How quickly does your new car lose value?

According to a recent AAA study, consumers don’t understand how quickly their new vehicle purchase loses value.

A new vehicle decreases in value as soon as it's driven off the lot. In fact, depreciation accounts for almost 40 percent of the cost of owning a new vehicle. That cost alone could account for more than $3,000 per year and is influenced by a number of factors, including shifting consumer preferences. 

AAA urges car buyers to think about factors, such as market trends and length of ownership before they purchase their next vehicle.

"Consumers purchasing a new vehicle often don’t consider whether it holds its value or not,” said Matt Nasworthy, AAA Florida Public Affairs Director. “Selecting a car that depreciates at a slower rate can have a significant financial impact in the long run.”

Auto Basics owner Stan Tillman said some of his customers are shocked when they find out the value of their car three to four years after it was purchased new.

"In many cases, after three years, wholesale value of that vehicle may be half of what it was new," Tillman said.

That's because of depreciation.

AAA’s Your Driving Costs found the average cost to own and operate a new vehicle in 2018 is $8,849 per year. The figure is calculated based on the cost of fuel, maintenance, repairs, insurance, license/registration/taxes, depreciation and loan interest. The study examined 45 top-selling 2018 model-year vehicles across the following nine categories:

*Based on 15,000 miles driven annually

AAA’s 2018 Your Driving Costs study found demand for sedans has slipped as American appetite shifts to SUVs and pickup trucks. As a result, depreciation costs of these once-popular vehicles increased up to 13 percent compared to last year. 

Electric and hybrid vehicles, however, have seen a gain in popularity with 20 percent of Americans saying they will likely go electric for their next vehicle purchase, up from 15 percent the previous year.

This year, these vehicles also saw a dip in depreciation and offer many cost benefits such as lower repair and maintenance bills, making going green a more affordable choice than in years past.

Buyers often only give priority to purchase price and monthly payment when choosing a new car, sometimes selecting a vehicle based on the best deal available. The length of car ownership, however, is of equal importance.

At Auto Basics, some cars and trucks are only a year or two old, Tillman said.

"Maybe something for the children that's a little less expensive. Sometimes they'll buy new for that family car they'll want to take cross-country on trips, and they'll buy that used car that they want to save money and don't want to suffer the depreciation," Tillman said. "Something that's a daily back-and-forth from work or that they want to buy their child for college."

Consumers who plan to keep a vehicle for only a few years should be cautious of deep discounts and incentives offered by automakers and dealers. These are often designed to sell less popular models and directly influence depreciation. 

Low down payments and extended finance terms can also have a similar effect. Stretching a car loan over five, six or even seven years may be an effective way to lower payments, but owners may quickly find themselves owing more than the vehicle is worth.

Leasing is similarly affected since payments are based in part on the projected residual value of the car at the end of the lease, serving as a good indicator of which models experience higher or lower depreciation. Since resale value is not a factor at the end of the lease period, buyers who prefer less popular models or only want a vehicle for a short time, may consider leasing a more viable option.

AAA’s Your Driving Costs found the average cost to own and operate a new vehicle in 2018 is $8,849 per year. The figure is calculated based on the cost of fuel, maintenance, repairs, insurance, license/registration/taxes, depreciation and loan interest. The study examined 45 top-selling 2018 model-year vehicles across the following nine categories.

While the latest technology, style and options make them attractive to car buyers, a new car may not be the most economical choice for some buyers. Vehicle owners looking for alternatives to new car ownership or ways to minimize their operating costs should consider the following:

• Buy (gently) used – Prior to purchasing a pre-owned vehicle take it to a trusted repair facility to be checked out. By driving a pre-owned vehicle in good condition, ownership costs are significantly lower. A safe, reliable vehicle can be found at an attractive price point. 
• Fuel responsibly – Avoid wasting money on premium grade gasoline unless your vehicle specifically requires it and, if you’re one of the 20 percent of Americans considering an electric car, these vehicles offer lower fuel and maintenance costs. 
• Show your car some love – It sounds counterintuitive, but spending money on routine maintenance can actually save you money in the end. To keep engines running cleaner and longer, consider switching to synthetic oil and upgrading to a higher quality fuel TOP TIER™ gasoline. 
• Slow down – When gas prices are high, small changes in the way you drive can make a big difference.