Vehicle depreciation is the decline in value of the car from the time you bought.  The moment you drive it off the dealers’ lot, it immediately starts losing value.  Even if you change your mind halfway around the block, you will now be looking at a car worth only the wholesale value.  And the wholesale value is far less than the original retail value.  Continue reading to find out all you need to know about car depreciation.

How quickly does the value decline?

Cars depreciate at different rates, but in general, most cars depreciate at a rate of 15 – 30% per year.  You can expect your car to lose at least half its value after 5 years of owning it.

Is my car a liability or an asset?

When you buy a house, it may accrue in value with time.  Depending on the location and many other factors, it either improves with age or it becomes more sought after, therefore making your house, an asset.  Unfortunately, your car can only be seen as an asset if the value is greater than what you owe on it, and even then, it is a depreciating asset.  Some cars (vintage or collectors’ car like the 1970 Ford Mustang Boss 429) are more sought after and thus retain a higher value throughout their life.

Additionally, owning a car comes with ongoing expenses such as fuel, insurance, maintenance and repairs. This is why your car is considered to be a liability more than an asset.

How much can I expect my car to depreciate?

The amount that a vehicle depreciates by, varies depending on the type, make, year and model of the car.   The colour of your car will also influence the rate of depreciation.  Cars that have a neutral paint colour, such as black, silver or white retain more value than those with more exotic paint colours.  This is because neutral colours tend to remain popular in the future, resulting in higher resale value.

High-quality cars with low maintenance and good reputation also have better resales value and lower depreciation rates.  Brands such as Toyota and Honda enjoy good maintenance records and have a reputation for being well built.

Therefore, a car in its second year will be worth 80% to 85% of its value and a car in its third year will be worth 80% to 85% of its second-year value.

What affects my car’s depreciation rate?

The following factors will increase the rate at which your car loses value:

  • Condition – Any damage or wear and tear
  • Mileage – A high odometer reading
  • Warranty – A short warranty period
  • Service – An incomplete history
  • Reputation – Cars believed to be unreliable
  • Ownership – Too many previous owners
  • Age – Older models
  • Economy – High fuel consumption
  • Size – Big luxury cars with higher expenses
  • Demand – Low demand, high supply
  • Modifications – Spoilers and other non-standard fittings

How do I retain the value of my new car?

Depreciation is inevitable, but since owning a vehicle is mostly a necessity in South Africa, we can only try to minimise the effects.  Especially if you’re buying a used car, begin by choosing a quality used car that will hold its value.

  1. Buy as new as possible with the lowest mileage
  2. Avoid outrageous paint jobs – neutral colours stay popular for longer
  3. Complete regularly scheduled maintenance
  4. Keep the service records
  5. Keep the interior clean
  6. Garage the vehicle
  7. Keep features in shape
  8. Add more features (central locking, air conditioning, CD/MP3/Bluetooth)

In general, it makes sense to buy a quality used vehicle with low mileage. But this becomes even more important when you begin to consider depreciation values and what your vehicle will end up being worth when you eventually decide to sell it.

Now that you know all you can about vehicle depreciation, but want to know more, please feel free to get in touch with us on (021) 001 0760.

 

Sources

Auto Pedigree. (2020, Sept 13). How does vehicle depreciation work?  Retrieved from https://bit.ly/2Fgv0L1

Cars Direct. (2020, March 11). Why does a new car lose value after it’s driven off the lot?  Retrieved from https://bit.ly/2FgR881