Vehicle depreciation is one of the most discussed and often misunderstood, factors in buying a new vehicle. It is true that the value of a brand-new car drops once it leaves the forecourt and it is also true that new cars generally depreciate quicker than an older model. But there many considerations at play when calculating the percentage of depreciation on any vehicle. Let us bring your through the whole gambit of vehicle depreciation, how it is worked out and what it means for the Irish Motorist.
Vehicle depreciation is the rate at which a car loses value over time. These calculations have an impact on the resale and trade in value of a car.
New cars generally depreciate faster than older cars. That does seem to be a little unfair given the cost just paid on that bright new shiny car. The lore in the industry says that a new car loses 10% -20% of its original value as you drive out of the motor dealership. This is not a strict rule by any means. It is true that depreciation rates slow as a car’s age increases and the highest rates of vehicle depreciation happen during the first year of ownership. However, an older car will have lost as an average of 40% of its initial value in the first three years. And not every car brand depreciates at the same rate.
To estimate how much value your car has lost, simply subtract the car’s current fair market value from its purchase price. From here, you can calculate a ball park percentage of depreciation. The condition of the car, the exterior and interior, the frequency of services and the amount of mileage all come into play after that. This explains why a gently used two-year-old model may have depreciated proportionately less than a car of the same brand and the same year. Brand perception also has an influence over the rate of depreciation, and premium car marques like Mercedes and Audi, that hold their value will have a lower rate of depreciation. The current market and the state of the wider car industry effects the depreciation value too. So, vehicle depreciation calculating is not an exact science, but experienced motor dealers ( like ourselves here at Peter Hanley Motors) can calculate vehicle depreciation pretty quickly and accurately.
Simply put, it means that the vehicle depreciation is one of the factors which determine the price you will get (or pay) for an older car. Depreciation rates slow as a car’s age increases, with the highest rates during the first year of ownership. Purchasing a pre loved car reduces the upfront costs as well as long-term expenses like insurance, since the cost of insurance is based in part on a vehicle’ cash value. However, used cars can also have greater repair costs, since the wear and tear that contributed to depreciation will also affect the car’s mechanical systems. Vehicle depreciation can be minimised when purchasing and over the lifetime of the car.
While you cannot fully avoid depreciation costs, it is possible to reduce the full effects by taking good care of the car with regular services and maintenance. Keep all records of car servicing to present when reselling Safe driving habits such as not speeding, avoiding harsh braking and gentle motoring will reduce the need for repairs, will keep you safer and ultimately protect the cars resale value.
There are some car brands that hold their value better that others. Certain car marques have a more desirable resale value. The most popular brands like, Volkswagen Golf, Ford Focus, Audi, BMW, some Toyotas are all in high demand in the used car market and so the depreciation on these is less. Deisel motors hold their value more than petrol. Sober colours, like black and silver hold their desirability more than loud one-off pinks and yellows. Desirability means less depreciation. Your friendly sales person here at Peter Hanley will advise on depreciation values on any car in our sales lot. Choosing a car that depreciates in value more slowly than an equivalent will actually save in the long run and should be a factor when choosing your new/ used car. While the vehicle depreciation calculation will be applied to establish the depreciation of the car, but the deprecation can be reduced.
As always, our door is open, the car lot is full of choices and our friendly staff are more than happy to talk through every aspect of purchasing the next dream drive.
Peter Hanley Motors is a registered
member of The Society of the Irish
Motor Industry
