10 Real Facts About Depreciation

Written by a Guest Blogger

 

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Depreciation is one the biggest factors involved in buying, driving and selling a car. Yet, despite its importance, it is one of the most misunderstood aspects. We constantly hear myths, inconsistencies and down-right lies when it comes to depreciation! So, today we’re going to dispel the falsehoods around this tricky subject and get into the crux of the matter. We’ll debunk the myths you may have heard about it and tell you the truth.

The simple fact is that depreciation is a tricky beast. At it’s core, it is the simple loss of value in your car. When you drive away from the showroom, your new car loses between 5 and 10% of its value immediately. It will lose up to 30% in its first two years and 40% by the time it’s three years old. These are, of course, averages. Every single car is different and there are many factors that affect these numbers. Let’s take a closer look, shall we?

You can’t beat depreciation – First things first, it can’t be stopped. There is no magic trick or solution that will stop or reverse this process. It happens to every new car and there’s no getting around it. The best you can do is slow the process down. The trick here is to retain as much of the original value as possible. In the next few sections we’ll look at all the possible ways of slowing this process down.

Depreciation happens at different rates – The thing that makes it so tricky is its inconsistency. The depreciation rate in one car does not necessarily dictate the rate in another car. As we will see, there a multitude of factors that affect how quickly or slowly a car depreciates. First and foremost is the car itself. Popular, mid-range models tend to depreciate slower than luxury, expensive models. While you may think that expensive cars would hold value better, the opposite is true. Expensive cars have a lot more value to lose. They also become outdated faster. Depreciation happens much faster in new cars than in second hand cars. That’s why so many buyers turn to used dealers like cardealwarehouse.co.uk to try and avoid it.

There are good optional extras – When you purchase a new car, you’ll be presented with a bevy of potential extras. They cost a little more but they upgrade the specification of your vehicle. Sometimes it pays to fork out initially as these extras wills help bump up the value later on. Things like parking sensors, sat nav and stability control will all be valued by buyers in the future. That makes them a good investment and will slow down the process of depreciation.

And there are bad optional extras – More is not always more when it comes to optional extras. Some additions will add no value at all, and many will actually reduce the potential resale value. Any big cosmetic changes such as bodywork, spoilers or large stereos limits your resale market. Stick to what the average buyer will want in the future.

Mileage is very important – One big trick to slowing down the depreciation is to limit the miles. Keeping the mileometer below the annual average will keep the resale value high in your vehicle. Edge it over the annual mileage and you’ll see the value drop significantly. Buyers like to know that the car hasn’t been used heavily. Low mileage indicates less impact on the engine, the tyres and the brakes.

Well maintained cars depreciate slowly – Another big factor is maintenance. A car in good condition holds its value much better than those that have engine trouble. Depreciation is all about keeping the car as close to brand new as possible. That means keeping the oil at the right level. It means changing the brake pads when they wear down. It means keeping the tyres at the right pressure and correct tread depth.

Outgoing models are bad news – The key to slow depreciation is future demand. If your vehicle is still popular in three year’s time, it will still be valuable. One sure fire way to ensure this is to pick a long-lasting model. Think of cars like the Ford Focus and the Audi A4. Those models have been around for over a decade and they’re not going anywhere. In three years, they’ll still be popular and sought after. If the model is about to be replaced by something newer, then it will be difficult to sell later on.

Car trends play a big part – Again, this all comes down to popularity. Take the time to understand what is popular at the moment and where the trends are heading. For example, the compact SUV market is booming right now as more and more families invest in them. On the other hand, the market for saloon cars is dipping. Depreciation follows the market. In this case, compact SUVs will depreciate slowly, while saloons will depreciate a little faster.

Running costs – Whatever happens with trends and future habits, running costs will always be important. They are at the top of the list for second hand buyers. When on a budget, the running costs may be the decisive factor. With that in mind, cars with good running costs depreciate slowly. Look for cars with efficient engines, good mileage and low tax brackets. These are the cars that hold value best.

Always think about resale – What we’re trying to say is: always think about resale. Whenever you purchase a new car, think about whether it’s a good candidate for selling on. Savvy car buyers know how important it is to secure a slow depreciation rate. It means that they can sell at a good price and afford a good car next time around. Always put yourself in the mind of your next buyer. What will they want from the car? What technology will still be beneficial? Will the car be outdated? Will it still fit in with consumer trends and habits? We know you don’t always want to think about resale while you’re buying, but it will pay off in the end.

The simple truth is that you can’t stop depreciation. You can’t reverse it either. The best you can do is slow it down and retain as much value as possible. This list is a complete guide to the ins and outs. Refer to it wisely when buying your next vehicle. Take care and good luck with your new car!

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Auto Upkeep 4th Edition

Michael Gray

Mike has roots in the automotive service industry. He began diagnosing and fixing cars at a young age in his family’s service station. He has worked in automotive parts supply stores, towing companies, and service facilities. After graduating from St. Cloud State University (MN) with a Bachelor’s degree, he implemented and taught a basic car care program at the high school level. During work on his Master’s degree at Illinois State University (IL), he was a curriculum specialist on a National Science Foundation project where he co-authored ten integrated mathematics, science, and technology books designed for team teaching. Mike has also supervised teachers in Career and Technology Education as a school system administrator.

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