Owning a luxury car is a dream for many, but it comes with a hefty price tag. Not only do luxury cars cost more to purchase, but they also depreciate faster than other vehicles. This means that after five years of ownership, the value of a luxury car can be significantly lower than when it was first bought. But why do luxury cars depreciate so quickly?One of the main reasons why luxury cars depreciate faster than other vehicles is because of their high purchase price.
When a car is bought for a large sum of money, it is likely to lose more value over time than a car that was bought for less. This is because the higher the purchase price, the more value the car has to lose before it reaches its lowest point. New owners often rent a high-end car. Another related reason why luxury cars often depreciate quickly is because many of them are leased.
New owners typically lease a high-end car, often for cash flow purposes, so that after three years they can deliver that vehicle and get the newest version. This means that there is often an excess of used luxury cars around three years old, which puts downward pressure on values. On the other hand, many slowly depreciating car owners keep their vehicles for a long period of time, which means there is less supply in the used market (relative to demand) that helps keep prices higher. According to that Cartelligent article, luxury cars are rented frequently, which means that the duration of ownership is lower than average and a higher turnover in the used market. We rank the fastest depreciating luxury cars based on the amount of value they lose in the first five years of ownership. Whether or not this inflated premium is worth the extra money depends on your perception of value, considering how many people buy new luxury cars, there are clearly a lot of us out there who see the extra cost being worth it. You're paying an exaggerated price for prestige and luxury (especially when you consider how good basic new cars are in terms of current features).
With an average depreciation rate of 68%, the all-electric BMW i3 compact hatchback ranks first as the most discontinued luxury car after five years of ownership. So now you know why luxury cars depreciate so quickly. There is not one but many reasons behind it and it is difficult to say that a particular reason affects this the most. This is another factor that contributes greatly to the sharp depreciation of luxury vehicles: used buyers must be able to purchase these cars at a price where they can maintain and repair them economically. Just because your used luxury car has lost 50, 60, or 70% of its value since it was new, doesn't mean that running costs have dropped (in fact, running costs could worsen once you get out of the warranty period). On average, luxury cars lose about 40 to 50% of their original value in the first five years of ownership, as HotCars details. The enormous cost of repairing and maintaining luxury cars is primarily responsible for high depreciation rates.
While the average new luxury car loses 40-50% of its original value in the first five years of ownership, some models tend to lose much more. The sharp depreciation is one of the reasons you can often buy used and old luxury cars for pennies on the dollar (compared to the original purchase price) years later. Depreciation is that time when you drive a new car out of the parking lot and the car instantly loses a percentage of its value. Here are 10 luxury cars with steeper depreciation curves than any of their counterparts, measured by the amount of value they lose over the course of the first five years of ownership. In conclusion, there are several factors that contribute to why luxury cars depreciate so quickly. From their high purchase prices to their frequent leasing and renting, these factors all add up to create an environment where luxury cars lose their value faster than other vehicles.
Understanding these factors can help you make an informed decision when purchasing your next vehicle.