Top 5 Tips to beat depreciation on your car
Everyone enjoys the look, feel and smell of a brand new car but long after the feeling has gone, you are left with an asset that has already lost a portion of its value – that is it has depreciated. Whilst the depreciation of a vehicle is expected over time, there are a number of things that you can do to help lessen the pain of depreciation. Let’s look at a few of these below.
1. Not all cars are equal
You’ve decided that you need a new vehicle and so it should be as easy as comparing the pricing from a few dealers to get the best deal, right? Well there’s a lot more to the cost of ownership than the initial purchase price, particularly when it comes to depreciation.
As an example, let’s compare two similar work utilities, both of which are 2014 models. One is the Mitsubishi Triton GLX 4×2 manual Double Cab ute and the other is the Toyota Hilux Workmate 4×2 manual Double Cab ute. Both are the entry-level dual cab utes for each of the chosen manufacturers.
The new price of the Triton was $31,990 whilst the new price of the Hilux was $27,490 (both of these prices exclude Government charges and dealer delivery fees).
Fast forward to 2018 and if we look at the Redbook values as a guide, both vehicles should have covered approximately 120,000 kilometres over the 4 year period.
It is interesting to note that according to Redbook, the trade-in price of the Triton at those kilometres is $11,900 and the equivalent Hilux is $12,700. That might only look like a difference of $800 however the actual total depreciation cost of the 2 vehicles is much greater than that.
Given the starting price of the two vehicles, the Triton has depreciated by $20,090 compared to the Hilux which has depreciated $14,790. That’s a whopping $5,300 difference.
If you factor in the higher initial buy price of the Mitsubishi Triton, this would have attracted higher government fees (as they are calculated as a percentage of the purchase price) as well as a higher financing cost, making the total overall cost difference between the two vehicles in excess of $6,000.
So as this example illustrates, vehicles are definitely not equal when it comes to depreciation. Making an informed decision can assist one in minimising the cost of depreciation for their chosen vehicle, so it is critical that you do your research up front.
2. When to buy
The timing of the purchase of a new vehicle is another factor that can reduce the cost of depreciation. Generally, manufacturers and their franchised dealers offer greater financial incentives either at the end of the calendar year or at the end of a model’s lifecycle. In each case, their motivation is to help clear out any old stock to make way for the new year’s inventory or stock of the new model. Any additional discount that you can negotiate from the dealer reduces the depreciation that you will experience over your ownership of the vehicle.
3. Keeping good records
As a vehicle owner, you only crystalise your full depreciation when you sell your vehicle. Achieving the best possible sale price for your vehicle will therefore deliver you less depreciation. There are a number of ways to maximise the sale price of your vehicle when it’s time to sell, however one of the most valuable methods is to provide a set of log books with a full service history. This shows the potential buyer that you have cared for the vehicle throughout the course of your ownership and that the vehicle is likely to continue to perform as expected. Vehicles with missed services or without any service history achieve a far lower price and this adds to the cost of depreciation.
4. Take your time
Whilst buying a vehicle should not be a difficult process, it is important to remember not to rush into the purchase of a vehicle on impulse. Take your time to understand the various vehicle makes and models that may be appropriate for your purpose or lifestyle. Compare their features and differences, paying particular attention to their estimated running costs and expected resale value. Once you have decided on the vehicle that is right for you, shop around and seek pricing from a number of dealers. There may be an opportunity to purchase your new vehicle during a sale period or perhaps even at the end of the month when some dealers may be short of their sales targets and may be motivated to provide additional discount to make the sale. You will reduce your depreciation if you can save thousands of dollars on the purchase price of your vehicle.
5. Does it have to be new?
It is always exciting buying a new car and to experience that new car smell and touch when you jump in for the first time. However, that experience comes with a huge cost as there is a significant depreciation that you receive the moment you drive off the dealer’s new car lot. There are thousands of dollars to be saved if you were to purchase the same car either as a demonstrator or as a near new (1-2 year old model) with modest kilometres and the remaining balance of the new car warranty. Industry figures suggest that a vehicle depreciates 14% per annum over the first 3 years and then around 8% a year for the next 2 years. So purchasing a one year old vehicle should afford you the buyer a 12 to 14% discount on the cost of a new vehicle.
Want to know more? Call us on 1300 616 993 and we can discuss your vehicle requirements and give you some further information to assist with your decision to purchase a vehicle.