It has been said that new cars lose 20% of their value the second they are bought and driven off the dealership lot. This is not exactly true. Over the course of the first year (52 weeks) on average a car will lose almost 20%. Some cars will lose less such as the Tesla Model 3, or Toyota 4Runner.
Here we will look into what factors impact the depreciation of a vehicle, and how this changes week-to-week.
Used Car Pricing Factors
There are multiple factors that go into the value of a used car, and we can list the main ones below in macro and micro factors.
- Supply / Demand
- Overall employment
- Vehicle Make
- Manufacturer incentives
- Historical vehicle condition
- Powertrain condition
- Age (time or other parameters to measure usage)
- Trim features
- Connected car features
All this goes into the overall value of a vehicle and the specific price of the exact VIN. So can cars go up in value? Yes, they do all the time.
Used Car Price Depreciation
In the United States, there are companies that call dealerships and get insights into what's selling and the prices of cars. From this along with the items listed above, you can see which cars depreciate in value weekly and which can retain their value.
What you see is that exotic cars will depreciate more than luxury or economy cars. An Aston Martin will lose nearly 70% of its value over five years, while a Toyota will lose 45% on average. Now this looks at all cars on average and does not take into account any of the micro factors listed.
How Cars Can Appreciate
As we can see between weeks 3 and 10 cars do jump back up but are still in the negative value from their initial purchase price. Used cars can go up in value, but will be lower than a new car value unless there is more demand than supply of cars.
The Covid Bump
We are seeing the phenomena of used cars going up in value in 2020 due to Covid-19, where the supply of new cars has been reduced.
U.S. dealers had an average supply of full-size pickup trucks to last 69 days as of July 6, and a supply of midsize pickups to last 45 days as of the same date, according to Cox Automotive data. A healthy level of pickup supply for a dealership is 80 to 90 days, while it is 70 to 80 days for cars and SUVs.
Other Reasons for Appreciation
Aside from demand, improving the condition of the vehicle does increase its value. In accounting terms, this is called betterment. This is not putting on a new spoiler or after-market kit on a car, rather this is improving the car's condition materially.
The only car maker that has done this is Tesla right now.
Tesla is doing this through its over-the-air updates. As other car makers start to implement this at scale, the used car valuation market will dramatically change.