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

What are the top 10 slowest depreciating cars in Australia?

General Manager of RedBook.com.au  Ross 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 12 months, depending on demand-driven economic factors.

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.

The cars that may retain their value the best over the next three years, according to Mr Booth, are:

1. Toyota LandCruiser

Estimated retained value 80–83% over three years.

2. Ram 1500

Estimated retained value 78–81% over three years.

3. Tesla Model 3

Estimated retained value 76–79% over three years.

4. Land Rover Defender

Estimated retained value 76–79% over three years.

5. Kia Stinger

Estimated retained value 76–79% over three years.

6. Jeep Grand Cherokee

Estimated retained value 76–79% over three years.

7. ISUZU MU-X

Estimated retained value 76–79% over three years.

8. Subaru WRX

Estimated retained value 76–79% over three years.

9. Ford Ranger

Estimated retained value 74–77% over three years.

10. Tesla Model Y

Estimated retained value 74–77% over three years.

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Mr Booth told Canstar key factors affecting depreciation rates for cars include older cars being constantly superseded by newer models, brand name recognition and perceptions of reliability, vehicle type, and the overall condition of the vehicle.

Becoming superseded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.

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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, and says we are also seeing demand for new electric vehicles. This means that these kinds of vehicles 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.

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Cover image source: Benny Marty/Shutterstock.com