Your brand new pride and joy motor car will depreciate in value by 10% within the first minute of purchase according to some scary statistics from getWorth.
South Africans spend substantial time on the road, clocking up an astonishing number of kilometres each year. However, with every kilometre driven, your car’s value gradually diminishe s— a process known as depreciation.
Depreciation refers to the reduction in a vehicle’s value from the time of purchase to when it’s sold. This decline is influenced by three primary factors:
- Vehicle Age: Even if a car is rarely driven and kept in a garage, its value still decreases over time.
- Mileage: The more a car is driven, the quicker its value drops.
- Transaction Costs: Typically, cars are bought at retail prices but sold at trade or wholesale values. The difference, often the dealer’s margin, further reduces the amount you receive.
Mark Ridgway, Chief Technical Officer of used car pricing specialists getWorth, explains: “We’ve made significant investments in gathering extensive data and developing pricing algorithms that provide a precise view of the used car market.”
“Various factors such as brand, model, mileage, and even the post-Covid used car market bubble influence the data. However, when we examine the broader market, some intriguing trends become evident.One striking trend is that new cars depreciate significantly faster than used ones. The figures aren’t pretty,”
To what extent? The average car depreciates as follows:
- Within the first minute: approximately 10%
- After the first year: between 15% and 20%
- After five years: between 30% and 40%
These figures represent drops in retail value, and when transaction costs are factored in, a further 10% or so is lost.
“The depreciation on new cars is substantial. In contrast, used cars lose value at a slower rate. If you buy a car that’s one year old, you’ll only experience about half the depreciation that the first owner faced,” Ridgway advises.
He also outlines other factors that influence a car’s residual value in the South African market:
- Price Point: Affordable entry-level models tend to retain their value better.
- Class of Car: Luxury vehicles generally depreciate more rapidly.
- Fuel Economy: Cars with better mileage maintain their value longer.
- Model Popularity: In-demand models depreciate at a slower rate.
- Brand Reputation: Reliable brands experience less depreciation.
“You can’t prevent depreciation, but by making informed decisions upfront, you can slow it down.”
“When purchasing, consider the factors mentioned earlier, but also ensure you pay a fair price. For new cars, research the prices of one-year-old models to get a sense of potential depreciation. Even when buying used, comparing prices is crucial—overpaying means you won’t recoup the difference. With a used car, pay close attention to quality and condition. Personally, I prefer to find the lowest mileage vehicle in excellent condition from a reputable dealer.”
“Once you own the car, try to minimise the mileage where possible and maintain it diligently, both mechanically and cosmetically. A car with above-average wear is less attractive in the used market, and poorly maintained vehicles are a definite no-go.”
“The most significant piece of advice is to buy pre-owned. Used cars depreciate more slowly than new ones. While new cars might seem appealing, opting for a reliable, well-maintained used vehicle is a smarter financial decision.”
getWorth assists its customers in managing the financial impact of car ownership by providing essential tools and information for making informed decisions.
