How Does Car Depreciation Work?
Updated on April 19 2024
Learn the best time to buy or sell a used car in the Philippines
The main enemy of buying an expensive brand new car is “depreciation.” It’s often said that it hits the moment you drive out of the casa, so you might as well let someone else take the loss and buy a lightly used car instead. But what exactly is depreciation?
What is depreciation
Depreciation is the difference in price of a brand new car versus a used car. Wear and tear plus mileage racked up is only half of it, as a car’s value also naturally goes down over time.
Many external reasons contribute like the demand for a new model wears off, refreshed versions are introduced, the number of used cars on the market increases, etc. So even if you stash your car as a “garage queen” it’s still going to go down in value, sorry.
How much does a car depreciate in the first year?
Generally, you can expect new car depreciation to be a solid 20% in the first year.
For a car that sees heavy use or unusual mileage (the average city driven car in the Philippines does about 10,000-12,000km annually) this can climb to all the way to 25%–so in one year, a brand new car can already lose 1/4th of its worth!
How much does a car depreciate per year?
After the first year, a car loses an average of 15% of its value yearly.
Some models can do better and lose only around 10%, some do worse and don't go down too far from the initial 20%. The condition of a car also begins to take a bigger importance at the second year onward.
When is the best time to buy a used car?
For the perfect balance of savings and freshness, a one-year old car would already be a good buy. In the second and third year of ownership, depreciation will usually slow down to around 15% yearly–meaning you can already take advantage of the biggest drop in price so far anyway.
This is good news because you don’t have to wait very long for a dream car to become a sound financial decision. Wear and tear would likely not be a big concern either, modern cars often require only basic routine maintenance after one year on the road.
When is the best time to sell a used car?
If you want a still respectable return, the best time to sell would be right around three years. At this age, expect to lose 35-40% of what you originally paid if you bought brand new.
Why? Car manufacturers often refresh or facelift models after close to four years–and this depreciates used models a lot. Big maintenance is also expected in the fourth year onwards, thus the value of a car begins to go down faster in anticipation.
If your goal is to simply to sell with ease when your car hits its cheapest, that point will normally arrive in five years.
When does car depreciation end?
At the five-year mark, a brand new car will have gone down to 50% or less of its value and generally holds steady until ten years or beyond. At this point, you can assume it is already fully depreciated!
Of course, a car will never stop losing value, but they will never become free either–after all, twenty year old cars still have a price attached.
Which car brands depreciate the least?
You might have heard that a Toyota depreciates slower than the rest, and that is still true today. In general, Japanese makes like Toyota, Honda, Mitsubishi, and Nissan hold value much better than European or American cars due to their reputation for reliability. Korean cars like Hyundai and Kia are somewhere in the middle nowadays.
How do you slow down depreciation?
The best way would be to not drive your car, but that’s unrealistic, of course. There are a few simple things you can do to improve a used car’s value:
- Make sure to keep up on regular maintenance and keep receipts and records (especially from the casa) to prove it
- Have all stock parts on hand or returned to the car if it has been modified
- Keep the interior and exterior clean, this goes a very long way in perceived value of a car
A Visual Guide to Depreciation
This chart from 2018 shows Toyota Vios prices over 15 years.
A Vios G model was P875,000 brand new in 2018, and the chart shows that a unit–purchased at the same price–a year earlier in 2017 is already averaging P688,042 on the used market. That’s 21% depreciation which fits very well with the expected loss.
Remember: depreciation is not always the same
The 2019 Toyota XE 1.3 AT retails for P735,000. We have repossessed cars available starting at P500,000 here. That makes for 31% off after just one year! That is a higher than usual loss in value for a Toyota, but that also makes it a very good deal for a buyer.
Now that you know what to expect from depreciation, it’s easier to judge whether or not a used car is above or below the price curve–and you can buy used cars smarter.
Where to buy used cars?
Automart.Ph provides the same deal for our thousands of high-quality used and repossessed cars: the lowest possible and fixed price. No markup, walang patong.
Head over to https://automart.ph/ or you may also contact us at 0927-887-6400 for more information or to set up an appointment.