Understanding New Car Depreciation
A Complicated Issue
You’d think if you bought a car for $30k and took good care of it, you could still get $20k or $25k for the vehicle in around five years. This isn’t the case. Vehicle value depreciates much, much faster than $1k or $2k a year.
From the moment your vehicle is either delivered directly to your house, or otherwise leaves the delivery truck, it is no longer worth what it could command at resale. Even if you just drive the vehicle down the street, after it has been purchased, it is only worth wholesale from that point on; and its wholesale value is in steady depreciation with each passing mile.
A Rule Of Thumb
Bankrate.com says as a rule of thumb, you want to assume a 15% to 20% value loss each year on your automobile. So a car purchased at $30k will be worth between 25% of its initial value, and nothing after five years’ use. That works out to about $7,500 and under. This is bittersweet news.
People tend to average between 10k and 20k miles of driving per vehicle per year, depending on gender and region. Expect a car will get an average of about 15k miles a year. The IRS values each “business” mile at 57.5 cents in terms of depreciation deductibility.
That means every year, a vehicle averages a loss of $8,625 in mileage alone. By five years, that’s $43k+. So you can see between average mileage depreciation and associated taxability, there is a small degree of wiggle room—but it isn’t much.
Still, if you buy used cars, this may not necessarily mean the vehicles are a poor acquisition. Many vehicles completely lose their market value, only to have it supplanted in utility. Those in the “million mile club” simply part out their vehicle in line with what the manual advises, and are sure to keep the car tidy.
The Good News
So a car that has between 75k and 100k miles in five years may not be at the end of its life, and you could pick up a real bargain at $7,500 owing to depreciation. You may have some additional maintenance expenses, but what you spend in repairs you save in terms of interest and MSRP cost. You may get more use out of the vehicle than its original owner, if you’re savvy.
That said, there are more factors than just mileage and taxable deduction per mile that contribute to depreciation. The color of a vehicle will also be a factor in value loss. More neutral colors like black or silver tend to keep their value longer. White does not. Neon Pink? Forget about it.
Some Quick Tips To Maintain Car Value
Additionally, to reduce depreciation so that Kelley Blue Book would define your vehicle in the high range, this list represents both things you can do to maintain vehicular value, and things that—if neglected—will make depreciation happen faster:
Don’t Let Features Like A/C Fall By The Wayside—Fix As Necessary
Know Recommendations For Regular Maintenance, Follow Them
Maintain Records Of Service On The Vehicle
Be Sure The Interior Is As Clean As Possible
Store The Car In A Garage If You Can
If Possible, Incorporate New Features
Maintaining Value
Buy smart, keep up with maintenance, and you can increase the value your vehicle provides while slowing value loss. Neglect the vehicle, and it will lose value quicker. To learn more about vehicle maintenance, depreciation, and excellent local deals on a variety of cars, feel free to subscribe to the Anybody’s Autos blog.