How Your Car Loses Value and What That Costs You

Last updated July 2, 2026

New car depreciation follows a predictable curve that most buyers would make different decisions around if they calculated it explicitly. The typical new vehicle loses 15 to 25 percent of its value in the first year, 10 to 15 percent in years two and three, and 6 to 10 percent annually after that. After five years, most vehicles retain 37 to 53 percent of their original MSRP. The difference is determined primarily by brand reputation for reliability, fuel efficiency, body style, and market demand. Pickup trucks, particularly the Ford F-150 and Ram 1500, consistently show the highest five-year retention rates in the U.S. market. Luxury vehicles and certain electric models from less-established brands depreciate more steeply.

The practical implication for buyers is that the optimal purchase point on the depreciation curve is often a two to four year old used vehicle. The first owner absorbed the steepest depreciation years, and the vehicle's remaining useful life is still substantial. A three-year-old vehicle with 35,000 miles that originally sold for $40,000 and now costs $25,000 has absorbed roughly $15,000 in depreciation. If it retains its value reasonably over the next four years, the new owner may experience only $8,000 to $10,000 in additional depreciation over their ownership period, substantially less than the original buyer paid in the first three years alone.

The calculation shows depreciation as a per-mile or per-year cost before any vehicle purchase. Buying a two to four year old certified pre-owned vehicle from a brand with strong residual values eliminates the steepest depreciation years while still providing years of reliable use. The lowest total cost of ownership rarely comes from the newest vehicle.