Question

At Borneo Motors showroom, Michael is ready to drive his shiny new car off the dealer’s lot. He has saved carefully for the down payment and, with a 5-year car loan from a bank, now it’s his. Michael’s shoot-from-the-hip friend—his consultant in all things car-related, James, is with him as he takes the turn out of the lot. “Well,” James observes, “your car just went down in value.” “What do you mean?” Michael asks, a bit indignantly. “If you sold this car tomorrow to someone, it would go for far less than you just paid.” James asserts.

Not believing what he has just heard from James, Michael turns to you—his trusted friend with a business degree—to help him make sense of James’ assertion.

Answer 1

As soon as you drive a car off the lot, it's value falls significantly. New cars depreciate the fastest. According to a research, most new cars lose about 10% of their value as soon as they’re driven off the lot.
The 'new' car you just purchased becomes 'used' one as soon as you're on the road. Thus, it's value comes instantly down. When you purchase a new car, the next model is already there or about to be launched. The newer features of the latest model automatically reduces the value of the model you just bought.
Another 10% to 20% value decreases by the end of the first year. After that, there is a decrease in value of about 15% to 25% per year, for an average loss of over 60% by the fifth year.
It can be concluded that depreciation of your new car the minute you drive it off the lot is really disheartening, but inevitable.