Understanding Car Depreciation

Many people have heard of the fact that a car depreciates the minute one drives it away from its Honda dealership in Hollywood. This is a well known fact, but why this happens is not quite as well understood as one may hope.

What?

Depreciation, when talking about a car such as a Honda from a dealership in Hollywood, refers to the change in value between when a vehicle is first bought and how much one would get if they were selling it. The value of a car drops every year, with its rate of depreciation fluctuating. This is why after a few years of using a Honda from a dealership in Hollywood, one would get a whole lot less than what they originally paid for it.

Why?

Depreciation happens because of the wear and tear of a vehicle. Indeed, if one considers purchasing a used item, any used item, the truth is that they would be willing to pay less than they would if they were purchasing it brand new. Indeed, a used item is not in the same condition as a new one, which means the new owner may have to invest money in it for it to function well.

How Soon?

Any car depreciates the most during the first year. That’s because the reason car dealers are in business is to make money, which is why they add about 5 to 10 percent to the value of a car when selling it. As such, when one drives off from the dealer, that 5 to 10 percent is taken off right away. In addition, there are fees and taxes one also has to pay, which further increases the value of a car, but also its depreciation. In addition, during the first year of owning a car, its value goes down by about 15 to 25 percent. Five years after owning it, it will be valued at 37 percent less than its retain price.

Faster Depreciation

There are some vehicles that tend to depreciate faster than others. For instance, luxury cars, such as Cadillacs and Maseratis as well as Jaguars and Mercedes, all have quite high markups, which means that their depreciation is going to be quite fast. In addition, cars that are low in demand also experience very fast depreciation, because nobody wants to purchase them, which means that when one does manage to find a buyer, the buyer has the upper hand when setting the price of the car. The rest of the vehicles tend to depreciate at a normal rate.

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