Understanding Vehicle Depreciation Changes in the Market

Ben RaseyVehicle Reimbursement

vehicle depreciation

Share this Post

As the market for both new and used cars continues to hit record highs, the demand continues to follow suit. Within the vehicle reimbursement industry, many analysts have been closely monitoring the effect of vehicle depreciation in the car market. This includes vehicle depreciation and how vehicle residual values are changing within the used car market.  After analyzing over 33,000 reimbursement rates within the extensive AutoReimbursement.com database, we have found that overall vehicle depreciation has decreased from 2022 to the 2021 model year data.  Here we will give you some more insight into the market and how it affects your company’s vehicle reimbursement program.

The Used Car Market Drives Vehicle Depreciation

According to an article on Fox Business, the author, Megan Henney, explains consumers have been spending approximately $10,046 more on used cars compared to what consumers commonly pay under normal market conditions. When used vehicles are worth more, it decreases the amount vehicle depreciates. This increases the residual value, meaning the driver can sell the vehicle for more than usual. This would cause a driver’s depreciation portion of their vehicle reimbursement to decrease. Several factors have affected the used car market: i.e., new car market labor shortages, parts shortages, and increased freight costs.

The increase in the cost of used cars has created a ripple effect on vehicle depreciation and vehicles’ residual value for drivers. At AutoReimbursement.com, we have been closely analyzing vehicle depreciation over the past several years. This year, we specifically noticed a sharp decrease in overall depreciation in the 2022 model year vehicles. Since the market is always changing, we recommend companies evaluate their reimbursement programs at least once a year. This way companies understand market changes and know how their drivers’ reimbursements will be affected.

While this may be a short-term trend in the used car market, it is causing turbulence within traditional reimbursement solutions. While many companies are keeping their reimbursements consistent with years prior, we have noticed that many drivers are significantly under-reimbursed, and others are over-reimbursed compared to the cost of their driving. While inflation and other market conditions are impacting drivers, a FAVR (fixed and variable rate) program can assist in delivering a reimbursement that resembles actual driving expenses.

What is a FAVR program, and how does a vehicle’s residual value affect my FAVR program?

A FAVR (Fixed and Variable Rate) Program provides an IRS-Approved Non-Taxable vehicle reimbursement. FAVR reimburses the drivers’ benchmark expenses based on real market data. When there are changes in the vehicle depreciation market, we have the answers on how to reimburse your company’s employees!

There are two main parts to a FAVR Vehicle Reimbursement Program.

  • Fixed reimbursement: The fixed rate includes depreciation calculated from a benchmark vehicle, insurance down to 44,000+ zip codes, and license, registration, and property tax by state.
  • Variable reimbursement: The variable rate includes the cost of fuel (updated monthly), maintenance, and tires per mile. This is based on mileage driven each month. 

Drivers receive their fixed and variable rate reimbursements monthly. They also receive a statement that breaks down their vehicle reimbursement calculation.

Why Choose AutoReimbursement.com for FAVR

At AutoReimbursement.com, we have one of the top databases in the industry. We have been trusted by many Fortune 500 companies to build HR Defensible programs that are cost-effective for companies while also providing a highly regarded benefit to drivers on our Fixed and Variable Rate Program.

Want more information on a Fixed and Variable Rate (FAVR) Program?

To request a free demonstration or program evaluation, connect with us here and follow us on LinkedIn to learn more and stay updated with AutoReimbursement.com.

New to a FAVR Program? Learn more here