Most car buyers pay close attention to a new vehicle’s sticker price. That’s understandable given the outsize impact a new-car purchase can have on a household’s budget.
But few car buyers stop to consider another number that’s nearly as consequential for car owners planning to sell their vehicles after a few years: the five-year resale value as determined by impartial and authoritative arbiters like Edmunds, Kelley Blue Book, and the Manheim Used Vehicle Value Index.
All new vehicles depreciate (lose value) as they age, but some do so faster than others. A host of factors affects the predicted and actual resale value of the car you’re driving today. In turn, these factors influence the price dealers are willing to pay for trade-ins and individual buyers are willing to pay in person-to-person transactions.
Factors That Affect a Car’s Resale Value
These are the most significant factors that affect a new car’s depreciation rate and resale value. Some are inherent to vehicles themselves, such as make and class. Others are at least partially within the owner’s control, including miles driven and maintenance history.
1. Economic Factors
The relative strength of the economy, both globally and in the United States specifically, indirectly influences the value of your car and the overall state of the used-car market.
The Manheim Used Vehicle Value Index clearly illustrates the relationship between economic activity and used-vehicle pricing. The index, which incorporates more than 5 million used-vehicle sales each year, shows noticeable downturns in used-vehicle market value during each of the three major economic downturns since 1995: the recessions induced by the early-2000s dot-com bust, the late-2000s global financial crisis, and COVID-19 pandemic in 2020.
Likewise, the Manheim index registers booming market conditions for used vehicles during recent economic expansions: the early-2010s recovery from the global financial crisis, the pre-pandemic boom of the late 2010s, and the post-pandemic rebound of the early 2020s. This last expansion period saw record-high used-car prices as global parts shortages impaired new-car production and pandemic-weary consumers unleashed two years of pent-up demand for newer rides.
While the correlation between used-car pricing and economic activity is imperfect, people on both sides of the trade should note it. For sellers, waiting until the economy recovers from a temporary downturn could more than offset any value lost due to additional depreciation time. Buyers, including dealerships quoting trade-in value, can drive a harder bargain when the economy slumps to get the best deal on a used car.
2. Vehicle Make
Some makes have better reputations for durability than others. These reputations don’t always correlate with overall vehicle quality. For instance, German makes like BMW and Audi are renowned for the quality of their engineering while simultaneously being criticized for their poor resale performance. Generally, Japanese makes such as Toyota, Subaru, and Honda exhibit above-average resale potential, though American makes have gained ground since the early 2010s.
3. Vehicle Class and Body Style
Vehicle class and body style affect resale value for multiple reasons. One critical factor is geography. Sports cars and convertibles sell better in warm climates, where they’re practical throughout the year. Rugged SUVs and four-wheel-drive vehicles are more popular in colder climates and areas with rougher terrain.
Another key factor is fuel economy. Efficient vehicles tend to hold their value better when gas prices are high, while less efficient vehicles (which typically have more cargo space and higher safety ratings) do better when gas is cheap.
Even if it looks spotless and has a clean accident history, a high-mileage vehicle is likely to sell for less than an identical ride with half as many miles on the odometer. One of the best ways to preserve your car’s value is simply to drive it less.
5. Transmission Type
Though manual transmissions (stick shifts) have historically been slightly more fuel-efficient than automatic transmissions, they’re usually detrimental to resale value. That’s because most drivers don’t know how to drive stick, have mobility issues that make shifting painful or difficult, or simply don’t like keeping their right hands and left feet in constant motion in stop-and-go traffic.
6. Exterior Condition
Scratches, dings, chips, crumples, and visible rust reduce a used vehicle’s appeal to potential buyers. Accordingly, they’re all enemies of resale value. A visibly beat-up car can fetch anywhere from 15% to 30% less than a pristine equivalent before factoring in potential mechanical issues and interior damage.
7. Interior Condition
Thoroughly vacuum and detail your car’s interior before listing it for sale. It’s also crucial to neutralize or mask lingering odors, clean plastic and vinyl, and invest in new floor mats. You can also clean leather seats in otherwise good condition to make them shine like new.
In newer cars, it may even be worthwhile to reupholster faded or damaged seats, a process that can cost anywhere from $200 to $500 per seat.
8. Mechanical Wear and Tear and Maintenance History
The financial impact of mechanical wear and tear is easy to quantify in theory. If it costs $2,000 to replace your car’s transmission and you don’t, that should drop the vehicle’s resale value by an equivalent amount. But because most buyers don’t go through the trouble of requesting a thorough mechanical inspection before the sale, the actual math isn’t always so clear-cut.
Nevertheless, maintenance history is a key factor in vehicle depreciation. Poorly maintained cars depreciate faster than cars that receive regular maintenance and upkeep.
If you plan to sell your vehicle at any point in the future, keep comprehensive service records for your entire tenure as owner. And don’t be afraid to request the same from the seller when you’re ready to purchase a used car.
9. Accident History
Even when they appear no worse for wear, cars that have been involved in serious accidents or (worse) floods typically sell for less. Thanks to companies like Carfax, car history reports are easier to come by than ever, so it’s safe to assume buyers will find out where your car has been.
Though the precise hit to your bottom line is situation-dependent, figure a serious accident (even when fully repaired) will diminish your car’s resale value by at least 10% compared to an accident-free model in similar condition.
10. Aftermarket Parts and Modifications
While a well-executed home improvement project can easily pay for itself and then some, aftermarket vehicle modifications usually have the opposite effect. That’s because souped-up cars typically wear out faster than factory-original cars, especially when you use them for racing or off-roading. Modifications that use non-original equipment manufacturer parts can lead to a host of other issues too.
Unless you’re specifically targeting gearheads who appreciate your work and understand its implications, it’s best not to mess around too much under the hood.
Automotive technology is improving rapidly. Cars with backup cameras, hands-free parking assist, highway autopilot modes, in-cabin entertainment, and computer navigation systems tend to be more expensive than their old-fashioned peers, usually thousands or even tens of thousands of dollars more expensive. But they’re also in high demand and therefore hold value better.
When in doubt, go for a subdued look: muted colors, minimal chrome, and no paint patterns or streaks. Though some used-car buyers look for loud or offbeat color schemes, most prefer grays, whites, blacks, or subtle blues, reds, and greens. That’s especially true for sedan and minivan buyers, who tend to be lower-key. Sporty cars and high-performance vehicles attract more eclectic buyers seeking to stand out, not blend in, so you may still be able to get top dollar for an eye-catching look.
You have to do more than ask nicely to get the best possible deal on a used car. You need to research each vehicle make, model, and trim you’re considering thoroughly using reputable resources like Edmunds and Kelley Blue Book. Brush up on your negotiating skills on the assumption the transaction will involve some haggling. You must also understand which factors affect vehicle depreciation and eventual resale value and how.
It sounds like a lot of work, but you can bet it’s worth the effort. Your car is liable to be the most or second-most valuable tangible asset you own, depending on whether you own your home. Treat its purchase like the potentially life-changing event it could well be.