New car, instant regret?
It’s widely accepted that a brand-new car loses value the moment you drive out of the dealership. But how much? The figure depends on the vehicle you drive and how you look after it. Let’s find out more.
It’s quite a thrill to buy a brand-new car. You get a full manufacturer’s warranty, the latest tech and safety features, and no hidden problems from previous owners. Plus, the emotional benefits: your choice of colour and trim and that new-car smell we all love. Unfortunately, there’s a financial price to pay: depreciation.
What’s depreciation?
Simply put, depreciation is the decline in your car’s value over time, and it hits hardest in the first few years. Depreciation applies to new and used cars, but new cars typically depreciate faster. When it comes time to sell, the price you’re offered may be considerably less than what you paid.
The idea that every car drops by a fixed percentage the moment it leaves the dealership is an oversimplification. Rather, driving away marks the start of a depreciation curve.
What affects a car’s depreciation?
Make and model
Well-known brands have a history of retaining value better than others. Think Toyota, Mazda, Ford, Hyundai, Subaru and Honda. Popular models like the RAV4, Hilux, Corolla, CR-V, Forester, Mazda3, Landcruiser and Ranger tend to hold their value reasonably well.
Conversely, luxury brands like BMW, Mercedes-Benz, Range Rover and Audi often depreciate faster given their high purchase price and maintenance costs.
Kilometres and condition
The more you drive, the faster your car depreciates; more wear and tear and possibly an expired warranty means more risk for the next buyer. Would you pay the same for a three-year-old Toyota Camry with 100,000km on the clock as one with 30,000km? You know the answer. Condition matters just as much. Dents, scratches, faded paint, bald tyres and a poor service history will cost you at resale.
Colour and configuration
White, silver and black cars hold their value better than quirky colours like purple, orange and light green, which reduce your pool of potential buyers. Buying a model with more features may help future-proof the car, ensuring it’ll have the tech and other extras that’ll appeal to buyers later.
Other factors
Market conditions play a role too. For example, COVID-19 new-car shortages pushed used car prices up, narrowing the depreciation gap.
Engine type also matters. Diesel and petrol vehicles depreciate faster in some markets, as electric vehicles (EVs) gain popularity, while some EVs depreciate quickly as newer, cheaper models arrive.
So, what’s the real figure?
Research suggests that a popular, high-demand car’s value can drop by 10 to15 per cent as soon as you drive it home. For certain makes and models, that figure can climb to 35 per cent or more.
After three years, some mainstream cars retain 75 to 80 per cent of their value, while certain luxury sedans and EVs can drop to 50 to 60 per cent.
At the seven-year mark, a standard car with average kilometres may be worth about 40 per cent of its original purchase price.
Use the Australian Tax Office’s online tool to estimate the value of depreciating assets such as cars. Although it’s primarily for business tax purposes, it can give you a general estimate of your car’s depreciation.
How to boost your car’s resale value
Keep it serviced and clean
Keep up with servicing and maintain a stamped logbook, as buyers will pay more for a verifiable service history. Replace brakes and worn tyres, repair dents and scratches, and fix mechanical issues promptly.
Wash and wax your car regularly to maintain the paintwork and trim and keep the car in the garage if possible. Don’t smoke inside as the odour will put buyers off.
Keep the kilometres reasonable
Cars that are driven less depreciate slower, so try to limit your kilometres. However, don’t let your car sit idle for long periods as that can cause another set of problems. If you have more than one car, you may want to vary which you use for long and short trips.
Keep it simple
Choose neutral colours over bold or unusual ones and avoid aftermarket modifications, such as body kits, custom wheels and performance upgrades; most buyers prefer stock standard cars.
What have we learnt?
Depreciation is real but it’s not the dramatic, fixed drop you may have heard. Choose your car wisely, look after it and keep the kilometres down and you’ll get the best possible return at resale time.
Final note: depreciation is a key reason why buyers choose two to three-year-old, low-kilometre, mainstream models in good condition. The previous owner has already taken the depreciation hit, leaving a potentially significant saving for the next buyer.