How to beat price depreciation when choosing a new car
- 27 August 2013
- From the section Business
With the price of fuel hitting £1.40 a litre, many drivers might assume that the cost of filling up is the biggest motoring expense they face.
In fact it is depreciation - the difference between the value of a car when you buy it and when you come to sell or trade it in.
Choose a vehicle which loses value more slowly and it could save you thousands of pounds.
But until now, that has been difficult to do.
Launched this month by valuation specialists CAP Automotive, the Total Cost Of Motoring service provides drivers with an idea of the overall expense of buying any particular model.
Input details of the car you're thinking of buying and how long you'll keep it, and it shows how much it will lose in depreciation.
CAP predicts future car values based on historic data for 70 variables influencing depreciation, including brand, model, engine size, colour and market conditions. This is the first time that CAP has provided information direct to consumers.
Power of advertising
Manufacturers understand that highlighting depreciation costs can be a powerful marketing tool.
Romanian manufacturer Dacia recently advertised its Sandero Access as "the least depreciating" car on sale in the UK.
It used CAP data, which showed that the vehicle lost the least value in monetary terms. After three years and 60,000 miles, the 1.2-litre petrol-powered vehicle will have only lost £3,615 (60%) of its retail price of £5,995.
But in percentage terms, the rate of depreciation of the Dacia does not stand out.
Take a Porsche Cayenne diesel, for example, bought today for £47,390. After three years and 60,000 miles, CAP says it will have lost 59% of its value, and will be worth £19,275.
According to the AA, a more expensive car with a good residual value could cost you less in the long run than a cheaper car.
Vehicle buying specialist webuyanycar.com says effective research of the vehicles which hold their value is key to avoiding excessive depreciation. In addition, cars should be well cared for.
"This year, we'd recommend the Toyota Land Cruiser, Ford Kuga and Audi Q5, which have all retained over 70% of their original price after three years and 37,000 miles," a webuyanycar.com spokesman says.
"Similarly, opt for models with a proven history of reliability. German cars such as Audi, BMW and Volkswagen have strong residual values.
"Cars typically depreciate between 15% and 35% in the first year and can have lost 40% of their value after three years, so consider a used vehicle.
"When it comes to older models, age is less important than how well the car's been maintained."
Delight or shock?
Professor Peter Wells, co-director of the Centre for Automotive Industry Research at Cardiff Business School, says depreciation has become an increasing concern as discounts and shorter model life cycles hit used car values.
Manufacturers have also increased profits by selling add-ons and personalisation options which the next buyer might not want, he adds.
A car's unique colour, gadgets and optional extras, designed to "surprise and delight" its initial owner can lead to "shock and depreciation", which is why savvy fleet buyers stick to fairly standard mainstream models with a view to selling them on.
He welcomes the Total Cost Of Motoring service but says it should come with a "health warning", citing the unpredictability of events such as the demise of Saab and the introduction of scrappage allowance.
Do your research
Dylan Setterfield, senior forecasting editor at CAP, admits that it will not always be possible to predict every trigger for increased depreciation.
He says consumer behaviour is also an factor, with people changing cars in the way that they do mobile phones.
Different car markets behave in different ways and there are even seasonal trends to take into account. Convertible cars will depreciate more slowly or gain value in the spring while 4x4 vehicles will do the same as winter approaches.
"People need to do their research," says Mr Setterfield.
In recent years manufacturers have offered discounts on new cars in the UK to offset poor sales in Europe.
Louise Wallis, head of business development for the National Franchised Dealers Association, accepts that this has increased car depreciation in recent years, as it has a trickle-down effect, reducing used car values.
"People with older vehicles will have seen values slip further than they might normally but the market will find its own level," she says.
"The best way to beat depreciation is to negotiate the strongest possible deal when buying a car."
An earlier version of this article stated that a Porsche Cayenne diesel bought three years ago for £47,390 would have now lost £7,488 of its value - 15.8%. However, we have now provided a direct comparison between a Cayenne diesel bought today and a Dacia Sandero Access bought today. CAP said that the reason the 2010 Cayenne diesel performed so well in holding on to its value was because it was a brand new model then, meaning that it was sought after by used car dealers.