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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.

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.

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 two-year-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-and-a-half kilometres driven.

Our new car list prices are high compared to other markets. That’s partly because many new cars here are sold to business fleets and rental companies, which access bulk-buying 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.

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 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.

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.
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