Cars are one of the largest purchases most people make. But unlike a home, cars rapidly lose value over time. This loss in value is called depreciation. Understanding how car depreciation works is key to making a wise buying decision.

Car Depreciation Explained

Depreciation refers to the loss of value vehicles undergo annually as they age. The moment you drive a new car off the dealership lot, it has already lost a chunk of value. As vehicles get older, they depreciate in value from their initial purchase price.

The rate of depreciation depends on factors like make, model, mileage, condition, and demand. Luxury cars often depreciate faster than regular vehicles. High-mileage, damaged or modified cars also depreciate quickly.

What Impacts a Car’s Depreciation Rate?

Many factors determine how fast a particular model will depreciate:

Brand Prestige

Luxury brands like Mercedes and BMW depreciate faster than mainstream Toyota or Hyundai. Premium branding loses appeal as vehicles age.

Reliability & Durability

Cars known for reliability like Honda and Toyota hold value better. Mechanical issues accelerate depreciation.

Fuel Efficiency

Gas guzzlers depreciate quicker as fuel prices rise over time. Fuel-efficient cars have better resale value.

Mileage

High mileage takes a heavier toll on resale value compared to lightly used cars.

Vehicle Demand

Popular models in high demand have better resale value. Niche or low-demand cars depreciate faster.

Modifications

Aftermarket modifications and lack of maintenance records also negatively impact car value.

Average Depreciation of Popular Models

The average annual depreciation across all car segments is 15% to 20% per year. However, the exact depreciation varies significantly by model.

According to current market data, the slowest depreciating mainstream cars after 5 years are:

  • Toyota Tacoma: 44%
  • Subaru WRX: 49%
  • Honda Civic: 51%
  • Toyota Tundra: 52%
  • Subaru Legacy: 53%

 

These slow depreciators retain the maximum resale value. At the higher end, models like BMW 7 Series, Jaguar XJ and Mercedes C-Class lose up to 70% in the first 5 years.

Depreciation of Business Vehicles

Businesses use depreciation to gain tax deductions on vehicles. The ATO allows small businesses to claim depreciation of up to $60,733 in the first year for new or used cars purchased.

The depreciation is calculated based on the car’s effective life capped at 40,000 kms annually. Higher mileage vehicles depreciate more each year compared to those travelling less kms annually.

Tips to Minimise Depreciation Impact

While depreciation is inevitable, you can make smart choices to minimise its financial impact:

 

  • Purchase popular models with better resale value like Toyota Corolla or Mazda3.
  • Keep mileage low and service the vehicle regularly per schedule.
  • Avoid modifications that only appeal to niche buyers.
  • Sell before major repairs are required. Repairs accelerate depreciation.

The key is buying a reliable car you will use long-term. With good maintenance and timely sales, you can reduce depreciation’s bite. Our expert brokers analyse depreciation rates to help clients choose vehicles that hold maximum future value.