CAR DEPRECIATION – AVOIDING THE TRAP

May 15, 2020

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 effect: if the market is flooded with a particular car; if it’s heavily discounted; or if it’s 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 the 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.

An article published 24th April 2020 by Carsales highlights an interesting depreciation percentage.

The table below outlines the vehicles in the small car segment that could be purchased new in 2017. Sorted in descending order, the table also lists the percentage of depreciation after three years, plus the good retail price determined by RedBook research.

Best small car resale values (Top 20):

Honda Civic VTi-LX – $33,590 (new) $27,100 (resale): 80.7%
Honda Civic VTi-L – $27,790 (new) $22,300 (resale): 80.2%
Honda Civic VTi – $22,390 (new) $17,900 (resale): 79.9%
Hyundai i30 SR Premium 1.6T FWD – $33,950 (new) $26,700 (resale): 78.6%
Hyundai i30 Elite 1.6T FWD – $28,950 (new) $22,100 (resale): 76.3%
Hyundai i30 Go 2.0i FWD – $22,290 (new) $16,900 (resale): 75.8%
Mazda3 SP25 Astina 2.5i FWD – $35,490 (new) $26,900 (resale): 75.8%
Mazda3 Touring 2.0i FWD – $27,290 (new) $20,500 (resale): 75.1%
Mazda3 Neo 2.0i FWD – $22,490 (new) $16,800 (resale): 74.7%
Toyota Corolla ZR 1.8i hatch FWD – $30,020 (new) $22,200 (resale): 74.0%
Toyota Corolla SX 1.8i hatch FWD – $26,000 (new) $19,100 (resale): 73.5%
Subaru Impreza 2.0i sedan – $24,990 (new) $18,100 (resale): 72.4%
Toyota Corolla Ascent 1.8i hatch FWD – $22,230 (new) $16,100 (resale): 72.4%
Subaru Impreza 2.0i-S sedan – $33,050 (new) $23,900 (resale): 72.3%
Subaru Impreza 2.0i Premium sedan – $29,980 (new) $21,400 (resale): 71.4%
Ford Focus Titanium 1.5T FWD – $32,690 (new) $23,100 (resale): 70.7%
Hyundai Elantra SR Turbo 1.6T FWD – $31,290 (new) $22,000 (resale): 70.3%
Ford Focus Sport 1.5T FWD – $27,490 (new) $19,300 (resale): 70.2%
Kia Cerato SLi 2.0i FWD – $32,490 (new) $22,800 (resale): 70.2%
Ford Focus Trend 1.5T FWD – $24,390 (new) $17,000 (resale): 69.7%

Best medium SUV resale values (Top 20)

Honda CR-V VTi-LX – $44,290 (new) $36,700 (resale): 82.9%
Subaru Forester 2.0D-S – $42,740 (new) $35,400 (resale): 82.8%
Honda CR-V VTi-L – $38,990 (new) $32,100 (resale): 82.3%
Subaru Forester XT Premium – $48,240 (new) $39,700 (resale): 82.3%
Honda CR-V VTi – $30,690 (new) $25,200 (resale): 82.1%
Subaru Forester 2.5i-L – $33,240 (new) $27,100 (resale): 81.5%
Hyundai Tucson Elite 1.6T auto AWD – $39,250 (new) $31,200 (resale): 79.5%
Mazda CX-5 Akera 2.2DT AWD – $49,990 (new) $39,700 (resale): 79.4%
Mazda CX-5 Touring 2.5i AWD – $38,990 (new) $30,900 (resale): 79.3%
Mazda CX-5 Maxx 2.0i FWD – $30,690 (new) $24,300 (resale): 79.2%
Hyundai Tucson Highlander 2.0DT AWD – $47,450 (new) $37,000 (resale): 78.0%
Toyota RAV4 GXL 2.2DT AWD – $45,125 (new) $34,500 (resale): 76.5%
Toyota RAV4 GXL 2.5i AWD – $38,490 (new) $29,300 (resale): 76.1%
Hyundai Tucson Active auto FWD – $31,090 (new) $23,400 (resale): 75.3%
Nissan X-TRAIL TL 2.0DT AWD – $47,790 (new) $35,700 (resale): 74.7%
Volkswagen Tiguan 140 TDI Highline 2.0DT AWD – $49,990 (new) $37,000 (resale): 74.0%
Volkswagen Tiguan 162 TSI Sportline 2.0T AWD – $45,990 (new) $34,000 (resale): 73.9%
Nissan X-TRAIL ST-L 2.5i AWD – $39,090 (new) $28,700 (resale): 73.4%
Volkswagen Tiguan 110 TSI Trendline 1.4T FWD – $34,490 (new) $25,300 (resale): 73.4%
Mitsubishi Outlander Exceed 2.2DT AWD – $44,500 (new) $32,600 (resale): 73.3%

Source: Carsales.com.au

In the US, car analytics company ALG recently named Land Rover and Honda as the winners of the 2020 Residual Value Awards (RVA). ALG’s Residual Value Awards (RVA) recognize vehicles in 27 segments that are forecast to retain the highest percentage of their Manufacturer’s Suggested Retail Price (MSRP) after a three-year period. Importantly, this was the third year in a row that Land Rover picked up the award. For Land Rover, the top performers were the Range Rover Sport, Range Rover, and Discovery Sport.

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