Little-Known Tips for Understanding Car Value

When shopping for a used car, understanding the vehicle’s value goes beyond accepting the asking price. Indeed, thousands of dollars may be at stake here, money best left in your account instead of lining the pockets of the dealer. Consider the following hidden money-savers before you shop for your next used car.

DEPRECIATION ISN’T ALWAYS APPRECIATED

It is common knowledge that new cars lose value the moment they’re driven off the dealer’s lot — typically 10 percent of the value right away. This means a $30,000 new car immediately sheds $3,000 of its value the moment the deal has been sealed, and is then worth $27,000, on average.

The initial depreciation is followed by a steady decline that continues for months, even years. That decline typically never ends as time and wear and tear take its toll on a car’s value. After one year of ownership, a new car’s value usually falls an additional 10 percent. So, the $30,000 car, worth $27,000 the moment it was purchased, would be valued at $24,000.  At the end of five years, that same car may be worth just $12,000, reflecting an average drop in value of 60 percent during that time frame. Keep these percentages in mind as you determine the price you’re willing to pay for a previously owned vehicle.

LOCAL MARKET VARIATIONS CAN COMPLICATE MATTERS

Used car values are not uniform, even among exact make and model vehicles. Where you live, or rather where you shop, for a used car can influence the value of any vehicle.

A recent study found prices are lower in heavily populated urban centers such as Miami, New York, and Minneapolis, and higher in places such as Jackson, Miss.; Seattle; and Fresno, Calif. The differences can be startling, with Miami prices averaging nearly 7 percent lower than average, and with Jackson prices averaging nearly 9 percent higher, reflecting a 16 percent price spread between low and high values.

This means a car valued at $24,000 after one year of ownership may be worth $22,320 in Miami, or $26,160 in Jackson. This represents a good news/bad news scenario for the buyer as well as the owner. If you live in a higher-value area, shopping outside your region may pay off in a lower purchase price.

CAR VALUES ARE A REFLECTION OF POPULARITY

The average fall in car value is just that — an average. All things considered — age, wear and tear, and maintenance — some models do a better job of maintaining their value than others. This means as a buyer, you’ll pay more for such a vehicle. That’s not necessarily bad, especially if the vehicle has a reputation for reliability.

Early in 2016, the National Automobile Dealers Association (NADA) examined resale values for 2013 models to determine depreciation rates for 3-year-old passenger vehicles, including cars, SUVs and trucks. The vehicle with the slowest depreciation was the one that is no longer made — the Toyota FJ Cruiser. After three years, it retained a whopping 92.5 percent of its value.

The FJ’s unusually slow depreciation can be attributed to a few points: It was a low-volume model, it’s out of production and it’s prized for its off-road prowess. Coming in at second place was the Jeep Wrangler, which retains 75.8 percent of its value. Incidentally, the Wrangler is still made and sells in much higher volumes than the FJ Cruiser. Other models maintaining above-average values include the Ford Mustang and Volvo’s XC70.

The flip side of the higher values is where bargains can be found. But there is an extremely important question you must ask yourself about a model with a stepped-up depreciation rate: Do I want to buy a vehicle that has lost at least two-thirds of its value?

To illustrate, NADA found that the Smart ForTwo retains only 24.8 percent of its value after three years. That means the $12,000 price paid for this diminutive two-seater becomes a car that is worth about $3,000 after three years. Other poor performers include all Suzuki models, and for one very important reason — Suzuki no longer sells its cars in the US. Yes, you may find a great deal on a midsize Suzuki Kizashi sedan, but when it comes to acquiring parts and seeking service, you may be faced with a challenge. At least with the discontinued FJ Cruiser, you still have Toyota standing behind a product that also happens to be mechanically similar to the still-in-production 4Runner.

AN ACCIDENT CAN AFFECT THE VEHICLE’S VALUE

There is another underlying factor affecting vehicle value: accident history. If the car has been in an accident and the accident has been reported, the information should show up in the car’s history report.

Such reports are based on the vehicle’s identification number (VIN) and should show all repairs, maintenance, reported miles, ownership history, recalls and accidents, if any. If there was an accident, the car’s value typically comes in lower than a car without an accident, even if the repairs were successfully accomplished. This is where you can leverage a better deal on a used car, saving you hundreds of dollars or more. (The seller may not like having to settle for a lower price, but that’s a loss he or she could have recouped by filing a “diminished value” claim with the insurer.)

Of course, not all accidents are reported, and this is where carefully inspecting a used car before making your purchase decision is essential. Signs of an accident aren’t always obvious, but are they usually revealed through such clues as mismatched bumpers, poorly fitted body panels, differences in paint texture and rust. Odd smells are another sign, suggesting a car may have been damaged in a flood. Beyond your personal inspection, hiring a mechanic to place the car on a lift for a thorough inspection may be the best $100 you ever spend.

OUTSTANDING OPEN RECALLS CAN AFFECT VALUE, AS WELL AS SAFETY

Another area that should concern all used car buyers is an open recall. Over the past few years, more than 100 million cars have been subject to recalls. In some cases, models are the subject of multiple recalls.

If you are considering purchasing a vehicle with an outstanding recall, such as a faulty airbag, then you are potentially acquiring an unsafe vehicle. This is another reason why obtaining a vehicle’s history report is essential — you need to know what you’re buying and what possible problems might adversely affect the ownership experience.

These are just five things to keep in mind when buying a used car. Other factors that can also impact value include: whether the car has been meticulously maintained or neglected, whether it has had multiple owners, and whether it has been used for business or rental use. For more details, check out this car value infographic from CARFAX.


Matt Keegan
is an automotive correspondent and frequent contributor to CARFAX. He enjoys offering car-buying advice to help consumers understand used car value to get the best deal possible.

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One Response to “Little-Known Tips for Understanding Car Value”

  1. Gearhead777 says:

    Wow, great article, thanks for the info! Everything you need to know in one place!