Understanding car depreciation is crucial for making informed decisions about buying, selling, or maintaining a vehicle. In this blog, we will explore the key factors influencing depreciation, which can help you determine your car’s overall worth. You will learn how to calculate depreciation, understand its impact on resale value, and discover strategies to mitigate it. Whether you’re looking to get the most value out of your vehicle or find a great deal as a buyer, this blog is your ultimate resource.
Factors That Influence Car Depreciation
Brand
It’s important to understand how a car’s brand impacts its depreciation. Some brands hold their value better than others due to their reputation, demand, and past performance. Luxury brands like Mercedes-Benz, BMW, and Audi, renowned for their quality and luxury, tend to depreciate more slowly.
On the other hand, lesser-known or less prestigious brands may depreciate faster due to perceived lower quality. Additionally, factors such as the brand’s history of innovation, technological advancements, and overall market positioning contribute significantly to its influence on depreciation rates.
Model
Car models depreciate at different rates, influenced by factors such as popularity, reliability, and unique features. Highly sought-after models, such as the Toyota Land Cruiser and Honda CR-V, tend to hold their value longer thanks to their reputation for longevity. Special editions or models with unique features often maintain their value better over time.
Additionally, larger vehicles and SUVs typically depreciate slower than compact cars, primarily due to their utility, although factors like fuel efficiency and environmental impact also influence buyer decisions.
Age
When a new car is driven off the dealer’s lot, it loses a significant portion of its value, often between 10-15%. After the first year, the car’s depreciation rate slows but continues to decline consistently; as a result, older cars have lower resale value. However, some classic or vintage cars may increase in value over time due to their rarity and demand among car enthusiasts.
Condition
Keeping a vehicle in top condition is crucial for maintaining its value over time. Regular maintenance and prompt repairs not only improve performance but also decrease depreciation. Conversely, overlooking minor issues can lead to a significant decrease in value. Every component, from the engine to the body, influences the vehicle’s overall worth. Therefore, prioritising proper upkeep is essential for preserving value and minimising depreciation.
Mileage
Buyers prefer cars with lower mileage, as high mileage can indicate increased wear and tear, resulting in potential repairs by the buyer. Due to this, the market price of a car usually decreases with higher miles. To maintain a higher resale value, limiting mileage by minimising non-essential trips is recommended.
Market Demand
The market demand for a car’s model largely determines its depreciation rate. When a model is in high demand but low supply, its depreciation slows. Conversely, abundant supply with low demand results in faster depreciation.
Factors like consumer trends, technology, and economics also influence market demand. For instance, fuel-efficient and hybrid cars depreciate slower due to current popularity.
Fuel Efficiency
As fuel prices escalate and environmental concerns grow, vehicles that offer fuel efficiency tend to retain their value better. With many Australians feeling the pain of growing costs of living, households feeling financial pressure are looking for savings at the bowser, with the fuel efficiency of their automobile ultimately impacting the overall operational costs of running their vehicle
Transmission
Cars with automatic transmissions tend to lose their value slower than those with manual transmissions. This is because automatic transmissions are considered more convenient and have a higher demand in the Australian market. However, high-end sports cars with manual transmissions can retain their value better due to their rarity and appeal to enthusiasts.
Quality of Maintenance
Regular maintenance is essential for increasing a vehicle’s resale value. This is because it indicates that the vehicle has been cared for and its performance is optimal. On the other hand, neglecting to maintain a car can lead to faster depreciation due to expected repair costs. Additionally, a detailed maintenance history gives potential buyers an idea of the vehicle’s condition, increasing their confidence and making it a more attractive purchase.
How To Calculate Vehicle Depreciation
Calculating your vehicle’s depreciation rate is crucial for understanding its value change. Here’s how to do it:
- Find your vehicle’s initial and current values. You can find its current value by checking online resources or consulting a professional appraiser.
- Subtract the current value from the initial value to get the difference.
- Divide the difference by the initial value, then multiply by 100 for the depreciation rate.
For example:
Initial value: $40,500
Current value: $23,600
Difference: $16,900
Depreciation rate: $16,900 ÷ 0$40,500 x 100 = 41.73%
Following these steps enables you to calculate your vehicle’s depreciation rate and make informed decisions about its value and future investments.
The Impact Of Car Ownership On Depreciation
Your new car starts losing value as soon as you drive it off the dealership lot. Typically, it could drop by 10-15% in the first year alone and then continue to decline at a rate of about 15% each year thereafter. So, over five years, it could lose over half its original value, regardless of its condition or appearance.
For example, if you bought a car for $30,000, and it depreciates by about 12.5% in the first year (taking the midpoint of the estimated range), it would lose $3,750 in value.
Therefore, after the first year, its value would decrease to $26,250.
If we continue this trend over the next four years, assuming a steady depreciation rate of 15% per year:
| Year | Value at Start of Year | Depreciation Rate | Depreciation Amount | Value at End of Year |
| 1 | $30,000 | 12.5% | $3,750 | $26,250 |
| 2 | $26,250 | 15% | $3,937.50 | $22,312.50 |
| 3 | $22,312.50 | 15% | $3,346.88 | $18,965.63 |
| 4 | $18,965.63 | 15% | $2,844.84 | $16,120.79 |
| 5 | $16,120.79 | 15% | $2,418.12 | $13,702.67 |
Over five years, the car’s value would drop from $30,000 to about $13,702.67, losing over half its original worth. This drop happens regardless of how well the car runs or looks.
Minimising Depreciation
Car depreciation is inevitable, but it can be minimised by adopting a few strategies. Here are some practical tips to help you maintain your vehicle’s value over time:
- Regular Maintenance: Regular servicing ensures your car’s good running condition and elevates its market value. A comprehensive service history is a testament to the vehicle’s well-managed life, making it more desirable to potential buyers.
- Low Mileage: The fewer kilometres on the odometer, the better. High mileage can accelerate depreciation as it’s often associated with more wear and tear.
- Choose Resale-Friendly Models: Some cars have higher resale values due to their brand reputation or model popularity. Researching and selecting such models can be a proactive step towards minimising depreciation.
- Vehicle Storage: Store your car in a garage or under a carport to protect it from harsh weather conditions. Prolonged exposure to Australia’s sometimes harsh climate can cause aesthetic and mechanical damage, accelerating depreciation.
- Avoid Unnecessary Modifications: Unless they’re universally appreciated (like high-quality alloy wheels), aftermarket modifications can reduce a car’s value. Stick to the manufacturer’s specifications to maintain your vehicle’s resale worth.
How CarBuyers Can Help
Explore how CarBuyers can assist you today! Whether you’re ready to sell your car now or need guidance, our experienced sales advisors are here to help. Get an instant offer on your vehicle or schedule a consultation. Plus, don’t forget to browse our Ultimate Car Valuation Guide for all the essential information on assessing your vehicle’s worth.
Don’t delay—reach out to CarBuyers to sell your vehicle today!
