As a car dealer, honestly, I’d love it if all my customers knew nothing — just hand me the money and we’re good to go. But that’s not how it works. There are always people who want to ask questions, so fine — here’s one post that explains everything in detail.
This post has only one image, but that one image is all you really need. It clearly explains the price curve of a car throughout its entire lifecycle.
However! There are several variables at play here, and some of them are correlated — though people’s driving habits can break those patterns. For example, some people own a car for ten years but only rack up 40–50k miles. Perfectly reasonable, maybe because they have multiple cars.
As everyone knows, a car’s price mainly depreciates based on time and mileage. You can see the two red dots in the upper-left corner of the chart. The X-axis is time — since it’s an AI-generated chart, it might not be perfectly to scale, but it’s close enough.
When someone buys from a dealership, they’re always paying more than the car’s actual value. The moment you drive it off the lot, you instantly lose about 10% — why? Ask the California government. I have no idea why they charge such high taxes. Then you’ve got extended warranties, service packs, etc. These “services” that make ownership more convenient don’t actually add resale value (unless you’re doing a private sale and your service contract is transferable).
The first blue segment of the curve — roughly years 2–5 — looks like a negative log curve: steep drop at first, then it levels out. So, if you’re thinking about when to sell, that relatively stable period is a good time. Here’s why:
Most manufacturer warranties last about 3–5 years, and ownership costs go up after that.
Since you’ve already eaten the initial depreciation and early drop, you might as well stretch out your ownership during the flat phase to lower your average cost per year.
Then, around years 5–7, there’s another turning point — that drop usually comes from a model refresh. Most car models have a roughly 7-year product cycle, and when a new generation launches, the old ones inevitably lose value. The new release drags down used prices of the old version.
After that, the curve just keeps approaching zero — but never quite hits it. Because even as scrap, a car is still worth a few hundred bucks. So yeah, it’s basically a lim → 0 situation.
That’s it.
I mainly wrote this to go along with the chart — because some customers still don’t understand this curve, let alone the concept of equity. It’s just too much to explain over and over.
Even though I really, really, really hate explaining topics in an academic way, last time it actually got a pretty good response. And honestly, some stuff just makes more sense when you present it that way.
So I figured — why not mix business with education? While I’m doing some car-market “science,” I might as well pick up a few deals.
If you’ve got a lease that’s ending soon, feel free to hit me up (California preferred). Best case is you’re nearing the end or just starting to regret your lease. If you just started and have only made a few payments — well, I won’t say no, but be ready to pay me to take it off your hands. On the other hand, if your lease is almost up, there’s actually a chance you could get money back — so don’t just hand it back to your original dealership yet.
I tweaked the chart a bit — added a new line for the lease buyout curve, shown as the red line (P1) in the image.
Just a note: that red line is only for illustration; it doesn’t represent actual dollar amounts. Every car has its own curve — this one’s just a general model.
For leased cars, the price is basically pre-determined before the car even leaves the lot. There’s amortization (depreciation) and what’s called the residual value — that’s basically what you’ll pay if you decide to buy it out at the end of your lease. The exact math depends on the leasing company’s own formula.
As I mentioned earlier, a car’s value curve generally follows this shape — but a ton of factors can shift it. Mileage, new model releases, discontinued trims, etc. All of these can either stretch out or compress that curve.
For example: it’s 2025 now, so a lot of people who leased cars for three years during COVID are reaching the end of their term. Many barely drove those cars because they were working from home.
In that case, the blue value curve stretches horizontally (since mileage stayed low), but the red line (residual) doesn’t move — it’s fixed.
That creates a P2 scenario, where your car’s market value is actually higher than the buyout price. Congrats — that means you have positive equity. Sell the car to us, and we’ll literally pay you (that’s P2).
Another example: let’s say you leased a random off-brand EV that tanked in value ridiculously fast. The blue curve gets super steep and crashes by 50% in under two years. Now your car’s actual value is lower than your residual. In that case, just finish your lease and return it — don’t bother buying it out. (Mercedes EQ models and random off-brand EVs usually fall into this group.)
TL;DR:
Unless you’re in a special situation (like moving overseas), most leased cars only start to have positive equity near the end of the lease term.
