Most people know that cars tend to depreciate in value rather than appreciate, exceptions being those cars that most of us will never be able to afford in the first place.
But, what exactly makes cars depreciate? After all, they are vital to many people’s daily lives. Unless you live in a city like New York or Los Angeles where public transportation allows one to not worry about the hassles of car ownership, cars enable us to move.
The average cost of a new car is around $35,000, which is no small sum of cash. The average car also holds only about 40% of its original price after 5 years (Source).
Now, if you shop used cars often, you know that vehicles like the Jeep Wrangler and Toyota Tacoma retain up to almost 80% their value after 5 years while vehicles like large Mercedes and BMW sedans only retain about 30% or even less of their value after 5 years.
So, why is this?
How can something so expensive and vital to our daily lives plummet by thousands of dollars per year in value, and why are some vehicles affected more than others?
The easier question to answer would be why vehicles appreciate rather than depreciate. Vehicles that appreciate are the exception to the rule, but there vehicles don’t always have to be out of reach financially to appreciate in value.
The easy answer to the question is supply and demand. This is why the Toyota Tacoma is worth much more – comparatively – than the BMW 7 series after 5 years. More people want the Toyota Tacoma than the 7 series, even though Toyota makes more Tacomas than BMW makes 7 series.
It’s much more complicated than that though. Another part of this is that the Tacoma is a more reliable and utilitarian vehicle. It can be used for much more than the BMW can, and even with 200,000 or more miles, it will last. It can also haul a family, a trailer, and go anywhere. Trucks and SUVs are also much more desirable now than large sedans, which plays a huge factor in what people are willing to pay.
Supply and demand, while the easy answer, isn’t the only answer to why vehicles appreciate.
The Ferrari 250 GTO is possibly the best example of a car that has appreciated.
Only 36 of them were ever made in the early to mid-1960s. They had an $18,000 price tag when new, which is almost $150,000 today. Still, one 250 GTO recently made history as it sold in 2018 for a record $70 million. $150,000 doesn’t sound too bad now does it?
Of course, this car is the premier example of appreciation, and even cars that do appreciate in value due to their collectability don’t appreciate this much. The biggest factor in this particular vehicle’s astronomical selling price is the fact that several people were willing to pay that much for it.
The 250 GTO has been ranked as one of the best cars ever made by almost every major publication, it has an important racing history, and it is a wonderful piece of automotive history as well as a museum-worthy vehicle, all of which contribute to this car’s value.
The 250 GTO aside, what makes most “normal” cars appreciate? Let’s take a look at a few factors that contribute to a vehicle’s appreciation.
Scarcity:
Being a rare vehicle doesn’t always contribute to its value, especially if the vehicle in question isn’t good. In the case of many collectible vehicles, scarcity does contribute to appreciation. When there is a large demand for a vehicle that many people want, it will tend to drive values up.
Two good examples of this are the Dodge Viper and the Jaguar E-Type. There were over twice as many Jaguar E-types made than Dodge Vipers, however, while the Viper’s value hasn’t increased all that much. A good Jaguar E-Type can cost as much as 5 times that of its original price tag.
This may be due to the fact that the Viper was only recently discontinued, while the E-Type hasn’t been around for several decades. We will have to wait and see what happens to the Viper and its value, but rare doesn’t always mean more expensive.
Historical Significance:
The first, most accomplished, or best will usually have their name in the history books. Henry Ford, Thomas Edison, Steve Jobs, Michael Jordan… the list goes on. Vehicles are the same way.
The Ford GT40 is historically significant because it bested Ferrari at Le Mans after a business proposition between Ford and Ferrari fell through. The car is the epitome of a historically significant event in automotive history, and the GT40 has demanded astronomical selling prices at auction.
Other vehicles like the Lamborghini Miura, Pontiac GTO, Audi Quattro, Porsche 959, and Ferrari F40 all hold historical significance and all have seen values increase to varying degrees.
Capability/Durability:
People will pay more for something and manufacturers can demand more when a vehicle is known to and has proven to last a long time. A classic example of this is the XJ Jeep Cherokee. They were simple, they could go anywhere, and they were bulletproof.
While the XJ has only recently seen its value start to climb, non-pristine examples can still be found for just a few thousand dollars. Values are projected to continue their climb for well-preserved models, but the fact remains that the Cherokee is still very much unrivaled in terms of its capability and durability.
In other words, it doesn’t matter if you get one with 300,000 or if it’s 25 years old… it still works. Older Land Rover models, Toyota Land Cruisers, and Ford Broncos are comparable.
Desirability:
A lot of factors contribute to a car’s desirability including, styling, pedigree, and current trends.
Generally speaking, a Ferrari or Lamborghini usually has a little bit of a higher chance of appreciating than a Hyundai, Toyota, or even an Audi. Companies like Lamborghini and Ferrari have a long automotive tradition and strong customer loyalty.
Many of the world’s most collective cars are also beautiful or radical in their design. Again, this is not a surefire indication that a car will be collectible, but it can help.
Perception:
Perception is powerful. It can ruin the best of things and elevate the worst of things, and perception can also play a role in value. It all starts with the experts or those in the industry who make projections and predictions about the rise and fall in vehicle value.
This doesn’t mean that those in the industry don’t know what they are talking about. It’s because they do know what they are talking about that plays a role in what the consumers buy and how much they will buy it for.
Collectability:
Collectability is the sum of the equation. It encompasses everything we’ve looked at so far. Collectability differs greatly from vehicle to vehicle to the point that not a lot of people would consider every car that appreciates in value “collectable.”
None of these factors completely ensures that a car will appreciate in value. They are just some of the largest factors when considering whether or not a vehicle will appreciate in value. Using all of these factors, we can take a guess at which current vehicles have the best chance of rising in value in the future.
So, what do you think? Which vehicles are going to rise in value over the next few years?
