A stabilized rate of depreciation (7% - 12% per year) makes used cars a better value than new ones. New vehicles lose an average of 20% of their value the instant they are driven away from the dealership.  When coupled to the average yearly depreciation of 7% to 12%, your first year's loss is anywhere from 25% to 35%.  That translates to a first year $6,000 to $8,000 loss on a $22,500 new vehicle, or a $10,000 to $15,000 loss on a $40,000 one.  And that's for a vehicle only driven the average 13,500 miles.  If you drive more than that, your depreciation will be greater (35% to 50% for the first year).  Don't forget to factor in your financing, which will add another $1000 to $3000.  From the investment point of view,  this is a lot of loss.

Another drawback occurs if a new car is totaled in an accident.  Often the insurance is not adequate to replace the car.  When buying a car, the interest on the loan is paid off faster than the principal (the vehicle itself).  Less money has gone to the reduction of the purchase price, and insurance only covers the vehicle value, not the interest, so there can be a cash shortfall. 

Luckily the rate of depreciation is not uniform.  Some popular cars (Honda Accords, for instance) hold their value much better than others (Ford Taurus - Jeep Grand Cherokee).  When a car model is totally revamped, especially if the name is changed, the older version usually drops in value more quickly.  Those used cars are generally good buys.  Because late-model (2-4 year old) used cars have not declined significantly in either mechanical reliability or appearance, they remain the best bargains.