Why Cars Lose Their Value So Fast

A car loses about 10% of its value as soon as it's driven off the lot. And within the first three years, that number goes up to 50%. Depreciation — the rate at which that happens — is one of those numbers everyone in the automotive world thinks about including consumers, automakers and the massive used car market, which made up somewhere around 35.2 million in 2022 — compared with 13.8 million new cars. But the Covid-19 pandemic turned the used car market upside down — constrained production and supply chain shortages sent prices skyrocketing, and increased for about two consecutive years, unprecedented for the industry. Those odd times have led to lasting changes, and industry insiders say it is likely to stay that way.

01:22 - Intro: - Why cars depreciate so fast
01:31 - Chapter 1: - How depreciation works
05:16 - Chapter 2: - Down from there
07:39 - Chapter 3: - Unprecedented times
09:13 - Chapter 4: - Why cars are worth more today

Producer: Robert Ferris
Editor: Darren Geeter
Animation: Christina Locopo, Jason Reginato
Senior Managing Producer: Tala Hadavi
Additional footage: Getty Images

About CNBC: From 'Wall Street' to 'Main Street' to award winning original documentaries and Reality TV series, CNBC has you covered. Experience special sneak peeks of your favorite shows, exclusive video and more.

Connect with CNBC News Online

#CNBC

Why Cars Lose Their Value So Fast

[GrantDWilliams]

The question isn't "Why do cars lose their value so quickly?". It's "Why are they so overvalued when they're on the lot?".

[Bradleyschaeffer]

Now is definitely NOT the time to be buying a car. Average car cost $47K?! That's insane!
Check your ego at the door - you need a vehicle to get back and forth to work, not to impress anyone. An auto finance rate of 7%+ is an insult to anyone with excellent credit. No thanks. Those new cars can sit on the lot and rot away for all I care.

[rmfinance]

For me, a true value of a car is how long i can drive it without having major problems after its paid off. The longer i go without a car payment the more value that car will have to me.

[WiolciaMrozowska]

This channel is so inspiring! Thank you for your transparency. I had to end my business after having a baby but you guys are definitely helping me get my head back into the game. Keep winning

[MaseRhea]

What's weird is how the car holds its value even after it's test driven by 10 people and has 100 miles on it - until it's bought.

[RudeBoy]

Got a 1984 Toyota 20 years ago for $ 800, it's valued now at $ 1600 by the insurance company. Still going strong with over 300, 000 miles....

[jorgeastiazaran]

When I hear "we want to be more careful on how we sell cars" I really hear: "we want to control supply so we can control prices".



In Mexico, this insane hike in prices has opened a window for chinese car makers, at least 6 chinese brands have entered the market since 2020, offering cars with a 20% - 30% lower price than the "traditional" brands.

[joshuaadesida]

I got a Honda civic 2016 touring in July 2020 for 18.5k CAD after tax with 70000km.
Got into an accident (which wasn’t my fault) in February 2022
Insurance valued my vehicle value at 21.5k after tax with 90000km.
I didn’t want the car back, so I did a total loss write off and I got 18.5k for the DAMAGED car with 90000km.

My damaged car with more km, was worth the exact same 1.5 years later. And by that point I already paid off 1/2 the car, so I basically drove the car for free for 1.5 years. Covid was insane

[wsol]

We can avoid some of this by allowing manufacturers to sell directly to consumers. The middleman markup at dealerships is an unnecessary cost to consumers and they provide no real added value that the manufacturer couldn't do equally well for less. Start selling vehicles closer to the wholesale price and that first year depreciation will slow.

[pmarcusb]

I'm starting to see dealerships pile up to pre pandemic levels with inventory. Dealers will have to start reducing prices to sell cars.

[ThePolyCyslist]

In 2020, I was looking for my first new car I know I know whatever I wanted a new Corolla hybrid. The dealership WAS A NIGHTMARE telling me I had to pay the 500 hold then it would come in 3 months, then it was expected on me to finance it with them for about 3-7 grand more than what it was worth. I said no and they tied to sell me a used 2018 model for almost the same price. It was insane, so to this day I happy own a used 2005 Honda accord and it runs like a dream

[shaybapple]

I traded in my 2011 Camaro SS in July 2022. I paid $18, 900 for it in 2018 with 29k miles on it. The dealer gave me $17, 200 for it with 67k miles on it. They turned around and sold the car for $22, 400 within weeks. Unreal... I almost got what I paid for it 4.5 years later and they sold it for more than what I paid.

[SnubBarracuda]

They depreciate so fast because they aren't worth nearly what they are worth. These guys are selling you a loan, so they can charge you whatever they want. Some people don't care as long as they can afford the payments.

[desiv]

Because people are willing to pay WAY more than the car is actually worth because it is "new."
It hasn't "lost value" because what was making the price higher wasn't "value" but status.

[CYBERSECURITY.]

Depreciation is simply a reflection of the car's decreasing market value over time. While it might seem like a loss, a car serves its purpose in providing transportation and utility, and its enjoyment might not always be directly correlated to its financial value

[furkanayas]

In turkey, for last 3 years, it worked like, you buy a car from the dealer for 50k, then you resell for 70k. people were buying all the available cars and make this, even the dealerships stop to put their car on sale, instead they sell online with these profits. because of limited supply. it ended now, but it give big negative impact on the economy

[samushunter]

This is why you keep it absolutely as long as possible.

[picklerix]

My truck is 29 years old. People have approached me at least a dozen times to ask if I wanted to sell it. A lot of potential buyers drive through the neighborhoods, looking for old trucks. I noticed that if I replace the tires, I get a lot of attention from buyers.

[CapitanBluebeard]

One thing that isn’t spoken about that also contributed to this problem was Cash For Clunkers. Removed so many used cars that probably would still be on the roads today.

You’ll never convince me that greed by dealers isn’t also part of this problem. Slapping on an extra $10K just because a car is popular is greed.

Bronco owners know this well.

[pauldesigncomics]

During the end of pandemic I got into an accident. My insurance deemed my car as totaled. I was surprised to find out that my 12 year Honda CRV had a Blue Book value of $15K. Helped out a lot buying a brand new Subaru at full price. Was fortunate to find a local dealership that had 3 cars delivered that day I called.