Understanding depreciation rates -- how well or poorly a vehicle retains its value over time -- is key to making a smart buy because it will affect how much (or little) you'll recoup at trade-in time. Depreciation rates also affect lease terms -- and can get you into big trouble over a new car loan, potentially leaving you owing more on the car than it's worth.
The average vehicle loses about 10-20 percent of its value in the first year of ownership -- but some lose as much as half their value before they're three years old. And that can leave you "upside down" on your new car loan -- insider lingo meaning you owe more than the car's actually worth.
General factors affecting depreciation rates include the vehicle's track record for being well-built and reliable, as well as the overall reputation of the brand of the vehicle. Consumer demand for a given vehicle also plays a large role in determining how well it holds value. Owners of undesirable models -- for example, Pontiac's ill-starred Aztek van -- can see the net worth of their vehicles plummet faster than the Dow Jones in 1929.
Unfortunately for Detroit, American cars (GM and Ford models especially) currently have among the highest depreciation rates, while the mainline Japanese imports (Honda and Toyota especially) hold their value exceptionally well.
The vehicles with the lowest depreciation rates include:
· Coupe -- Infiniti G35
· Sports cars -- Nissan 350Z
· Family sedan -- Honda Accord
· Mid-sized sedans -- Toyota Prius
Five of the vehicles with the highest depreciation rates include:
· Large sedans -- Ford Crown Victoria
· Minivans -- Buick Terraza
· Mid-sized sedan -- Pontiac Grand Prix
· Compacts -- Dodge Neon
· Family sedan -- Mercury Sable
However, not all Japanese brands are good bets, depreciation-wise. Mitsubishi and Suzuki vehicles, for example, have tended to depreciate very rapidly relative to both import and domestic brand competitors.
Hyundai and Kia, the two major Korean automakers, have made great strides quality-wise (and offer superb warranties) but some models (for example the Kia Spectra) still tend to depreciate faster than average.
Among the high-line European imports, there is often great variation among specific models, even within the same brand of vehicle. For example, the Mercedes-Benz M-Class has suffered unusually high rates of depreciation (probably as a result of quality problems with the early vehicles) while the C-Class compact sedan has done well. Land Rover's LR3 SUV has held its value, while the smaller Freelander has not. Jaguars are stylish, but reliability problems have hurt their resale value.
You could end up saving yourself a lot of trouble -- and fistfulls of dollars, too.
Click here for detailed depreciation rankings from Kelley Blue Book