Drivesouth: October 23, 2020

Tradies
How car depreciation works
Minimising depreciation means you’ll get the most resale value.
Automobiles lose value as they get
older and the kilometres rack up.
Depreciation is a hidden cost of car
ownership – you don’t see it until you
come to sell the car or trade it for a
newer model, when you take a hit to
the pocket that could be thousands
of dollars.
With very few exceptions, you’ll end
up selling your car for less than you
paid for it. This is vitally important
if you are a sole trader or small to
medium business – do you invest in
a newer vehicle now or buy a used
vehicle? What if I buy a truck that has
all that I want but its ten years old
vs buying new? Read on and we will
show you some tips on the mine field
that is car depreciation!
1. The amount and rate of depreciation
isn’t the same for all cars:
Fuel guzzlers, luxury brands and models
with a reputation for poor reliability
depreciate faster. New cars depreciate
faster too – they can lose up to 30% of
their value in the first year. As a car gets
older, depreciation slows down. Buying a
brand new, V8-engined, Land Rover (for
example) is a sure-fire way to experience
peak-depreciation. Where as a Toyota
Prius might not depreciate so much in
relative comparison. Or even a Toyota
Hi-Ace.
2. Depreciation scales with price paid
So if your new car costs $60,000 you’ll
lose more than you would on a $30,000
model over the same period. A twoyear-old
Nissan X-Trail Ti 4WD with
an average 30,000 kilometres is listed
at a dealer on TradeMe for $40,990.
That model sells new for $53,995. The
missing $13,000 equates to a dollar
spent in depreciation for every two-anda-half
kilometres driven. Where as the
used vehicle you bought for $30,000
and is already two years old will not devalue
as quickly as its market price is set
around that mark you paid for it.
3. Our new car list prices are high
compared to other markets around
the world.
That’s partly because many new cars
here are sold to business fleets and
rental companies, which access bulkbuying
discounts. It’s essential you
negotiate hard when buying a new car
to get a big discount from the list price,
or you’ll get stung when your vehicle
comes up against keenly priced fleet
cars on the used market. Also – due to
our location and right hand drive, our
supply is very limited meaning higher
prices to import vehicles into NZ. This
means higher prices for consumers.
4. If you really want to make
depreciation work in your favour,
buy a one- to two-year-old car to avoid
the new-car depreciation losses. You’ll
still get all the comfort, safety and
reliability benefits of the latest model.
Keep that car for three years, then sell
it just before it’s five years old, before it
starts to cost more to repair and keep
running. You’ll also hit the sweet spot
of demand. Your later-model car with
higher kilometres and service history
looks like a good alternative to an older
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model fresh import with no history, but
lower kilometres. In all, you should lose
less in depreciation in the three years
you own the car than it lost in its first
year from new.
5. How to minimise depreciation
Regardless of the car, or it’s age, there
are a few steps you can take to minimise
depreciation:
• Choose a popular colour and desirable
options that will add value.
• Look after your car: keep it clean and
tidy, keep it serviced (and keep service
records) and repair any damage.
• Keep the car for longer – spread over
10 years, depreciation isn’t a factor
(but expect increased maintenance
costs).
• Drive less – cars with fewer kilometres
hold their value better (If you can.
Heavy duty use e.g. Couriers cannot
be driven less as they need to be
on the road. However the executive
sedan that is used during the week
probably does not need to be on the
road in the weekend or for road trips
with the family!)
Source: consumer.org.nz