Blog Understanding Car Depreciation: Which Vehicles Hold Their Value Best

Oct 12, 2023

How does depreciation impact your vehicle value?

back lights of silver bmw

If you’ve ever bought a new car, you will often hear that it will lose up to 30% of its value the moment you drive it off the lot. This immediate drop in value might not seem drastic, but it does continue to drop.

Although exotic cars tend to hold their value longer, depreciation is fundamental in the car world. It’s one of the reasons why drivers opt for used cars or they use it to help calculate the trade-in value.

So, what can you expect within the first year, or after a few years of driving a new car? Depreciation is simply a fact for every vehicle – it’s just a question of how much of that value disappears and why.

This blog will examine what depreciation is, how to calculate it, and how to take a few easy steps to minimize it.

Click below to jump to key points:

What is depreciation on a car?
What causes a vehicle to depreciate?
How is depreciation calculated in insurance?
How to protect your vehicle from depreciation
How much does a car depreciate per year?
Top 10 cars that depreciate the least
What do I do if my VIN is tampered with?
What car brands depreciate the least?
What car brands depreciate the most?
Five year car depreciation across all vehicle types
Car depreciation FAQs

What is depreciation on a car?

When it comes to automobiles, depreciation explains how much the car’s value has decreased over time. It’s the difference between what you paid for the vehicle and its current worth. Cars will depreciate for many reasons including how many kilometres you’ve driven it and how well you have maintained it.

With car insurance, depreciation can affect how much you’ll be reimbursed when you make a claim.

What causes a vehicle to depreciate?

Vehicles depreciate due to many factors. Some cars hold their value better, such as pickup trucks, SUVs, and sports cars. Electric vehicles and luxury sedans are reported to lose their value faster. A few of the top cars with the lowest depreciation include Toyotas and Jeeps, versus BMW vehicles, which held three of the top ten spots for the highest rate. Here are a few more reasons why it will depreciate:

  • The more mileage a vehicle has, the higher the depreciation.
  • If a car is “like-new,” it will hold its value longer. The more scratches and damages, the lower the value.
  • Cars with better fuel-efficient depreciate slower.
  • If your vehicle has a high safety and reliability rating, it will hold its value.
  • Technology such as Bluetooth, wireless charging and remote start are becoming more popular and even a standard in most cars. If yours does not have them, it can lower the value. New car safety features are also a bonus.

How is depreciation calculated in insurance?

Insurers calculate the actual cash value of a vehicle by considering its age, kilometres driven, make and model, fuel economy, and wear and tear. Older vehicles lose value over time due to new models being introduced in the market.

A car's value decreases with the number of kilometres it has been driven. Cars with better reputations and fuel economy hold their value better. Cars known as "gas guzzlers" depreciate more quickly. Wear and tear also takes away from a vehicle's value.

How to protect your vehicle from depreciation

Depreciation is inevitable, but you can do a few things to minimize its impact on your vehicle. Here are a few tips to minimize deprecation:

  • Schedule regular maintenance: Follow scheduled car maintenance. Getting regular oil changes, tune-ups, and using winter tires properly can help prolong the depreciation.
  • Watch mileage: If possible, avoid putting an excessive number of kilometres on your vehicle.
  • Be a safe driver: Accidents will cause a massive effect on depreciation. Minimize distractions when driving and do not drive impaired.
  • Add an endorsement: Insurers offer a depreciation waiver, or insurance endorsement, that covers the lowest value of your vehicle's purchase price, manufacturer's suggested retail price, or the cost of the same vehicle. If you’re shopping for insurance for a new vehicle, be sure to ask your licensed car insurance broker if you qualify for a depreciation waiver.

How much does a car depreciate per year?

graphic explaining depreciation on a vehicle

Although the largest amount happens when you drive off the lot, some cars can lose 20% of their original value within the first year. After the fifth year, it could have lost up to 60% of its original value.

All vehicles depreciate at different rates, so the exact depreciation varies significantly from vehicle to vehicle. Studies show that new cars depreciate 20-30% per year.

However, to get a rough estimate, you can look up your car's current fair market value and subtract that from the purchase price. Remember to leave out any taxes or fees that you paid.

If you’re considering buying a car, look up the fair market value of older versions of the make and model to get a sense of the car’s value in the future. It's important to remember that every vehicle will have a different depreciation rate.

Here’s a sample calculation you can use to estimate how much your new vehicle depreciates each year:

  • After year one = Purchase price x .20%
  • After year two = Year one value x .10%
  • After year three = Year two value x .10%

Based on the OMNI calculator, if you spent $32,000 on a brand new vehicle, the deprecation will drop the value to around $25,920 after one year, $22,080 after two years, and $18,560 after three years. It's important to remember that every vehicle will have a different depreciation rate when you are calculating yours.

Top 10 cars that depreciate the least

Various types of cars depreciate slower. This is possible due to the history of the vehicle and the improvements based on their build - manufacturers don't change a lot of the exterior and interior from year to year; therefore, driving a new model isn't much different compared to an older one. On average, cars with the slowest rate depreciate 11% to 37% per year compared to 50%, or more.

Vehicle Average 5-Year Depreciation Avg $ Difference from MSRP
Jeep Wrangler 7.3% $2,361
Jeep Wrangler Unlimited 8.7% $3,344
Porsche 911 14.6% $20,634
Toyota Tacoma 14.9% $5,926
Honda Civic 16.3% $4,237
Subaru BRZ 18.2% $5,985
Ford Mustang 19.4% $7,528
Toyota Corolla 19.8% $4,617
Nissan Versa 19.9% $3,183
Chevrolet Camaro 20.2% $7,981