Old rusty car from the rear

The What, Why's and How Guide to Car Depreciation

by Ross Callander 9th June 2016

What is Car Depreciation?

Depreciation is the difference between what you pay for a car, whether you buy it brand new or second hand, and what your car is worth when you come to sell it.

Why Does Depreciation Matter?

Depreciation is an important factor to consider before buying a car as it will have a direct impact on your wallet when it comes to selling the car in future. This is because almost all vehicles lose their value with time due to a variety of depreciation factors.

EXAMPLE OF DEPRECIATION:

  • You buy a brand new VW Golf for £18,000 in 2014
  • You decide to sell the Golf 2 years later and take it to a dealer for valuation
  • Aesthetically, the car looks in excellent condition
  • The dealer informs you that the Golf's current market value is now only £10,000.
  • Your asset (VW Golf) is now worth £8,000 less than when you bought it - this is due to depreciation.

What Affects Depreciation?

There are a number of factors that determine the rate of depreciation for vehicles, however these factors can be separated into two groups; factors that affect the actual value of the car and those that affect the perceived value of the car:

Mileage - With regards to depreciation - the more miles on the clock, the less the car will be worth. On average, someone who uses their car for leisure will clock up around 12,000 miles per year - this is worth taking into consideration when deciding between certain makes and models for potential best returns come selling time.

Number of Owners - Simply put, the less owners the better as the more a vehicle exchanges hands the more it will depreciate. Make sure you check the vehicle's V5C registration certificate before buying/selling your car as this will have a record of all registered owners.

Service History - As a car owner is it important to service your car in line with the manufacturer's recommendations. The more service stamps/receipts you have, the more assured a buyer will be that the car has been well looked after and has no underlying issues.

General Condition - The most obvious factor to consider is the car's general condition. Like anything of worth, the more damage that's been inflicted on the vehicle, whether internally or externally, the less it will be worth. Be sure to give any car you're looking to purchase a thorough inspection, especially if it's a used car.

Length of Warranty - Depending on the manufacturer, new cars can now come with up to 7 year warranties, which is a huge bonus when you're looking to sell a car on. Moreover, the longer the warranty is, the less your vehicle will depreciate as the warranty effectively guarantees the manufacturers workmanship for the duration of the warranty (with certain exceptions, of course).

Fuel Economy - Cars that are able to do more miles to the gallon tend to hold their value better as cars with good fuel economy are more desirable. This is why cars with diesel engines historically cost more, however this is becoming less of the case as petrol cars become more efficient.

Cost to Tax the Vehicle - For similar reasons as above, vehicles that cost more to tax due to their environmental impact, i.e. poor fuel consumption can also put off potential buyers. The general rule is the bigger the engine size, the more it will cost in Road Tax.

Reliability - You may have heard the old chestnut "If you want reliable, buy German". Well some exaltations, and stigmas, stick. Certain makes and models can be perceived as being more reliable than others due to things like brand positioning, perceived build quality and country of origin.

Desirability - Some models of cars are refreshed and re-released more frequently than others - this is usually dictated by how popular specific models are. If the car you own/are interested in is a model that is frequently given a face-lift, you may find this car becomes harder to sell the more models succeed it.

Top tips for minimising depreciation

Taking the above factors into account here are a few measures you can take to ensure your car depreciates at the slowest rate possible:

  • Above all else... do your research! By understanding the current market you'll be able to make the most informed decision possible.
  • Keep your vehicle well maintained. By servicing your vehicle in line with the manufacturer's guidelines, cleaning the vehicle regularly and driving with caution to avoid bumps and scrapes you'll give yourself the best possible chance when it comes to resale.
  • If you do happen to damage the vehicle be sure to get it repaired as soon as possible by a reputable garage.
  • Keep mileage to a minimum. If you have other modes of transport available to you, it may be worth using them from time-to-time to avoid clocking up unnecessary mileage.
  • Put your car on the market before the release of an updated model. Keep up to date with when a refreshed version of your vehicle is due to hit the market, that way you can market your vehicle ahead of time and increase your chances of selling.
  • When it comes to selling, time of year matters. For example, you're less likely to pine after a convertible in the midst of winter, so consider what time of year your vehicle is likely to attract most interest.
  • Avoid less sought after alterations. Although big spoilers, shiny alloys and unusual paint jobs appeal to some, you run the risk of alienating a portion of the market when it comes to sell.
  • The opposite argument to the above also applies; choosing additional upgrades such as leather seats, built-in sat nav and metallic paint can go some way to preserving the car's actual and perceived value.

Now that we understand the factors that affect depreciation and how to combat it, let's take a look at the best and worst performing cars of 2015 with regards to depreciation in value.

Note: The percentage quoted next to each is the vehicle's residual value after 3 years and 30k miles. The price shown is what it will cost to buy the vehicle new. FYI - the average rate of depreciation for a new car is 40% in the first year and 15% each year after that.

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Top ten cars for beating depreciation

1. Porsche Macan: £43.5k - £62.5K - 68%

2. Ferrari 488 GTB Coupe: £183k - 68%

3. Range Rover Sport: £62k -£95k - 63%

4. Range Rover Evoque: £30k - £52k - 62%

5. Range Rover: £75 - £164.5k - 61%

6. Lexus NX: £30k - £43k - 59%

7. Porsche Cayenne: £49.5k - £118.5k - 59%

8. Audi Q5: £32k - £52 - 59%

9. BMW X4: £37.5k - £49.5k - 59%

10. Alfa Romeo 4C: £52k - £67.5k - 59%

Top ten fastest depreciating cars

1.MG6 Magnette: £18.5 - 21%

2. Renault Megane Sport: £21k - 23%

3. Citroen C5: £25k - 24%

4. Fiat Qubo: £24k - 24%

5. Vauxhall Meriva:£21k - 25%

6. Hyundai Genesis: £49.5k - £26%

7. Volvo S80: £34.5k - 27%

8. Fiat Punto: £12.5k - 28%

9. Renault Scenic: £20.5k - 28%

10. Maserati Quatroporte: £109k - 28%