Let’s face it. A car’s resale value is as fluid as the price of cryptocurrency and just as ambiguous. We’ve all heard that a vehicle’s value depreciates as soon as it leaves the dealer’s lot. But I’m sure that fact quickly fades once that new car smell hits your nose.
Calculating, let alone understanding, a car’s depreciation rate and resale value is somewhat complicated. According to most industry experts, a car depreciates by 20% in its first year on the road. After that, it’s around 15% each year up to four years1.
For example, let’s say you bought a new Mazda CX-5 at ran MSRP of $28,500:
First year depreciation @ industry average rate: $22,800
Year 2 @ 15%: $19,380
Year 3 @ 15%: $16,473
Year 4 @ 15%: $14,002
Year 5 @ 15%: $11,902
At year 5 you can expect that your Mazda CX-5 will be less than half of what it was worth when you first bought it.
Also, that’s not taking into consideration things like the 15k in mileage you racked up on your national road trip to see how long your CX5 would last; or, the very visible dent on the passenger side door when you thought you had just enough room to park.
There’s larger factors at play too like supply and demand. For example, economic researchers in Canada found that when gas prices went up, households trended towards buying more fuel-efficient cars2.
So, if the allure of that new car smell has worn off (and your jaw dropped slightly when you saw the quoted resale value for your car), read on to get a better understanding of why your car is worth so much less now than when you bought it.
Mileage, Condition, Age, Maintenance and Warranty
Like all things, cars have a limited shelf-life. Eventually all cars will break down and the cost to repair and maintain will exceed its value. One way to determine when a car will eventually reach that point is through its mileage.
For industry professionals, mileage and value is correlational to how many unused kilometers a car has left3.
For example, a car with 30,000km has much more shelf-life than one with 100,000km, and thus, would have a higher resale value.
When a professional appraises your car they are looking for both visible damage and wear and tear under the hood. A car with low mileage can still have substantial wear and tear especially if the vehicle wasn’t well maintained. Selling a car with the engine light on, electronic equipment that isn’t working, torn seats, on top of, exterior damage like major dents and scratches is all going to negatively affect the final price.
Finally, vehicles with longer new vehicle warranty tend to depreciate less in the first three years3. Therefore, if you know you’re going to sell your vehicle down the line, you may consider extending its warranty period.
Economic Factors - Supply and Demand
The car you choose to buy also plays a role in determining resale value and that’s largely due to marketplace factors like supply and demand.
Like any commodity, the more demand there is for something the higher the value it will have. For example, in 2009, Canadians bought roughly one truck (including pick ups, sport utility vehicles (SUVs)/crossovers, and minivans) for every car sold. In 2018, Canadians purchased almost 2.5 trucks for every car sold4.
This change in demand is evident when you look at the latest Canadian Black Book 2020 "Best Retained Value" Awards where half of the vehicles listed are trucks or SUVs.
Obviously there isn't an onus on one becoming a market guru to predict consumer car buying trends, but it’s good to know where purchasing trends are headed--ie. EVs, hybrids and more fuel-efficient vehicles. It’s easy enough to observe that there aren’t as many H2 Hummers on the road anymore.
Depreciation and Your Car
It’s difficult to forecast what your car’s resale value will be. However, there are a lot of resources available, including our used car value calculator, to help you get a sense of how your particular make or model has depreciated over the years. The Money Calculator also has a comprehensive list of depreciation rates for most major car brands so you can estimate the depreciation rate of your particular make and model if you’re thinking about selling into the future. You can check it out here.
We also have an online calculator where you compare what you’ll get at trade-in as well as an estimate generated by our platform’s algorithm (data learning from Canadian Black Book and sales data on our platform). You can take things even further with us by moving forward with the Autozen value offer, and if your car is a good fit, an Autozen Expert will come to collect the details and photos of your car to create your listing for our buyers to compete for your car. No hassle, no pressure, no stress.