Car depreciation and how it impacts your car
Depreciation is important to understand, and it can impact new car owners and used car owners alike.
Whether you’re planning to buy a new or used car in Australia, the goal is the same: narrowing down your choices to cars that suit your needs and won’t destroy your budget.
It's also critical to look for automobiles that will retain their value over time. The market price of a gleaming, new motor you've just taken off the lot has little in common with the car's resale worth several years later.
Purchasing a vehicle that has just come off the production line has several benefits. You get access to the most up-to-date infotainment, driver assist, and safety technologies, as well as a variety of color options, spec levels, engine choices, and optional extras. You also have the assurance of being the first owner and driver of the vehicle.
For used car purchasers, there's a lot of uncertainty about how well — or how poorly - previous owners have cared for the vehicle.
A new automobile is a gorgeous, immaculate machine- free of dents, stains, engine wear, rust, and accumulated grime. There's just no way to duplicate the comforting new-car smell, sparkling look, or untouched feel of a brand-new vehicle.
Whilst new cars are to be desired, the main drawback of buying a new vehicle is vehicle depreciation. The moment you get behind the wheel and make that first drive from the dealership to your home, you’re losing money — sometimes the value instantly lost can be up to thousands of dollars.
If you’re planning to keep and use your purchase for multiple years, this isn’t a big problem as the utility of the car itself can make the price worth it. However, if you want to sell a new vehicle quickly, understand that the resale value will be lower.
Depreciation, whether you're selling a new car today, in a year, or ten years from now, or trading it privately or into a dealership, will always reduce your profit margin.
A car’s depreciation rate isn’t solely an issue for new car buyers, either. If you’ve purchased a two-year-old used car and then sell it four years later, vehicle depreciation still applies to the price, although much less significantly than with a new car purchase.
How to calculate depreciation
Being aware of average vehicle depreciation in Australia is just the beginning — you can also save money by understanding how much resale value is year on year.
Knowing the annual depreciation rates for automobiles can help you make an informed decision about when to sell your car. The good news is that, on average, each year of automobile ownership results in a lower depreciation rate.
If you're wondering what the formula to figure out a car's anticipated depreciation is, there's a simple rule. You may use Redbook or comparable resources as a reference for your vehicle's current price. Here's how it works:
- Find the difference between the car’s value when new and its value today
- Divide that difference by the new-car value, multiplied by 100
- $46,950 (new-car value) - $31,700 (car’s current value) = $15,250
- $15,250 divided by $46,950 x 100 = 32.48% (that’s the depreciation rate)
Using this formula, it’s a breeze to work out the overall depreciation rate of any car you hope to buy or sell.
The majority of the value of a new car vanishes the instant you drive it off the showroom floor, with 10-15% being typical. By the end of the first year, another 10-15% will likely be erased from its worth.
In Australia, depreciation is the biggest expenditure associated with vehicle ownership – greater than fuel, servicing, or insurance.
The most recent vehicles from any given brand are generally better, with more features and a higher-quality design. Older models, on the other hand, are quickly becoming obsolete as car manufacturers seem to be bringing out new and improved versions at an ever-increasing rate. That is why it's so crucial to select new automobile purchases carefully and maintain your vehicle well to get a top price when selling down the line.
The amount of depreciation for vehicles in Australia is determined by a variety of factors, including the car's age, condition, fuel efficiency, upkeep quality, mileage, whether it's auto or manual, and the vehicle's manufacturer and model reputation.
Now, as much as vehicle performance itself, brand image and perception have become just as crucial.
Because depreciation is most evident during the first year of ownership, this period of depreciation is where you should concentrate your research when looking for a new vehicle.
Taking a look at the base model variants of the top ten best-selling vehicles in Australia, it's clear that the Toyota Hilux (15.67%), Mazda CX-5 (19.37%) and Mazda CX-3 (22.94%) have the lowest depreciation rates in their base models, reflecting the positive public perception of these brands and models.
Factors that influence the rate of depreciation
The brand of vehicle
This can make a significant difference, with some automobiles plummeting dramatically in value in a short period of time while others maintaining level for years.
This is all down to build quality and dependability, or more importantly, the perception of them. If a car company is considered cheap, the market may not trust its longevity, so demand for subsequent models will plummet.
On the other hand, well-known and well-respected brands with a positive market reputation will fare better in resale.
The vehicle that is better maintained will have a higher resale value. This is obvious, but it's worth noting that the vehicle with the most maintenance has a greater resale value. This applies to all consumer goods, but there are several automotive-specific items, such as servicing records and previous accidents.
Cars have a built-in, tamper-proof log of how much they've been driven - the odometer. When it comes to reselling a vehicle, this will no doubt be considered an important element.
The mileage of a vehicle has an influence on its worth, depending on the brand as well as the fuel type (diesel engines are typically considered to tolerate higher usage than petrol).
There are several variables to consider when attempting to establish a car's longevity. A brand-new auto company launching in Australia may discover that their vehicles depreciate quickly due to their lack of history in Australian road conditions.
Many Chinese manufacturers have encountered this in recent years. On the other hand, if car buyers and owners worry that they won't be able to get an extended warranty or other OEM support after a manufacturer leaves the market, it may spook them. When models are replaced is more typical.
Buying the final model of an existing line before a makeover, complete rebuild, or discontinuation may be costly in the long run.
The exact same model car will have a different future valuation depending on whether it exited the factory in December or January the following year.
It's nearly impossible to forecast depreciation because you can't know what will happen in the future that might impact valuations. Things as unexpected as worldwide epidemics or emissions testing controversies may all have an effect on valuation predictions.
However, if you pick a reputable brand, a popular model that isn't about to be discontinued, maintain it properly, and use it correctly, you won't go far wrong.