. The gem in this close look at vehicle depreciation is that a new vehicle loses a remarkable (and uncomfortable) amount of value in the first year or two. The old-timers who understood this, people like your dad, even said this in a particular way. Drive your new car off the dealer’s lot and you’ve already lost hundreds of dollars.

While the decision to buy new, buy used, trade in, and so on, is purely a personal decision, there are some steps you can take to preserve the value of your vehicle. Regular service and maintenance according to the owner’s manual will help. Making sure you upgrade and repair when necessary is also an important habit to get into. For example, look at this excellent, consumer-education this infographic from Autodoc. When a dealer or a potential buyer knows you’ve been meticulous with maintenance, regular service, and repair, your car will have more perceived value, no matter how long you wait to trade it in.