Car depreciation

What's your car worth?

Planning to 'invest' in a brand new car?

Unless you pick a model that'll end up being the Jaguar E-type or Mercedes 300SL gull-wing roadster of 2030 (and keep it that long), you're burning money as soon as you drive that already-depreciating set of wheels out of the dealer's yard.

Your car is now a second-hand model, and you've already lost those pricey dealer delivery charges and registration costs.

Depending on their size and type, cars lose much of their value in the first three years. But there are big differences between models. While only a few will become a collectors' item such as the gull-wing Merc, some hold their value much better than others.

Beat depreciation

Whatever type of car you buy, there are some things you can do to minimise the impact on your hip pocket a few years later when you sell it.

  • Buy a second-hand model. A one- or two-year-old car still has its manufacturers' warranty, but is likely to have lost a lot of the original price.
  • Consider buying during an end-of-year sale or a model run-out sale. While they may have lower resale value (you're basically buying a one-year-old model in the end-of-year sale and a superseded model in the run-out sale) you can save thousands on the purchase price.
  • Look for 'drive-away' deals, where you don't have to pay dealer delivery and registration fees.
  • Reputation generally has an impact on resale values. So buy a make and model with a good track record for quality and reliability.

Do your homework

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).

Play it safe

Being adventurous with your car's colour and add-ons can come back to bite you when you're trying to sell it. That pink metallic paint may be your thing, and you may well be able to live without air conditioning, but potential buyers may think quite differently and use these shortcomings to negotiate a cheaper price – or be scared off altogether.

How to optimise resale value

  • Have your car serviced regularly and keep all the service records. This gives prospective buyers a service history and shows how well the vehicle has been maintained.
  • If possible, keep your car in a garage to minimise paint and interior wear due to environmental conditions (such as sun and dirt).
  • 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 car that's badly maintained.
  • Small damage (such as stone chips, scratches or small dents) may be used by potential buyers to negotiate down the price. Consider having them 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.
  • 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.