According to CARFAX, the value of a vehicle can drop 20% in its first 12 months of ownership, and will continue to drop 10% annually afterwards. That means that the vehicle may lose 60% of it’s value in the first 5 years of its life!
Depreciation became a much greater factor as cars became more technologically advanced and the disparity between this years model and last years model grew larger.
The logic behind it is perfectly sound, but the precise numbers can leave you scratching your head. How, exactly, could a car lose 11% of its real value in just a matter of weeks? The truth is that depreciation is multifaceted, it’s not just that there’s more wear and tear on the vehicle. Perception is also a big part of this.
The new and used car distinction may not make as much sense when the “used” car was only off the lot for a matter of days, but for consumers it’s still important. Someone else used that car and that being the case, consumers aren’t going to be willing to pay full price.
What Else Can Impact Vehicle Value?
There are a number of factors that can make a car depreciate faster (or slower). Luxury cars, for example, may tend to keep the value over other brands based on the reputation of that luxury brand.
Fuel economy is another factor. It seems like every year car manufacturers find a way to squeeze more MPG out of even the largest of gas guzzlers. This seriously reduces the perceived value of older models.
How Do You Value A Used Car?
There are a number of calculators out there that can help you value used vehicles. Most of them rely on rough measures like the year, the mileage, and the perceived condition of the vehicle.
More sophisticated tools such as CarFax’s History-Based Value tool determine the value using all of these generic factors plus additional information pulled from vehicle history reports. This gives you a more precise value that you can actually use to price your inventory.
What About The Dealerships?
Depreciation isn’t only a concern for consumers, as a used car dealership you have to deal with it every day. The longer that car is sitting at your dealership, the less it’s worth to you and to consumers.
Maximizing the value of your used vehicles is complicated. Car trends are completely out of your hands, you can try to read them ahead of time but this is often no better than gambling. One thing that you do have control of is your used car reconditioning process.
An efficient used car reconditioning process will minimize what you spend getting cars out onto the lot and maximize the value of them once they’re out there. With ReconTRAC you can track every step of the reconditioning process from start to finish, allowing you to pinpoint areas of inefficiency. ReconTRAC offers free integration with CARFAX as well. Please, contact us today for a free demonstration of our ReconTRAC software.
