What is car depreciation? Which car models depreciate the slowest?

ALASDAIR DUNCAN
When buying a car, there are considerations like comfort, style and budget to keep in mind, but if you plan on selling the vehicle down the line, then rates of depreciation may also factor into your purchasing decision.

All new cars lose value over time, thanks to age and general wear and tear, but there are some makes and models that hold onto their value a lot more than others. If you’re in the market for a new car and wondering about the potential resale value, we’ve answered the questions:

What is car depreciation?

The depreciation of a car refers to the difference in price between when the car was bought new, and when it is sold. While depreciation varies between makes and models of cars, Budget Direct says a new car can depreciate in value by 10–15% as soon as it drives out of the lot, and depreciate a further 10–15% at the end of the first year. While this is not true for all types of cars, there are some common reasons why cars depreciate in value.

What are the top 10 slowest depreciating cars in Australia?

To find out more about which car models depreciate the slowest, we spoke with Ross Booth, General Manager of vehicle valuation and information website, RedBook.com.au.

Booth told Canstar that the used car market in Australia is uniquely positioned right now, thanks to ongoing supply constraints brought on by the COVID-19 pandemic, and high demand for second-hand cars. He believes that the market will normalise within two to three years.

He crunched the numbers based on RedBook’s pricing data, considering which cars currently on the market are projected to retain their value best over the next three years, taking into account  both good and average vehicle condition. The list is ordered by the vehicles predicted to retain most of the value over three years, with figures round up to the nearest percentage.

1. Land Rover Defender

Estimated retained value 79–82% over three years.

Source: Daniluc Victor/Shutterstock.com.

2. Tesla Model 3

Estimated retained value 79–82% over three years.

Source: CanadianPhotographer56/Shutterstock.com.

3. Kia Stinger

Estimated retained value 79–82% over three years.

Source: VanderWolf Images/Shutterstock.com.

4. Ram 1500

Estimated retained value 79–82% over three years.

Source: Lasting Shutter Studio/Shutterstock.com.

5. Toyota LandCruiser

Estimated retained value 77–80% over three years.

Source: Caseyjadew/Shutterstock.com.

6. Jeep Wrangler

Estimated retained value 75–88% over three years.

Source: Arnold O Pinto/Shutterstock.com.

7. Mercedes-Benz GLC

Estimated retained value 74–78% over three years.

Source: Everyonephoto Studio/Shutterstock.com.

8. Jaguar E-PACE

Estimated retained value 74–77% over three years.

Source: Teddy Leung/Shutterstock.com.

 

9. Subaru Outback

Estimated retained value 72–75% over three years.

Source: VanderWolf Images/Shutterstock.com.

 

10. Toyota LandCruiser Prado

Estimated retained value 72–75% over three years.

Source: Sravan Karayil/Shutterstock.com.

 

Note for readers: Some of the examples pictured show makes and models in international environments. All of these cars are currently available for sale in Australia and the estimated retained value rates are mid-term predictions from a RedBook expert.

What are the main factors that affect car depreciation rates?

Mr Booth told Canstar key factors affecting depreciation rates for cars include older cars being constantly superseded by newer models, brand name recognition and perceptions of reliability, vehicle type, and the overall condition of the vehicle.

Becoming superseded

One of the most obvious reasons that cars depreciate in value is that they are frequently replaced by newer models. “As a car ages, it tends to be worth less,”  Mr Booth told Canstar. The main reason for that is a new one comes in, which is a newer year in better condition, with lower kilometres.” Generally speaking, consumers will not want to pay as much for an older car with potential wear and tear as they would for a new model, and therefore older cars depreciate in value.

Brand name

Mr Booth also said that brand name is a factor in how quickly cars depreciate. Demand for a vehicle is driven by the trust that consumers have in particular brands. This trust is driven by the perception of these brands as being reliable, thanks in part to advertising campaigns and the existing popularity of a particular car brand in the marketplace.

The greater the demand for a car, the slower it will generally depreciate. “Toyota is a classic example of a brand that has a very high reliability and trust factor, as opposed to a brand that’s relatively new in the market,” he said, adding that Toyota cars tend to retain their value better and depreciate slower than other types of cars.

The type of the vehicle

In addition to brand name, the demand for different types of vehicles can dictate how slowly they depreciate. Mr Booth said that right now, the demand for vehicles such as SUVs, 4×4 passenger vehicles and utes is high in Australia. This means that they hold their value on the resale market, and depreciate more slowly.

By contrast, Mr Booth told Canstar that the demand for four-door passenger vehicles such as sedans, once a common feature of the Aussie motoring landscape, has waned in recent years. With the rare exception of models like the Kia Stinger, these types of cars don’t sell as well, and lower demand means they often don’t hold their value as well as SUVs and 4x4s do.

The condition of the vehicle

“When you go to sell your car, the main things that can impact the value are kilometres and condition,” Mr Booth told Canstar. “Regardless of all the other things like brand, as far as depreciation goes, these things are important.”

“On average people drive 12,000km a year,” he added. “The less you do, the more the car will be worth in the resale market.” Likewise, he said, the better condition you keep the car in – making sure it doesn’t have scratches, washing it regularly – the easier it will be to sell.

How has COVID-19 affected the used car market in Australia?

Mr Booth said that the pandemic has led to some major shifts in the car market in Australia, thanks to a limited supply of new vehicles, and a strong demand for second-hand ones, which has actually seen some used cars go up in value.

“Due to COVID, there’s increased demand for people wanting to buy cars – people do not want to catch public transport,” said Booth. “What’s happening with supply is the opposite – there are supply shortages. A lot of that originally had to do with plants closing overseas due to COVID restrictions. Now it’s being driven by some brands due to chip shortages.”

Inability to source necessary computer chips has caused delays for some – but not all – car manufacturers, leading to delays. Mr Booth said that this is particularly the case for many European car manufacturers, and some Japanese manufacturers, including Nissan, which currently has a nearly nine-month wait for new Patrol models.

“The market is supply-constrained for new cars, which means there aren’t as many of them, so the demand for used cars has increased, and used car prices have increased,” he said. “Will that continue forever? No, when supply comes back and you can buy a new car, we’ll go back to similar depreciation rates that we’ve seen previously.”

 

Cover image source: Benny Marty/Shutterstock.com


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