The CARS HYPE CYCLE
The average new car loses over 50% of its value in the first five years. Some models even depreciate faster than that. The Mercedes S-Class is arguably one of the best luxury cars you can buy, but that hasn't stopped it from depreciating almost 70% on average. You'll lose around $60k if you buy one new and hold it for 5 years. The biggest losers are luxury brands such as Maserati, BMW, Audi, Mercedes, Landrover and Cadillac. Buying top-end models from these brands will result in a 70% depreciation over the first few years of ownership. A steep depreciation is one of the reasons why you can often pick up a used luxury car for cents on the dollar just a few years later.
The Hype Cycle
Many cars go through a cycle of depreciation and appreciation related to time. There are 6 stages where a car loses or gains value. Note that this curve is only for illustration purposes and values can dramatically vary depending on the brand, model, numbers of units produced, speciality etc.
1. Depreciation: In the first 5 years, a car loses on average 50% of its value with luxury vehicles taking a hit of almost 70%. After 10 years, most cars run out of warranty and become the sole liability of the owner. A car is almost guaranteed to lose most of its value within the first 10 - 15 years. A Mercedes S500 W222 with an average age of 5 years trades between €40'000 - €65'000 depending on mileage. That is already 60% - 70% depreciation from its original MSPR of €110'000 - €140'000.
2. Decimation: After 10 - 20 years, cars enter the decimation phase where they almost lose their complete value and are often being scrapped and can be found in high numbers at scrap yards. This is often due to high mileage, neglect and repair accumulation. A good example is the BMW E30, which was a common sight at any scrap yard. The last owners don't do necessary maintenance or repair work anymore and drive them to their death. Performance and special edition models tend to hold some of their value because they are the top-of-the-line models of a specific lineup and enthusiasts are always looking for low-mileage, good example cars. The E55 AMG W211 is almost 20 years old but still costs around €18'000. High-mileage and bad-condition models are usually not very popular and will sell for considerably less.
3. Nostalgia: Once a car has reached 20-30 years of age, people who used to drive them when younger start to develop nostalgia. They remember the good times they had with their cars. Prices rise slowly because some want their old car back and they have now more disposable income to spend. A good example is the Mercedes 190E 2.3-16v which was the high-performance model of the 190E W201. The car only cost new around 26'000 Deutsche Mark and today's market price of €20'000 reflects the return of popularity originating from nostalgia.
4. Hype: Once a classic car model starts to rise in value, speculators, collectors and auction houses enter the picture and start driving up prices more and more. The car model starts to be advertised as a