The first thing one must understand about diminished value is that it shouldn't be misinterpreted as depreciated value. Granted, your vehicle has that brand-new cushion scent and a spanking sheen of metal glory, depreciation happens the moment you roll it out of your dealer's showroom. It automatically ceases to be new and begins to lose its worth. It doesn't matter that throughout its eventual years of plying routes and racing down thoroughfares, it never incurred a single scratch or dent on it. It also doesn't matter if you have properly maintained it. A vehicle in time is no longer in its prime.
So what is diminished value? A vehicle is said to have diminished value after an accident or collision (or natural catastrophe in some cases) caused it to sustain considerable damage that would require extensive repairs to rehabilitate it. Here's a sobering truth that a vehicle owner must come to grips with about his vehicle's diminished value: nothing he does from this point on can reverse that. Repairs, regardless of extent, will never restore the value of his vehicle prior to the accident. From any potential second-hand buyer's perspective, it's generally and rightly considered to be damaged goods.
Damage extent or degree is the sole determinant in registering an accurate appraisal of your vehicle's diminished value. One type of diminished value can be attributed to the quality of repair also known as Repair-Related. What this categorically states is that your vehicle's loss of value is due to erratic or slapdash repairs performed on it. Think of it as corrective surgery performed on you that failed to correct whatever was ailing you prior to the procedure. You're never the same person again. It's the same way with a vehicle that wasn't properly repaired. That's why it becomes considerably less compared to its worth prior to repairs.
Answering "what is diminished value" can get a little tricky with different classifications. For example, another category is known as Immediate Diminished Value. As the term implies, your vehicle's current worth is the difference between what it was before an accident and what it became shortly after. What could further push down its value is when insurers meddle in the repairs (Think of them pushing for their suggested repair shop.) that end up making your vehicle still largely impaired after work on it has been done. It's a good thing this is hardly used in settling or resolving property damage claims.
The acceptable standard it seems is the third category which is Inherent Diminished Value. A vehicle's resale value is reduced because it now bears a history of damage. Think of it this way: if your vehicle is going against another vehicle of the same make and year but with hardly a scratch on it, which do you think the buyer will go for? Or looking at it another way, which one would you go for if you happened to be the buyer?
Your best-hoped for resale price is relying on the kind of repairs performed on it. If it benefitted from optimal repair work, chances are you can still get a fair value for it. However, if sub-par work has been done on it, add repair-related diminished value mentioned earlier to your worries.
There are other factors in determining what your vehicle's diminished value or resale worth is. One is your type of vehicle. If yours happens to be a rarity that car collectors would want to possess, then this might give you a bit of leverage in the negotiations. How that leverage will play up will depend on its condition prior to an accident or force majeure and the harshness of the punishment it endured. How rigorous and exacting the repairs will be done on it will determine its final value.
Diminished value does diminish one's hopes of a good resale value for his vehicle. There's no going around this. So what's the upside to this story? As far as it depends on you, drive safely and try to keep your vehicle in good shape at all times.