Fuel, road tax, maintenance, running costs… everyone understands these motoring expenses. Depreciation however, remains a somewhat hidden expense. Even though, after fuel purchasing, it’s probably a motorist’s biggest cost.
Depreciation is simply the difference between how much you spend buying a vehicle and the amount you get back when selling. On average, a new car will have a residual value of around 40% of its new price after three years (assuming around 10,000 miles/year) or, putting it another way, it will have lost around 60% of its value.
More fuel efficient vehicles tend to depreciate more slowly because cars that will be cheaper to run are always popular. Depreciation is also affected by the model replacement cycles of manufacturers. This means a brand new model may depreciate more slowly than the model that’s on the way out. The old ‘last year’s model’ syndrome!
It’s worth knowing that depreciation does slow down as a vehicle gets older. So it can be that purchasing a nearly new car (perhaps one to two years old) offers better value than buying a brand new one.
So, whether you’re looking to purchase or thinking of selling your existing vehicle, there are lots of depreciation factors to take into account. It’s clearly not as simple as just looking at the number of years that a car has been on the road.
The average annual mileage for a car is approximately 10,000 miles. Higher mileage generally means the vehicle is going to be worth less.
Some cars have a more reliable reputation than others, a fact that’s backed up by customer satisfaction surveys.
When it comes to holding on to a vehicle’s residual value, the rule is: the fewer owners, the better.
Having a complete service history is helpful. If the service book has been correctly stamped, or you have the receipts to show the vehicle has been serviced in line with the manufacturer’s recommendations, it will be more desirable and more valuable.
Some vehicle manufacturers ‘face-lift’ or replace models every few years. Others go on for 10 years or more. Once again, the more recent the model, the better it will hold its value.
The more miles per gallon the better. This is one reason why diesel cars hold their value slightly better than petrol cars. Although, with improving petrol engine efficiency, this is changing.
Some of today’s models come with a seven year warranty. This extra time can be a real bonus when it comes selling.
Ultimately, damage carries a cost. If your vehicle has bodywork issues or a shoddy interior you can expect an impact on its value.
Large luxury cars tend to depreciate more than smaller cars. This is because they cost more to run and their parts / maintenance are usually more expensive.
The amount of Road Fund Licence payable needs to be considered. Fuel guzzling cars cost more to tax each year, making them less desirable to buyers.
Another one to include is to avoid flashy modifications such as spoilers, flared wheel arches and wide wheels. When it comes to selling, these can cost you more than they gain you.
There’s also the option of taking out GAP insurance. This is an insurance policy designed to cover you from loss in the event of an accident where your car is written off. GAP insurance is not typically designed to cover older or relatively inexpensive vehicles.
If you’re thinking about buying a car and have its residual value in mind:
And finally, if you’re thinking about selling and want to avoid depreciation, put your car up for sale well before a replacement model arrives in the showrooms.