How Car Depreciation Works

We have some hard data on cars whose value does not fall off a cliff the minute its new owner parks it in their driveway.

It’s an argument seemingly older than the automobile itself: the minute one drives their shiny new car off the dealer lot, it loses a significant chunk of its value. Wear, tear, and the relentless march of time all conspire to scupper the worth of one’s vehicle.

In reality, however, this rule holds true for the majority of durable goods in our world. I wouldn’t want to pay full price for a kitchen table, even if the owner only used it once.

Smart customers will realize that different vehicles depreciate at varying levels of speed. Some machines, after a few years, are worth little more than however much fuel is in their tank (I’m only slightly exaggerating, here). Others hold onto their value well into their twilight years. Thanks to some auto industry boffins – like J.D. Power and Canadian Black Book – we have some hard data on cars whose value does not fall off a cliff the minute its new owner parks it in their driveway.

It helps, of course, if a model is popular with retail customers. The Toyota FJ Cruiser, discontinued all the way back in 2014, was a hit with its demographic thanks to a combination of rugged styling and go-anywhere capability. For 2017, the Canadian Black Book (CBB) awarded the FJ with its Best Retained Value Award, determining that most FJs retain an astonishing 83 percent of their original value after four years.

Why did we specify ‘retail’ customers in the above paragraph? Well, some automakers flood the fleet market (including rental, defence, and government agencies) with copies of a certain model. They often do this for two reasons: to keep factories humming and to boost the official number of that model recorded as sold.

Hewing to the laws of supply and demand, this practice dilutes demand and drives its depreciation through the roof.  It helps to explain why a relatively slow-selling model like the aforementioned FJ Cruiser hangs onto its value while a high-volume car like the Chevy Malibu may not.

CBB tracks twenty different vehicle segments, ranging from compact cars to pickup trucks. Of those twenty segments, eight of them are Toyotas, far and away the brand which best retains its value. That’s not an opinion – it’s a fact drawn from years of data gathered by the CBB group. Toyota can count its Prius C, Camry, Avalon, Sequoia, Tacoma, Sienna, Tundra, and FJ Cruiser as vehicles in its fleet with the best retained value in their respective categories.

Vehicle values are tracked over four years, which involves CBB “analysts scouring hundreds of thousands of sales transactions and other data points from live auctions, online auctions, dealership and other proprietary sources,” said the third-party analytical firm in a press release. Awards are given to vehicles maintaining the highest percentage value when compared against their original sticker price.

Initial investment has little to do with a vehicle’s value later on down the road. Just because a car is the most expensive in its class does not guarantee it’ll be worth more than its cheaper brethren come trade-in time. For example, average transaction prices for the Toyota Tundra are not as high as those for the Ford F-Series pickup, yet CBB has determined through its studies that the Tundra outstrips it in terms of retained value, hanging on to an impressive 66 percent of its worth after four years.

Smart shoppers should consider these types of data when making buying decisions and, if practical, select the vehicle that is projected to be the most valuable after a few years’ use. Depreciation is unavoidable but taking this approach will minimize the financial dent when selling the thing four or five years after the initial purchase.

A car’s value is not strictly tied to these studies, of course. Let’s imagine two Honda Odyssey minivans – tied with the Toyota Sienna as retaining 58 percent of its value after four years – owned by two different families. One van is washed and vacuumed frequently, its maintenance kept up to date, and parked nightly in an underground parking garage. The second, on the other hand, has an interior that resembles the bottom of a Froot Loops box, is overdue for an oil change, and makes its home in a driveway a few feet from the salty Atlantic Ocean.

The first van, despite being the same make and model with similar mileage, will likely retain more of its value than the one that was not maintained. It doesn’t have to be a fastidious level of care, either; simply running one’s vehicle through a car wash once a month is better than nothing. Stickers – including those insufferable stick families – are cute but also serve to lessen a vehicle’s worth.

