Car depreciation

Buying a new car is a big purchase but a bad investment.
 
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  • Updated:28 Apr 2006
 

01.Car depreciation

Car-depreciation_iStock
Unless you pick a model that’ll end up being the Jaguar E-type or Mercedes 300SL gull-wing roadster of 2020 (and keep it that long), you’re burning money as soon as you drive your new wheels out of the dealer’s yard. Your car has become a secondhand model, and you’ve already lost the dealer delivery charges and registration costs.

Depending on their size, cars depreciate on average by around 14% a year for the first three years, and about 6–8% after that.

But there are big differences between models. While only very few will become a collectors’ item such as the gull-wing Merc, some hold their value much better than others.

Please note: this information was current as of April 2006 but is still a useful guide today.


Beat depreciation

There are some things worth considering when buying a car, to minimise the impact of depreciation on your hip pocket a few years later when you sell it:

  • Buy a secondhand car. For example, a one- or two-year-old car still has its manufacturer’s warranty, but is likely to have lost quite a bit of its original price.
  • Consider or buying during an end-of-year sale (when dealers try to unload the previous year’s stock), or a model run-out sale.
  • You may lose money on the resale value of such a car: you’re basically buying a one-year-old model in the end-of-year sale, and a superseded model in the run-out sale. However, you may save thousands on the purchase price.
  • Look for ‘drive-away’ deals, where you don’t have to pay dealer delivery and registration fees.
  • While a certain model may have a better resale percentage, you can still lose more in dollar terms if it’s much more expensive than a comparable model.
  • For example, a $50,000 car that still has 75% of its original value after three years will be worth $37,500 — you lose $12,500. A $40,000 car with 70% residual value will be worth $28,000 — you only lose $12,000 (plus you save on the original outlay).
  • Reputation generally has an impact on resale values. So buy a make and model with a good track record for quality and reliability.
  • Being very adventurous when choosing the colour and equipment of your car may cause problems when you’re trying to sell it. For example, that pink metallic paint may be quite unique, and you may well be able to live without air conditioning in your car. But potential buyers may think quite differently, and use such features to negotiate a cheaper price — or be scared off altogether.

Optimise resale value

  • Have your car serviced regularly and keep all the service records. This provides prospective buyers with a service history and indicates how well the vehicle has been maintained.
  • If possible, garage your car so paint and interior wear due to environmental conditions (such as sun and dirt) is minimised.
  • Wash and polish it regularly, and keep it well maintained inside. Worn carpet, cigarette burns or tears in the upholstery can give buyers the impression of a generally badly maintained car.
  • Small damage (such as stone chips, scratches or small dents) may be used by potential buyers to negotiate down the price. Consider having it repaired if the cost isn’t higher than the potential drop in the sale price.
  • Selling a car privately usually gets a higher price than trading it in. However, you have to put in time and effort, potentially spending a number of weekends waiting for buyers.
  • Also, selling your old car before getting a new one could mean you’re without transport for a while. And if you buy the new one first, you’ll have to pay registration and insurance for two cars until you can sell the old one — which could take longer than you expect.

We’d like to thank Glass’s Guide for providing much of the information this article is based on.

 
 

 

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