Why Sedans depreciate quickly
If you’re puzzled about why Sedans depreciate quickly, just look at iPhones.
Like owning iPhones, most people also want to possess the latest and the best car. Given that they have the money, why wouldn’t they aim for the best, right?
And that is why certain cars, when they age, depreciate. Sedans are just one of them. In less than three years, a shiny Sedan will probably lose more than half of its original value.
What could be the other reasons why Sedans depreciate quickly?
In this post, we listed those causes.
Why Sedans depreciate quickly
It’s not a secret hidden from everyone. The moment you drive a car out of the yard or the dealership, it instantly loses value. It will inevitably depreciate, no matter how new or awesome it looks.
Depreciation accounts for more than 30% of ownership expenses. Even the average car will shed a staggering $19,000 from its original value in the next five years after you buy it.
The money-burning is even worse with expensive vehicles. That is why luxury Sedans, especially, have been the epitome of quickly depreciating cars in the United States in recent years.
The following reasons are why Sedans depreciate quickly.
1. Most people just love owning new things.
Humans are hard-wired to love new things. Apparently, our brains are hard-wired to do that—and there’s nothing we can do to stop it.
That insatiable feeling of wanting to own something new is evident in the car industry. With more people wanting shiny and new things every year, car manufacturers, especially luxury Sedan brands, joyously tap into this demand.
The more people clamor for those luxurious cars and the lesser the supply, the higher their value becomes. As a result, the older non-prestige vehicles, which are high in quantity but not necessarily in quality, quickly lose their value.
People just don’t like paying a premium for Sedans that are so last year—and that’s because they want the newest, latest ride on the yard. That is why Sedans depreciate quickly.
2. They are packed with options and features.
Luxury Sedans from Mercedes-Benz, BMW, and Audi, are typically packed with heaps of high-end technology features—and that’s why they also lose value faster.
When a Sedan is equipped with multiple features, more components can also go through wear and tear. Naturally, the owner pays pricier fees for those piling tune-ups.
The car manufacturer’s terribly limited warranty may compensate, at least; however, cars’ wear and tear will inevitably resurface—long after the warranty has ended.
Moreover, to pay for an extended warranty is also a major expense—those multiple parts are often rare and expensive to make.
That is why Sedans depreciate quickly. These days, you would see plenty of luxury Sedans with slashed prices. But it’s not surprising because, over the years, it will eventually become a money-burning paperweight.
Besides, no smart used car buyer would pay a higher price for an old car that’s also very high-maintenance.
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3. Luxury car buyers want to be the first owner.
Just like the affinity for novelty, humans also tend to value ownership. In fact, toddlers even understand the importance of ownership, at least in their own way.
Meanwhile, in adulthood, owning a car is the pinnacle of a human’s developing identity. There’s even evidence that younger men see their vehicles as a part of themselves.
That is why many people, especially young adults, place a huge significance in buying new cars. Purchasing a new car, for the first time, gives them a sense of accomplishment—like a hunter getting his first bounty.
Consequently, many adults (especially those who can afford it) will try to relive that feeling by buying a new car.
Because people strongly prefer to buy newer cars than used luxury Sedans, the resale value of the latter inevitably crashes. Sellers of outdated vehicles have no choice but to cut a huge chunk from their original value—just to make a decent amount of sales.
4. People prefer CUVs over Sedans.
Crossover Utility Vehicles (CUVs) have been stomping on the Sedans for quite some time. Recently, the Nissan Rogue topped the Altima, a mid-size Sedan. Besides that, Sedan models like the Hyundai Sonata and Ford Fusion have also fallen from grace.
While those Sedans have good attributes, it was really only a matter of time. More families in the US have been favoring Crossovers over Sedans for a crucial reason—versatility.
Thanks to their unibody design, off-road versatility, and a spacious interior that caters to families and groups of friends, they have attracted more car buyers than ever. Even better, CUVs are more fuel-efficient without compromising the comfortability of the vehicle occupants.
People appreciate the value of versatility of CUVs compared to the smaller, compact Sedans. They would be more than willing to pay for a reliable vehicle they can take anywhere, compared to a luxurious but outdated and high-maintenance Sedan.
5. Sedan owners trade them in the first year.
Another reason for their fast value depreciation is that the majority of Sedan owners trade them in no less than a year.
In the first year, owners of Sedans such as the Nissan Versa and the BMW 3-Series want them out of their garages. The luxury Sedan, Mercedes-Benz C-Class, is more likely to be sold than other compact models in their first year of ownership.
How fast the buyers were enamored with these luxury Sedans was also how quickly they decided to ditch them. Sedan owners have many reasons why they trade their cars, varying from reasonable to downright petty.
For example, people might trade their Sedans because of undelivered promises of technology. They may also trade it for something newer, bigger, or more reliable—like a CUV.
Commonly, buyers unexpectedly change lifestyles or start a family, thus their inevitable falling out of love for their high-end but inflexible Sedan. They aren’t just practical anymore.
6. Used car buyers don’t want to pay a lot for an old Sedan model.
While there are plenty of buyers who prefer new cars, some people also strongly prefer to purchase pre-owned ones.
However, don’t mistake their small budget as a sign of a cheap taste.
Some used car buyers wouldn’t bat an eye for an old Sedan, even if it has a lower price—how much more if it had a higher resale price?
