What is Depreciation and How Does it Impact My New Car Purchase?

You’ve probably heard of the term depreciation before, but how do you consider depreciation when purchasing a new car?

The dictionary definition of depreciation is ‘a reduction in the value of an asset over time, due in particular to wear and tear.’ Essentially, depreciation refers to the loss in value of an asset (such as a car) over time because of its ageing condition. This concept can be applied to any asset from houses and vehicles to household appliances and even mobile phones.

You might understand the concept, but do you know how it will impact the value of your own car? Drive.com.au notes that depreciation is actually the largest cost a vehicle owner will incur, ‘[depreciation] is the biggest cost of owning a new car, easily ahead of more top-of-mind running costs such as fuel use, insurance, registration, servicing and repairs.’

Let’s look at an example to put this into perspective: if you purchased a brand new Ford Falcon XT in 2011 at its sticker price of $40,290 plus on-road costs and wanted to sell that vehicle in 2016, five years later with 100,000kms on the clock, you would lose approximately $30,000+ in value. That’s around the equivalent of throwing $115 in the trash each week, and that cost doesn’t even take into account the cost of fuel, insurance, rego and more.

A new car loses approximately 11% of value when it leaves the lot

After 5 years, your car is worth roughly 35% of what you paid for it at the dealership

While it doesn’t sound too nice, there are thankfully a number of ways to help minimise depreciation when you purchase a new vehicle.

• –    Service your vehicle regularly – log book serviced vehicles are much more valuable than the exact same vehicles without it.
• –    Look after your car as much as possible – cars in the best condition in years to come will be able to fetch the most money in the market.
• –    Negotiate when buying your new car – remember that a car broker can negotiate with the dealers they are familiar with to often get you a much better deal at a wholesale (fleet) rate.
• –    Pick your car carefully – resale value can be compared to the notion of supply and demand, where mainstream brands that are popular as new vehicles are often popular second hand and will ensure you have a vehicle that others are interested in when it comes time to sell. If resale value is a concern, you should try to steer clear of fringe brands such as Mahindra, Citroen and Renault.
• –    Look for manufacturers with great offers – some will offer longer new car warranties and/or free servicing periods which can save you a lot of money.

Depreciation is unfortunately a part of purchasing a new car that you can’t avoid, but it’s important to note that not all cars depreciate at the same rate. Some vehicles are much better at retaining value than others, which is much better for owners in the long run. So, which are the right cars? The list below is of vehicles that have proven to be good performers for resale value. This list is not definitive, but it is certainly a good place to start. Is your car on the list?

Light cars up to $20k

• Mazda 2
• Hyundai Accent
• Toyota Yaris
• Kia Rio

Small cars up to $25k

• Mazda 3
• Hyundai I30
• Honda Civic

Medium to large sedans up to $50k

• These include: Mazda 6, Toyota Camry, Holden Commodore, Ford Falcon, Subaru Liberty
• Currently one of the worst sectors to buy in to avoid depreciation. The industry move is towards small SUV’s over medium sedans as they are far more versatile and the options are virtually endless.

Medium SUVs up to $30k

• Mazda CX5
• Hyundai Tucson
• Kia Sportage

Large SUVs

• Hyundai Santa Fe
• Kia Sorento
• Mitsubishi Pajero Sport

Utilities – 4×4 Turbo Diesel

• Mitsubishi Triton
• Mazda BT50
• Ford Ranger

Large 4×4 (Turbo Diesel models)

• Toyota Prado – Arguably the best vehicle for retaining resale value on the Australian market
• Toyota Landcruiser
• Range Rover Sport
• Mitsubishi Pajero

For more information or to help you figure out depreciation on a new vehicle you’re considering purchasing, contact Car Search Brokers today on 1300 650 890. The teams in Brisbane, Sydney, Adelaide and Melbourne would be happy to help you find the perfect vehicle for your needs!