ORLANDO, Fla. – With the average price of a new car hitting over $50,000 for the first time ever, does the old saying that a new car loses roughly 15% of its value as soon as it is driven off the lot remain largely true in 2025?
Yes. No. Kinda? Sounds like we need a lesson in car depreciation – class is now in session.
Let’s start with a definition of vehicle depreciation: Think of it as your car’s loss in resale value – what it’s worth now versus what you paid for it. Next, the 15% myth: has anyone ever bought a new car and tried to sell it the same day? With that said, the adage of your new car is worth 15% less as soon as you drive it off the lot really isn’t true. What is true: in the first year, on average, you can expect your car to depreciate at about that same rate (15% is now actually 16%).
But that 16% number is an average, and like just about everything these days, there’s no one-size-fits-all answer. Some cars depreciate slower than others – some faster.
During the pandemic when new vehicle production slowed dramatically, it was common for dealers to offer people more for their used vehicle than the owner paid for it a few years prior.
And then there are the flippers who look for new cars that are actually worth more than MSRP (manufacturer’s suggested retail price). Some performance vehicles, like the Porsche 911 GT3 RS, Toyota GR Corolla, or Chevrolet Corvette E-Ray, are so hard to find (or wait times are long), that buyers often flip them instantly for a profit. Those folks are certainly not taking a 15% depreciation hit “as soon as they drive it off the lot.”
Flipping is not limited to just sports cars: Three models from Toyota, the RAV4 Prime, 4Runner TRD Pro, and Highlander Hybrid Platinum, are regularly subject to limited availability and high dealer markups. Today’s depreciation rates and patterns reflect a more complex reality influenced by vehicle type, market trends, and technology shifts (a point we’ll get to in a second).
So, let’s get back to depreciation. According to Kelley Blue Book (KBB.com) your first year of ownership is the worst when it comes to deprecation, but subsequent years are a little better:
- Year 1: 16%
- Year 2: 12%
- Year 3: 11%
- Year 4: 9%
- Year 5: 7%
When all is said and done, on average, your new car will be worth about 45% of its original value by five years into ownership.
Are some vehicles better at handling depreciation than others? You betcha.
U.S. News & World Report recently published companion lists of the slowest and fastest depreciating cars, and the results are eye-opening (this year’s list looked at three-year depreciation values for 2022 models). You can see the full list here and it represents a variety of cars and trucks. Of the 14 vehicles on the list, six were cars (only one was a two-door), five were crossovers, one was an SUV, one was a truck, and one was a minivan.
That was the good – now it’s time for the bad, because not every car ages (or depreciates) gracefully. Thirteen of the 15 vehicles on U.S. News & World Report’s fastest depreciation list have negative three year ownership values from $20,000 all the way up to almost $75,000. Six of the 15 vehicles are sedans, one is a hatchback, and the remaining eight are either crossovers or SUVs. The one thing that stands out on this list: 13 of the 15 vehicles of the quickest depreciating vehicles are electric vehicles (EVs).
A quick side note on EVs: their steep depreciation has nothing to do with quality, performance, or driving feel – quicker than normal EV depreciation comes from two main factors: rapid tech evolution and government rebates or incentives that effectively lower the sticker price.
Alright, class let’s review: There’s nothing like that new car smell, but it comes at a price. The average new car will lose about 16% of its value in the first year and up to 55% over five years, but that’s not necessarily bad news. As demonstrated by the lists above, that 16% is just an average as some vehicles do much better – some do much worse. The key is not just looking at the purchase price of a vehicle, but for the purposes of this exercise, try and figure out what that vehicle will be worth two, three, four, and five years down the line.
If you’re a savvy shopper who absolutely must buy a new car, the smart move is to find something reliable that will fit your needs and depreciate slowly. On the flip side, if you’re in the market for an EV, or a luxury vehicle, good for you, but be aware that some will depreciate very quickly. If you are flexible and you can find the right vehicle, consider buying used instead of new (let the guy who didn’t read this story take the depreciation hit). And of course remember, although you may get more for your car selling it on your own versus trading it in for another vehicle, you will save money on the trade-in as it lowers the price of that new car leading to a reduction in the sales tax charged.
Lastly - looking for help with figuring out depreciation? We got you covered: try this car depreciation calculator Car Edge Car Depreciation (no registration required) or this one from KBB.com (registration required). In the end, that new car smell eventually fades, but smart financial decisions don’t (see what I did there?).