Why cars lose their value so quickly

It is often said that a car begins losing its value as soon as you drive it off the lot. The reasons why boil down to some Nobel Prize-winning insights about human behavior and some quirks of the automotive industry.

Everyone in the automotive industry keeps a close eye on depreciation: owners and buyers concerned about resale value, automakers calculating lease payments and of course, dealers.

The principles underlying it had been pretty stable for much of the auto industry’s century-long history.

But the Covid-19 pandemic turned the used car market upside down. Vehicle production was constrained, supply chains experienced severe shortages and there were fewer new cars on lots. 

“The prices of used vehicles were actually increasing for about two years,” said Alex Yurchenko, chief data science officer at Black Book and Motor. “We’ve never seen anything like that for the market.”

The result: Cars are holding onto about 10% more of their value after three years than they were during the pandemic. Industry analysts say it is likely to stay that way.

Watch the video to learn more.