CAR DEPRECIATION – AVOIDING THE TRAP

March 9, 2017

They say when you drive a new car out of a showroom; it can lose roughly 25% of its value. After three years, it could be 50%. Or even more, if you pick the wrong car.

Of course, any loss isn’t realised until it comes to trade time, which is why most people don’t worry about it too much when they’re turning the keys on their new vehicle for the first time.  

Smart buyers will, however, have depreciation in mind when they select their car, especially if they are planning on leasing the vehicle. That’s because if the car has a higher residual value, it can mean that the monthly repayments are lower.  

Depreciation can really put a dint in a car’s value when you come to sell, and it’s a hidden cost that can make apparently cheap cars to buy more expensive than their competition over the long run. It’s easily the biggest cost of owning a car.

So, how do you beat the depreciation trap?

The bad news is that the total volume of used cars in the market is much higher than it used to be, as a result of there being more new cars sold than ever before. This has reduced the market’s average resale value. Being smart about what you buy is the only way to beat the average.

In terms of specific brands and models, there’s a range of factors that impact a car’s resale value. To begin with, sales volumes have a direct affect: if the market is flooded with a particular car; if it’s heavily discounted; or if it’s a popular with fleet operators, then these can all affect the resale value negatively.

Buying popular shapes and styles in important. For example, the insatiability popularity of 4X4 and 4X2 one tonne utes has led to excellent resale value of these vehicles. SUVs and small city cars are other winners.

Product cycles can also drive resale values down. If a car is about to get a full redesign, or if it hasn’t had one for many years, then this isn’t seen favourably by potential buyers.

Cars that hold their value are usually backed by a strong brand and reputation. Think luxury brands, or Subaru, Toyota or Mazda. Avoid brands like Great Wall Motors.

Buying popular shapes and styles in important. For example, the insatiability popularity of 4X4 and 4X2 one tonne utes has led to excellent resale value of these vehicles. SUVs and small city cars are other winners.

Other factors that play a part include the car’s safety ratings and fuel economy, as well as the particular model’s performance, styling and comfort. Auto transmissions are most popular, and colour matters too: buyers prefer white, silver and black, in that order.

If you want a more detailed picture of car resale values in Australia, companies such as Redbook and Glass’s Guide provide comprehensive reports and online valuations for a fee.

Top 10 Vehicle Resale Values in Australia*

1. VW Transporter TDI340 Crewman 74%
2. VW Multivan Executive TDI450 73%
3. Subaru XV 2.0i-S 71% (other XVs 68-70%)
4. Subaru BRZ 70%
5. Toyota LandCruiser GXL 4×4 diesel V8 69%
6. Audi RS3 67%
7. Subaru WRX STI Premium 67% (STI regular 66%)
8. Hyundai Accent SR 67% (other Accents 64-66%)
9. BMW M240i 67%
10. Honda Odyssey VTi-L 65% (VT-I 64%)

*Source: Glass’s Guide, based on 36 months and 60,000km.

In the US, car analytics company ALG recently named Land Rover and Subaru as the winners of the 2017 Residual Value Awards (RVA). Importantly, this was the third year in a row that these brands both picked up the award. For Land Rover, the top performers were the Range Rover Sport, Range Rover, and Discovery Sport, and for Subaru, it was the Impreza, Forester, Legacy, Outback and WRX.

How To Maintain Value

Here are some tips on maintaining value:

  • Buy well at the start: get a great deal at purchase time and your losses will be reduced
  • Keep the K’s down: the lower the number on the odometer, the better
  • Keep a good servicing schedule
  • Repair minor damage and don’t curb the wheels
  • Garage the car if possible