Depreciation is the largest single cost of vehicle ownership. Unlike real estate, which historically appreciates over time, motor vehicles are depreciating consumer assets that steadily decline in market value.
Standard Vehicle Depreciation Curve: - Month 1 (Drive-off): Loss of 9% to 11% immediately upon driving off the dealership lot. - Year 1: Cumulative loss of 20% to 25% of original MSRP. - Years 2–5: Loss of roughly 10% to 15% per year. - Year 5: The vehicle retains approximately 40% of its original purchase price.
Understanding vehicle depreciation is essential when structuring auto loan durations, evaluating lease residual values, and determining whether to purchase GAP insurance.