What is Depreciation? How a Car Loses Value

What is Depreciation? Understanding Car Value Loss in South Africa

When you drive a new car off the showroom floor, its value starts to drop — and fast. This decline in value is known as car depreciation. But what is depreciation exactly, and why should it matter to you? Whether you’re buying, selling, or trading in a vehicle, understanding how depreciation works can help you make smarter decisions and get the best possible value for your money.

What is Depreciation?

Depreciation refers to the loss in value of a car over time. As soon as you drive your new car off the showroom floor, it starts losing value. On average, a new car loses 15% to 30% of its value in the first year, and up to 60% after five years, depending on the make, model, mileage, condition, and market demand.

Unlike real estate, which often appreciates, cars are depreciating assets. This means the longer you own them, the less they’re worth when it’s time to sell or trade them in.

Key Factors That Affect Depreciation:

• Brand reputation and reliability
• New model releases
• Mileage and wear and tear
• Market trends and resale demand
• Service history and accident record

Car Depreciation Calculator: How to Estimate Value Loss

A car depreciation calculator is a handy tool that helps estimate how much your car’s value will drop over time. These calculators are available online and usually require basic inputs such as:

• Purchase price
• Car age
• Mileage
• Vehicle make and model
• Condition (excellent, good, fair, poor)

Once you plug in the details, the calculator gives you an estimated car book value, which is what your vehicle is worth on the used market.

Why Use a Depreciation Calculator?

• Plan resale timing: Knowing when your car’s value drops the most can help you decide when to sell or trade it in.
• Compare vehicles: Helps buyers choose models with slower depreciation.
• Insurance planning: Understanding book value assists in choosing the right cover (e.g., Comprehensive vs. Third-Party).

Top Cars That Depreciate the Most

Not all cars hold their value equally. Some models lose value faster due to low resale demand, high maintenance costs, or rapid model changes.

Here are some of the top cars that depreciate the most within the first five years (based on global trends that also reflect the South African market):

1. Luxury Sedans

Brands like Jaguar XF, BMW 7 Series, and Mercedes-Benz S-Class tend to depreciate rapidly. These high-end models lose value quickly due to high repair costs and rapid updates.

2. Electric Vehicles (EVs)

While EVs are gaining popularity, older models like the Nissan Leaf depreciate faster due to battery ageing and tech obsolescence.

3. French Brands

Cars like the Peugeot 308 or Renault Megane tend to have limited car part availability in South Africa, leading to faster depreciation.

4. Large SUVs and MPVs

Bulky models such as the Chrysler Grand Voyager or older Ford Everest versions depreciate faster due to high fuel consumption and changing family car trends.

5. Niche or Discontinued Models

Cars that are no longer produced or have limited dealer support—such as Chevrolet Spark (after GM exited SA)—see a sharp drop in resale value.

What Is the Book Value of a Car?

The book value of a car is its current market value based on depreciation, age, mileage, and overall condition. It’s the value used by dealers, insurers, and banks to determine:

• Trade-in offers
• Insurance payouts
• Loan amounts for vehicle finance

In South Africa, companies like TransUnion Auto Dealers’ Guide provide monthly book value data, which is widely used by dealerships and financial institutions.

Retail vs. Trade Book Value

• Retail book value: What you might pay if buying the car from a dealer.
• Trade book value: What a dealer would offer if you traded your car in.

Knowing both can help you negotiate a better deal, whether buying or selling.

How to Find the Car Book Value

To find the car book value of your vehicle, you can:

1. Use Online Tools: South African platforms like AutoTrader, Cars.co.za, and Gumtree provide estimated resale values.
2. Check with Your Insurance Provider: Many insurers calculate market value based on your car’s details.
3. Visit a Dealer: Dealerships have access to up-to-date pricing databases and can give you a trade-in estimate.
4. Use a Car Depreciation Calculator: Combine initial purchase price and age to get a quick estimate.

How to Minimise Depreciation Loss

If you want to get the most value when reselling your car, here are a few tips:

• Buy used, not new: Let someone else take the first depreciation hit.
• Choose reliable brands: Brands like Toyota, Volkswagen, and Suzuki hold their value well in South Africa.
• Limit mileage: Lower mileage equals higher resale value.
• Maintain your service history: A full service book can add thousands to your car’s book value.
• Avoid personalisation: Aftermarket mods may turn off potential buyers and reduce trade-in value.

Final Thoughts

Depreciation is a reality every car owner must face. Whether you’re buying new or used, understanding how your car’s value changes over time can help you make smarter financial decisions.

By using a car depreciation calculator, keeping an eye on the book value of your car, and knowing which models depreciate the most, you can protect your plans for the future. So, next time you’re browsing car deals, don’t just focus on the price tag—consider how that price will change in the years ahead.