It’s good to keep in mind that aftermarket equipment rarely recoups its value and, in some cases, may even reduce the value of the vehicle on which it is installed. For example, not everyone enjoys loud music, so that megabucks stereo system you put in your Dodge Challenger or the lift kit bolted to your Toyota Tacoma may actually reduce its worth in the eyes of many buyers, especially if the workmanship is poor.

Imagine, after four years of owning a vehicle, being told it has only held onto one-third of its original value versus one another vehicle in the same segment that retained 50 percent or more of its sticker price. Basic math teaches us that is a loss in the neighbourhood of $7,000 on a typical $35,000 car. To guard against this soul-crushing experience, select a vehicle with high resale values and make sure to keep it in good shape during your ownership years.

Source: Canadian Black Book Best Retained Value Awards

Old 1991 Corolla finds Life after Death on the Ice

CBB tracks twenty different vehicle segments, ranging from compact cars to pickup trucks. Of those twenty segments, eight of them are Toyotas, far and away the brand which best retains its value. That’s not an opinion – it’s a fact drawn from years of data gathered by the CBB group. Toyota can count its Prius C, Camry, Avalon, Sequoia, Tacoma, Sienna, Tundra, and FJ Cruiser as vehicles in its fleet with the best retained value in their respective categories.

Vehicle values are tracked over four years, which involves CBB “analysts scouring hundreds of thousands of sales transactions and other data points from live auctions, online auctions, dealership and other proprietary sources,” said the third-party analytical firm in a press release. Awards are given to vehicles maintaining the highest percentage value when compared against their original sticker price.

Initial investment has little to do with a vehicle’s value later on down the road. Just because a car is the most expensive in its class does not guarantee it’ll be worth more than its cheaper brethren come trade-in time. For example, average transaction prices for the Toyota Tundra are not as high as those for the Ford F-Series pickup, yet CBB has determined through its studies that the Tundra outstrips it in terms of retained value, hanging on to an impressive 66 percent of its worth after four years.

Smart shoppers should consider these types of data when making buying decisions and, if practical, select the vehicle that is projected to be the most valuable after a few years’ use. Depreciation is unavoidable but taking this approach will minimize the financial dent when selling the thing four or five years after the initial purchase.

A car’s value is not strictly tied to these studies, of course. Let’s imagine two Honda Odyssey minivans – tied with the Toyota Sienna as retaining 58 percent of its value after four years – owned by two different families. One van is washed and vacuumed frequently, its maintenance kept up to date, and parked nightly in an underground parking garage. The second, on the other hand, has an interior that resembles the bottom of a Froot Loops box, is overdue for an oil change, and makes its home in a driveway a few feet from the salty Atlantic Ocean.

The first van, despite being the same make and model with similar mileage, will likely retain more of its value than the one that was not maintained. It doesn’t have to be a fastidious level of care, either; simply running one’s vehicle through a car wash once a month is better than nothing. Stickers – including those insufferable stick families – are cute but also serve to lessen a vehicle’s worth.

It’s good to keep in mind that aftermarket equipment rarely recoups its value and, in some cases, may even reduce the value of the vehicle on which it is installed. For example, not everyone enjoys loud music, so that megabucks stereo system you put in your Dodge Challenger or the lift kit bolted to your Toyota Tacoma may actually reduce its worth in the eyes of many buyers, especially if the workmanship is poor.

Imagine, after four years of owning a vehicle, being told it has only held onto one-third of its original value versus one another vehicle in the same segment that retained 50 percent or more of its sticker price. Basic math teaches us that is a loss in the neighbourhood of $7,000 on a typical $35,000 car. To guard against this soul-crushing experience, select a vehicle with high resale values and make sure to keep it in good shape during your ownership years.

Source: Canadian Black Book Best Retained Value Awards

Old 1991 Corolla finds Life after Death on the Ice


  • FILED UNDER
  • Car Depreciation
  • Canadian Black Book
  • J.D. Power
  • Best Retained Value Award
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