# Why are newer cars more expensive?

Photo credit to Laker from Pexels

As of 2024, I am shopping for a car with my spouse. Spouse would like a newer car and I do not care much one way or another. However, the argument was made that the depreciation rate on a newer car vs an older used car was less significant than it was in the pre-covid times. This article is my attempt to check that claim.

## Personal note and caveat

Like most people who write on the internet about frugality, I am in no way a car person. Frugal living (as measured relative to income) is not compatible with owning much of a car unless you are at the highest levels of the income scale. Cars are the most expensive thing most people purchase which goes down in value over time. This is true unless you drive the cheapest of all possible cars. I currently drive a 15 year old Honda Civic which is so beat up that if my hands are covered in paint and a paper towel is not within arms reach, I just wipe it on the car door.

## Depreciation

Car depreciation data is noisy. The price of any given model of car is affected by age, mileage, trim level, accessories (roof racks, towing packages, etc), accident history, condition, zip code, color, and probably other things. The most important factors are age and mileage. To generate the plots below, I did a search on cars.com by model under 15 years old, under 160k miles, and gas powered (no diesel, electric, or hybrid). In some cases, I set an upper price limit because there were a couple vehicles at 2x the price of any others in the data set. These outliers are not representative and had an outsized effect on the lines of best fit. Least squares regression was used to fit a cubic polynomial to the data because that is the simplest polynomial that can form curved monotonic functions. It is also easy to compute the derivative which gives us the depreciation rate as a function of time or mileage.

I chose five categories of vehicle: sedans, minivans, pickup trucks, SUVs, and high luxury cars. The first four might help me and some friends make vehicle purchase decisions in the next year. The last one was just curiousity about how steep car depreciation can be. I then googled for the top selling vehicles in each category so there would be enough vehicles for sale that statistically reasonable conclusions could be drawn.

## Discussion

New vehicles depreciate faster than old ones in almost all cases but with small economy cars the effect is negilible if present at all. As vehicles price increases, the difference between early phase and later phase depreciation also increases. It is important to note that vehicle depreciation is only one portion of the cost of vehicle ownership. More expensive vehicles are more costly to maintain, to fill with gas, to insure, and to repair.

Although not presented here, the depreciation schedule is measurably different between different makes and models even within a similar category. However, the difference was minor relative to the difference between vehicle types. The steepest depreciation curve I found was on the BMW 7 series at $2.70 per mile or$30k per year in the early life of the vehicle (first 3 years and 30k miles). For comparison, the cost of my wife's last car was \$0.36 per mile for everything (vehicle purchase, gas, insurance, and maintenance).

I expect the results of this kind of study vary over time so it may be prudent to redo this research around each vehicle purchase.