- Originated by
- Concept formalized in accounting by Eugen Schmalenbach (Germany, early 1900s); applied to autos by Hertz and US dealer associations in the 1920s.
- First formalized
- 1920s — Used-car 'Blue Book' pricing introduced by Les Kelley in California (1926).
- Origin
- Automotive depreciation tracking originated in the US used-car market of the 1920s.
How it came to be
When cars became mass-market in the 1910s and 1920s, dealers struggled to value trade-ins. Les Kelley, a Los Angeles Ford dealer, began publishing the 'Kelley Blue Book' in 1926 to standardize used-car prices — the first systematic depreciation guide. NADA followed in 1933, Black Book in 1955, and Edmunds (originally a printed pricing guide) in 1966. Today residual values are forecast by ALG, J.D. Power and Cap HPI using millions of auction transactions, and they directly drive lease pricing across the industry.
Key milestones
- 1926Kelley Blue Book launches in California — first used-car pricing guide.
- 1933NADA publishes the Official Used Car Guide for US dealers.
- 1964ALG (Automotive Lease Guide) founded to forecast residuals for the new leasing industry.
- 2008Global financial crisis collapses used-car prices, especially luxury and SUVs.
- 2021–2023Pandemic chip shortage causes the first sustained period of negative depreciation in modern memory.
What depreciation actually is
Depreciation is the gap between what you paid and what you can sell the car for. For mainstream cars it dwarfs fuel, insurance and maintenance combined — a $40,000 sedan that's worth $20,000 in five years has cost you $4,000 a year in depreciation alone.
The first-year cliff
A new car typically drops 20–30% in value the moment it's driven off the lot and through the first 12 months. Buying a one-year-old example of the same car can save 25% with the warranty mostly intact.
Brands that hold value
Porsche 911s, Toyota Land Cruisers, Lexus LX, Jeep Wranglers, and Subaru WRXs are famous for depreciating slowly — sometimes only 35–40% after five years. Limited-production specials (Porsche GT3, Ferrari LaFerrari, Lamborghini Aventador SVJ) can appreciate.
Brands that depreciate fast
Luxury sedans (Mercedes S-Class, BMW 7 Series, Audi A8), most EVs (rapidly changing tech), and any car with a complex powertrain warranty risk lose 50–60% in five years. The reason: high MSRP, expensive out-of-warranty repairs, and a soft used market.
How to minimize it
Buy 1–3 years used. Pick popular colors (white, black, silver). Avoid odd option combos. Keep service records. Stay under average annual mileage (12k mi/yr in the US). And consider leasing high-depreciation cars instead of buying.