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Understanding depreciation value of your car

The value of your car reduces the moment that you drive it out of the showroom. The average new car in Australia loses 15% per year in the first 3 years – that’s a whopping 40% in the first 3 years. Thereafter, the rate of depreciation slows to around 10% per annum – assuming that you don’t drive more than 15000 km per year. Think about it this way – if you spend $100 000 of a new car, in 3 years it will be worth only $ 60 000.

Not all cars depreciate in the same way – in Australia, desirability and practicality weigh in heavily on the depreciation rate. If you have a vehicle that is desirable, and people believe that it is a practical choice – it will depreciate at a lower rate, and more slowly. Remember that desirable doesn’t always mean a status symbol or a zooty sporty car – it means that a lot of people want one of these vehicles – think Mazda6, Honda Accord, Honda Odyssey, Daihatsu Terios, Audi Q5, Volvo XC60 which all hold their value a little better than the average car. But, at the end of the day, even these vehicles will lose their value just like all other cars.

Lets examine “practical”. In order to be considered practical, a car should have decent fuel economy, be reliable and easily usable for the daily commute.

On the opposite end of the scale are your more expensive vehicles, such as the Lamborghini Gallardo, which depreciate much faster than the average. Here you have a limited market in people who have the ready cash to buy such a vehicle, and best you have enough time to avoid selling up in a hurry and cutting your losses. Also in this category from a depreciation perspective is any sports car that has a poor reputation for durability.

Mileage is a big issue when it comes to depreciation of a vehicle – low-mileage vehicles will tend to look and feel better, and be more reliable. Therefore the lower the mileage, the lower the depreciation.

The desirability of any vehicle model will reduce when a new model is released (this is why dealers offer discounts on the last versions of an older model).

So to summarise – if you want to minimise the loss of value of your vehicle due to depreciation, buy a car that is loveable, practical and more than a year old.