How do you calculate vehicle depreciation?

Every year, the Canadian Black Book awards its prizes to the vehicles that retain the best residual value. The same goes for J.D. Power and ALG, as well as Vincentric, firms specializing in vehicle value assessment. It's not for nothing: depreciation is one of the biggest expenses associated with the purchase of a car, if not the biggest.

Many people forget this, perhaps too preoccupied with monthly payments (inflated by very high interest rates), fuel, maintenance and insurance. But a vehicle is not like a house or a work of art - with a few exceptions - and loses value over time. As soon as it leaves the dealer's yard, as popular belief has it? Sadly, yes, although the transformation of the automotive market since the pandemic has changed that a great deal.

Both new and used vehicles have a much better resale value today than they did four or five years ago. How do you calculate depreciation in such an environment? That's a tough one.

Before going any further, remember that the value of a vehicle varies according to a number of factors, such as make, model, mileage, condition and maintenance, including whether or not it has ever been in an accident. Even body color has an impact. Did you know that yellow cars depreciate the least rapidly?

There's also the whole question of supply and demand. Some types of vehicle are more sought-after than others, and some models are harder to find, having been produced in smaller numbers. In these cases, their value is boosted, and a simple mathematical operation to calculate depreciation may not hold water.

If you refer to the Canada Revenue Agency, from a tax point of view, a passenger vehicle loses about 30% per year. According to various automotive specialists, the general depreciation is more like 20% in the first year, then 10-15% thereafter. This would mean that most vehicles are worth half or almost half their original price after five years.

The American research site iSeeCars has a slightly different view, and a better reflection of current reality. Having analyzed more than 1.1 million transactions carried out in the USA between November 2022 and October 2023, it found that the average depreciation of vehicles over the last five years stands at just 38.8%, an improvement of almost 11 percentage points on 2019. Pickup trucks (34.8%) and hybrids (37.4%) do even better.

So how much is your vehicle worth now? And in two years? Check out Otogo.ca to see several comparable models from different years.