I’ve always bought used cars because I’d always heard that a car depreciates by 30 per cent the second you drive it off the lot. My dad used to say that, but is it actually true? I’m asking because I’d love a brand new SUV, but it seems a little irresponsible. – Cameron, Winnipeg
You should heed those warnings about depreciation – some cars do lose 30 per cent of their value during their first year on the road.
“Realistically, nobody buys a car, drives it off the lot and sells it right after,” says Andrew Tai, CEO of automotive marketplace Unhaggle. “But there’s some truth to the fact that, coming off the lot, there is meaningful deprecation.”
During the first year, the average depreciation for new cars is around 30 to 40 per cent, but most lose less and some lose more, according to the Canadian Black Book (CBB).
“It’s a bit of a snowflake phenomenon; every car ages differently,” says Brian Murphy, CBB vice-president of editorial and research. “It’s just a case of supply and demand, actually – how many of the vehicles are available used and what’s the demand.”
For instance, a subcompact car that tends to make it into rental fleets loses its value far faster than a truck that people tend to hang onto for years. That’s because there’s a lot more of the former out there for sale.
Plus, some used cars might be competing against brand new versions that come with heavy incentives and zero-per-cent financing.
“There are now used cars subject to financing at dealer rates through a bank at 5 to 6 per cent,” says George Iny, president of the Automobile Protection Association (APA). “Total interest on the used car will be $4,000-$6,000 compared to zero on a new model.”
Best retained value?
Every year, CBB looks at the retained value – the percentage of the original purchase price that you’ll get when you trade a car in – of four-year-old vehicles and gives awards for the vehicles that hold their value the best.
The industry average is 52 per cent, meaning that after four years, a vehicle will have kept 52 per cent of its purchase price. The vehicles that keep their value the best tend to be small trucks. After four years, they keep 73 per cent of their value. The weakest segment is luxury vehicles; they only keep 37 per cent of their value on average.
The brand also makes a big difference.
“Toyota cleans up on awards like nobody else,” Murphy says. “They have a reputation for quality, reliability and durability. They don’t have a lot of leasing, they don’t do a lot of sales to rental car fleets and they’re very disciplined about their incentives.”
While CBB doesn’t give depreciation numbers for specific models, the vehicles that keep their value the best include the Toyota Tacoma and Jeep Wrangler. Both of them “maybe only lose 5 or 6 per cent the first year,” Murphy says. “They’re the statistical outliers.”
Stick to used?
If you buy used, you can usually get more bang for your buck, but you might not have all the gadgets that a new car has, Unhaggle’s Tai says.
“If you’re buying a new Audi A4, you can probably get a used A6 for the same money,” Tai says. “But there’s a rapid pace of change in vehicle technology, so a car that’s two or three years old might not have the game-changing tech you want, like Apple CarPlay, Android Auto or safety features like lane-keeping assist.”
And if you’re financing a used vehicle, you’re probably still saving more money than you’d spend on a new car. But you might not be saving as much as you think.
“It can make sense to buy used because you will reduce your initial outlay,” APA’s Iny says. “Interest payments will be higher if you finance for a long term and may wipe out a good chunk of the savings.”
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