There is an old adage which posits that your car will lose value from the moment you drive it off the dealer lot and this is true. This loss of value is known as depreciation. However, few car owners really understand how or why their treasured possession can lose value or how this applies to their particular car. We at DCH Toyota of Oxnard hope to change that with this overview.
Depreciation and its rate
In simple terms, depreciation is the loss of value of your car based upon its age and usage. On average, it is generally considered within the automotive world that a car will 
depreciate by a rate of around 15-20% per annum. In other words, at the end of the year it will be worth 80% of its original value at the commencement of the year. Therefore, if a car is worth $10,000, at the end of the first year its value would have reduced to $8,000 (10,000 x 80%). At the end of the second year it would be worth $6,400 (8,000 x 80%). However, in practice there are a number of factors that can impact the amount by which a car depreciates.
Maintenance, mileage, and models
The most important factor to consider is that new cars have a much higher rate of depreciation than occurs in subsequent years, which in this case can be as much as 35%. The reason for this is that the purchaser is buying the car at the dealer’s retail price. However, if that person tried to sell the car back to a dealer within days of purchase, they would receive the dealer’s wholesale price.
The second factor that can impact upon a car’s depreciation rate are related to mileage, maintenance and servicing. A car with higher mileage is likely to be worth less because it will have been subject to more wear and tear than a low mileage car. Similarly, a car that has been well maintained and regularly serviced is likely to incur the new owner in lower costs than one which has not been well kept.
Finally, there is a depreciation differential between makes and models of cars. Brands that are less popular will depreciate quicker because there are fewer people interested in buying the car, meaning the owner needs to reduce the price to achieve a sale. Equally, powerful cars that return lower mpg are likely to depreciate quicker, because of the additional cost of fuel.
The car is one of the most expensive purchases a consumer will make. Therefore, to get the best long term value out of this purchase it is important to consider the factors that will affect its loss of value and make sure you take the steps required to maximize its future value.
