A vehicle loses a large share of its value within the first year, and the decline slows considerably afterwards. The shape of that curve comes from what the first sale changes about the car.
The first registration changes the product
An unregistered vehicle is sold through a franchised network under a manufacturer's terms, with the full warranty period ahead of it and no prior keeper on the record.
Once registered, it becomes a used vehicle regardless of mileage, and it is priced against other used vehicles rather than against new stock.
That reclassification is a discrete step, and it accounts for a substantial part of the loss recorded before the car has covered any real distance.
New sales carry costs that do not transfer
The transaction price of a new vehicle includes delivery, dealer margin, registration costs and taxes, none of which have any value to a subsequent buyer.
Manufacturer incentives complicate the picture further, since a discounted new price sets the reference point for used values across the model.
Heavy incentives therefore depress residual values, which is why the same list price can produce very different depreciation across competing models.
The buyer population changes
New vehicles are bought disproportionately on finance and by businesses, where monthly cost and tax treatment matter more than the outright price.
Used buyers weigh price directly against alternatives, and their willingness to pay is anchored to what similar vehicles are selling for rather than to the original figure.
The gap between those two ways of valuing the same object is what appears as the initial drop.
Depreciation flattens once uncertainty falls
After the first year, value declines more slowly, because the remaining loss is driven by age, mileage and condition rather than by any change in category.
Reliability information also accumulates, and a model that proves durable holds value better than one whose early problems become widely known.
Very old vehicles eventually approach a floor set by their utility and by what it costs to keep them running, below which they are simply scrapped.
Some vehicles resist the pattern
Where supply is constrained and demand is strong, used prices can approach or briefly exceed new list prices, because waiting has a cost of its own.
Specification matters as well, since options that are expensive when new frequently return little on resale, while a desirable colour or drivetrain can hold value.
Fleet and rental disposals arriving in volume have the opposite effect, pushing used prices down for particular models regardless of their qualities.