You know that as soon as you proudly drive your car out of the showroom you’ve blown many thousands of dollars in depreciation.
That’s hard to take, but you can minimize its long term effect by looking at ways to soften its full impact. It’s a fact that some cars, some brands and some nationalities depreciate quicker than others. The new car may come very attractively priced, but if it loses heaps in depreciation it could cost you a lot more in the long run. So how can you make the best out of the inevitable?
Here are our top ten Do’s and Don’ts
New cars suffer depreciation at a rate of around 14 to 15 percent per annum for the first three/four years, then at about 6-8% thereafter, though some cars can lose up to 70% of their original price after three years. The message here, then, is loud and clear- keep your car longer and depreciation will lessen its impact-even to the point where your car can – in time, even begin to appreciate (but that’s another story).
You don’t want to buy a car that’s always breaking down and gathers a poor reputation for reliability when it comes time to sell, as you can be sure that word has spread and there won’t be much demand for it, which means it will be worth less. Whilst sadly we don’t, as such, have a widespread reliability survey in Australia, overseas surveys can be useful. In fairness, most new cars sold today are much more dependable than their predecessors, but there are exceptions, so avoid them!
There was a time when import tariffs were a major part of a new car’s price, but they have now been virtually eliminated, so are less important. A 5% tariff is imposed on imported cars and 4 wheel drive vehicles (with the exception of cars made in Thailand, where they are exempt). So check that further reductions are unlikely. A much larger factor is the Luxury Car Tax which does change more frequently. For example, in July changes were made with regard to ‘fuel efficient cars’ for the 2012/3 financial year. Check that it will not affect your purchase before you sign.
The official ruling can be viewed here
A correctly serviced car, well maintained and with all receipts for work done will always be worth more at changeover time than one where log books, owners manual and service receipts have gone astray. In some instances the price difference can be several thousand dollars, so it’s well worthwhile making sure your mechanic stamps the service book and you file the receipt safely.
Car salesmen will aggressively compete for your business. So if you can save thousands of dollars on the price of your new car, it will directly impact favourably on the rate of depreciation; after all the subsequent owner won’t know of the great deal you did with your new car purchase. (we can’t resist a plug here, so make sure Private Fleet helps you get the best deal possible!).
The date a car is built, and the compliance date are indelibly stamped on every new car sold in Australia, and that’s the year that it will be valued against when it comes time to sell. In the first few months of each year dealers are anxious to offload ‘last year’s stock’ onto unwary buyers. Don’t be one of them. But that’s not to say you shouldn’t buy last year’s car if you can negotiate a very good discount. This can work in your favour if you plan to keep your car for five years or more. On the same theme, also be aware of an impending model update. A ‘new beaut mark two’ coming out just after you’ve bought your new car will have a detrimentary impact on the value of yours. It’s now seen as the superceded model. Not good.
Now this needs a bit of crystal ball gazing. How do you know that a particular model is going to be unpopular?
The trade knows, as the industry produces monthly sales stats. that can tell you. Unwanted and unpopular cars usually can offer discounts, immediate delivery and other ‘come ons’ that signify a popularity problem. But it’s not foolproof. Sometimes unpopular or quirky cars can magically morph into ‘magnificent, collectible or iconic’ automobiles.
There are plenty of examples on the list, like the Citroen 2CV or its more modern equivalent, the Nissan S-Cargo (pic. left, so-called because its snail-like styling, and ‘escargot’ is French for ‘snail’). One importer sells a Chinese car that simply doesn’t comply with Victorian legislation and can’t be sold there. So that immediately cuts back the used car values.
‘I just adore that brown and yellow combination with green stripe”. Sometimes manufacturers come out with their latest ideas for fashion statements, and they don’t work. Whilst you may love the colour you may be alone, and feel very lonely when you come to sell the car. The safe way out is to choose a popular colour that won’t offend.
Preferences do vary from country to country, but white, black and silver were the standout colours everywhere. From these figures it looks as though a green car may be more difficult to sell (and thus achieve a lower price) than a silver, white or black.
Of course, that doesn’t mean you have to buy a white, silver or black car, so by all means buy a colour you like – but beware…
DuPont rated automobile colour popularity for last year’s models as follows:
Well, this one is only too obvious, particularly with spiraling oil prices. When petrol was cheap big engines and horsepower were paramount. Now it’s different- economy matters, which is why manufacturers proudly pout out their economy figures rather than their power output.
To prove the point one of Private Fleet’s clients erroneously said that the trade in was a V6 model, but when it arrived it became a V8! The client had paid more for it when he purchased it, but now it was worth less! On the other hand, less V8’s are now being sold, so-who knows, in a few years time they may have a rarity value and be worth more? Crystal ball gazing time again!
Buy a car with ‘all the fruit’ (trade jargon for all the extras) and you’ll pay thousands more, but you’ll be lucky to get more than a few dollars extra back when you sell it. Some extras are worth nothing at resale- paint protection, upholstery treatment, underseal and window tint, for example. Others such as sat/nav, leather and auto will make your journey more enjoyable but will only be a marginal benefit at sale time.
But it’s not all doom and gloom! Your new car is for your enjoyment and pleasure, so buy what you want to drive in for the next few years- you deserve it! Whilst it is classed as a ‘consumable’ it still fares well in the depreciation stakes when you compare it with your brand new HS Digital TV with 3D etc. that will lose 50% of it’s value in weeks!
…and a final thought…one overseas survey found that a new Lamborghini lost a massive 40% of its purchase price in its first year- or nearly $6,000 per week!
Now doesn’t that make you feel better?