Also, as mentioned, Americans have fallen out of love for Sedans. Their taste for bigger and more versatile vehicles like SUVs and CUVs are the reason.
Because of that preference, they are more hell-bent on paying for SUVs and CUVs—even if the resale price has a small difference from the original.
As a result, luxury Sedans quickly depreciate as a way to compete against other used cars
7. People don’t like to buy used cars for the same price they can pay for a repair.
You can also blame depreciation on the general bias of the public against used cars.
Why pay for an outdated model that probably has more problems when you can spend it on a repair for your current model?
The truth is used cars may be used, but they aren’t always rust-buckets that will burn your money.
Unfortunately, it’s a common belief among many car buyers. In turn, it makes an impact on most used cars’ resale value.
Couple that bias against a luxury Sedan’s high-maintenance body and unpopular brand, and you’ll have a cheap used luxury Sedan for sale.
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8. Owners buy expensive Sedans as status symbols.
No matter how others deny it, cars are the ultimate status symbols.
Blame it on marketing—those guys really know how to entice people and feed their desire for premium things.
However, the reality is that cars are merely tools for transportation. Apparently, many car buyers miss this point and treat vehicles as badges for “making it”.
Add that emotional buying to a buyer’s minimal knowledge about resale value—and you’ll get a buyer making an uninformed buying decision.
However, to be fair, cars are not good investments in the first place since they depreciate quickly in general. Still, some cars’ lights die faster than others, and luxury Sedans are one of them.
So, when the time comes owners need to get rid of a luxury Sedan, they are selling something which is not even worth half of its original value.
That’s why it’s not shocking to see many used luxury Sedans priced incredibly low. Some owners are always gunning for the next hot car at the dealership center, so they want to sell or lease their outdated Sedans for a much lower price.
9. Car manufacturers didn’t have good branding insights and initiative.
Finally, one important factor that affects depreciation is the car manufacturer’s brand equity.
Brand equity is how well a brand communicates its ethics and value to its consumers. If a car brand is competitive in building its brand equity, it’s more likely that its brand value (financial worth of a brand) will fare well in the long run.
Case in point: In the 80s, Toyota Corolla and Chevrolet cars were manufactured using the same materials in the very same factory. However, since Corolla had a higher brand value, it sold more than Chevrolets and had less depreciation. Take note: it was the same car materials—only the brand was different.
To build a car’s brand value, the manufacturer will have to invest more in marketing strategies and advertising. Some car brands failed to do this, and now their Sedans have a negative consumer perception.
So, should you buy or lease a luxury Sedan?
It all boils down to the situation. Most seasoned professionals will recommend purchasing a car or paying for loans, but leasing is preferable if the situation calls for it.
Want that exotic ride no matter what happens? In the case of luxury Sedans, you might be better off leasing one. You may not own it entirely, but you will definitely pay less than buying it.
Also, if you’re planning to replace it in less than five years, you should go for a lease. Most car dealerships offer leases that end in three years.
Some of the car brands that offer incredibly low leases are BMW, Mercedes-Benz, and Alfa Romeo. You will pay an average of $3,500 at signing and no more than $350 in the next three years.
If that works for your budget situation, then lease right away.
Meanwhile, if you’re planning to build equity and resell your luxury Sedan in the near future, you can save more by going for loans. This is the cheapest way you can own a luxury car, although the numbers are higher than non-prestige cars, of course.
In paying loans for a luxury Sedan, you can choose from secured car loans, unsecured car loans, business loans, or dealership financing. Each has its pros and cons, but you might pay more if you opt for unsecured car loans.
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Related questions
Do Hyundais depreciate fast?
When it comes to depreciation, the word “value” doesn’t only mean price but also brand. Hyundais were once revered for being quality cars; however, after making many business and branding mishaps, consumers eventually turned a blind eye to this once giant car brand.
That’s why most Hyundai cars these days lose their values in a snap. People just don’t see the justification of paying more for an outdated car that’s known for being second best. Remember, deep inside, people only want the best.
Why do Range Rovers depreciate so fast?
Like Hyundai, the former manufacturers behind the Range Rover (British Leyland) also had some business oversights. Particularly, they mistakenly changed a lot in their engine system and unibody design. They thought it would bring them good fortune like resale values—unfortunately, it didn’t.
As a result, their reputation for quality slowly dwindled. They didn’t sustain their affinity with luxury for long. It was not long before consumers started seeing this. Naturally, dealerships haven’t taken the risk of assigning a high price to a vehicle brand with their kind of reputation—hence the notorious, lightning-fast depreciation.
What are the fastest depreciating trucks?
If resale value matters to you, then you should think twice before getting a GMC Sierra, Nissan Titan, and Ram 1500. These trucks all reach more than 20% depreciation rates in just two years.
Meanwhile, if you like used cars and have a tight budget, they are your best options. Those three models are full-size trucks you can buy for a very affordable price. Based on a report by iSeeCars.com, those three model’s used car prices have a whopping $9,000-$12,000 difference from their original starting prices.
Conclusion
Luxury often comes with a hefty price—and it’s not just money.
Besides, when it comes to vehicles, you don’t stop spending after paying the moment you bought it. This is especially true—and more prevalent—among luxury Sedan owners.
That’s why before you buy a luxury Sedan, you must think hard.
Are you willing to own something big and shiny in your garage that will lose its value in just a wink? Or do you want something with a good resale value like an SUV or a Jeep?
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