When should you sell a used car?

Understanding how fast a vehicle depreciates and why can help you pick one that’s more likely to retain value over time.

How quickly does a car lose value?

Brand-new vehicles lose more value in their first year of ownership than in any other year after, starting as soon as you drive it out of the dealership. Why? People are willing to pay a premium for a new car. Once it’s been “used” at all, it becomes less valuable and attractive to a potential buyer. Unless the value drops significantly, there would be no benefit to buying a slightly used vehicle rather than spending a bit more to get a brand new one. Plus, newer models keep coming out, so the desirability of your car—and its value—will decline.

The table below shows how quickly a new $35,000 vehicle, such as a Subaru Outback, is likely to depreciate over the first five years. The rate of depreciation will vary by model. To find yours, search online for the make and model plus the word “depreciation,” or get an estimate of your car’s resale value on Canadian Black Book. More on this below, under “How to calculate depreciation and set a price.”

Cars depreciate by 50% somewhere between turning three and four years old. That’s why three years marks a significant point in car ownership. Depreciation is the largest single expense of owning a new vehicle—more so than other average lifetime ownership expenditures such as insurance, regular maintenance and gas. 

What causes a car to depreciate?

Multiple factors contribute to depreciation in both new and used cars. These factors may be brand- or model-specific, and others apply to all vehicles. For example, luxury models often lose some value due to reduced popularity over time, whereas the resale values of all makes and models are affected by issues related to their age and condition. On the other hand, a cheap commuter car could lose its value much faster, depending on the mileage and what types of roads it’s driven on.

If you’re planning to sell your car as used at the two- to three-year mark, knowing what causes a drop in value over time can help you set a competitive asking price. 

Causes of depreciation for new and used cars

1. The kilometres on the dial 

In Canada, car drivers average about 16,000 clicks per year. When you put your car up for sale, buyers will note the age of the vehicle and the number on its odometer. If your average annual mileage is significantly higher than 16,000 kilometres, that will suggest to buyers that your vehicle will need imminent maintenance, affecting the sale price. (Something to note if you’re in the market to buy a used car, too.)

2. Reputation and reliability

Some vehicle brands are known for their quality, reliability and durability, while others may be known for having frequent maintenance issues. (This info is easy to find—Google the year, make and model of the vehicle and see what reviews, ratings and buying guides say about it.) If your car’s make or model has a poor reputation, buyers may haggle on the price to help absorb any short-term maintenance costs. Similarly, if the model has ever been recalled by the manufacturer, used-car buying guides and car reviewers will mention this, and it could affect the resale value.

3. Number of previous owners 

Used cars with multiple previous owners typically depreciate more. Buyers may have concerns or suspicions about why so many people would want to part with this vehicle. They may also be dubious because multiple ownership suggests the used car has been driven and maintained to different standards over its lifetime, meaning that maintenance issues could soon follow.

4. Overall condition

Cosmetic issues such as poorly maintained bodywork and worn-looking interiors drive down the resale value of your used car. Mechanical issues will also have a significant impact on value. Even though the car may be used, people will want it to at least feel new to them. A detailing, for about $100, could make all the difference.

How to calculate depreciation and set a price

How do you set a realistic price for your used car? Canadian Black Book gives estimates for a car’s trade-in value. You plug in the vehicle’s year, make, model, mileage and any additional options (power sunroof, leather seats, etc.), plus your postal code, and the tool provides a resale value. To view it, though, you will need to provide your contact information.

Ways to reduce your car’s rate of depreciation

Reducing your car’s rate of depreciation can be broken down into two categories. First, we will consider how you can plan for a reduced rate of depreciation at the buying stage. Second, we’ll cover how you can lower the rate of depreciation once you own the vehicle.  

At the buying stage:

• Buy a three- or four-year-old model. Original owners absorb much of the depreciation on car values in the first few years.
• Stick to an automatic transmission rather than opting for a less popular manual transmission.
• Purchase a popular model with a good rep. Look for sought-after features like air conditioning, leather seats and a sunroof. Avoid modifications that may not be to everyone’s tastes.
• Purchase a car in a popular colour. A red, white, black or silver car may prove easier to sell than an orange or purple car, for example.

Once you own the vehicle:

• Keep the mileage low. Buyer expectations will focus on an average of 16,000 kilometres per year. Above this average, cars lose value.
• Take care of your car and keep up with regular maintenance. This includes repairing interior and exterior cosmetic issues, getting all scheduled oil changes, and paying for mechanical checks and fixes. Keep receipts for all the work. Ideally, you’ll have all maintenance done at the dealership, so that the parts are original/genuine, and the work is done to spec as per the manufacturer.

Finally, you could remove the issue of depreciation almost entirely by planning to own the car for at least five years. At this age, your vehicle will not be expected to recoup significant value. 

The best time to sell your car

Considering all of the above, the best time to sell a new vehicle as used might seem to be “as soon as possible.” But that would mean changing cars frequently, which isn’t practical or cost-effective. Selling a car around the three- to four-year mark might get you a better price than if you waited longer, but it only makes sense to sell if you’re not using it much. Instead, you could hang on to it longer, keep the kilometres as low as you can and maintain the car inside and out. This should result in a fair resale price when you do choose to sell. 

Read more about autos:

• Should you buy a new or used car?
• How do car repair shops bill for services?
• Does driving school lower insurance for Canadian drivers?
• Your guide to buying winter tires in Canada