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Car Depreciation

Cut to the Chase

With car finance, you're almost certainly financing a depreciating asset.  And that's our first tip - buy a vehicle that suffers minimal depreciation.  Sounds obvious but for the vast majority of buyers, the depreciation is the last thing they consider; that is if they even bother to consider it at all.  In general, the higher value cars, such as BMW, Mercedes and Porsche, tend to depreciate more slowly.  Right now, the record's held by the Mercedes SLK which has a depreciation rate of about 10% per annum.  So you can spend £30,000 on a very nice car and lose less than £9,000 in three years.

Check out these approximate annual depreciation rates by manufacturer.

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Compare that against the cost of  a non-prestige car with a depreciation of as much as 25% per annum.  You might only have to lay out £16,000 for the purchase, but your depreciation costs might be £4,000 per annum, and after 3 years you could have lost up between £11,000 and £12,000 - far more than the owner of an SLK.

Prestige cars often have higher waiting lists so this might affect your choice.  However, we know at least one person who orders a new SLK every year, and it costs him far less than you might think.  He's careful to avoid wearing out a set of tyres in that time, sells it just before the annual service is due, and thanks to the queue of people wanting to jump the lengthy waiting list, is always able to get a good price for his 11 month old motor.  Every time he gets a new one, he orders another for delivery 11 months later.  People wonder how he can afford it, but if you follow through the numbers, you wonder why everyone isn't doing it!
  

But before you rush down to your Mercedes dealer to buy one - beware; there's lots more to consider.

Depreciation Facts

Prestige cars tend to have lower depreciation percentages, though the actual depreciation can be similar.

Smaller cars often depreciate less than larger ones - we imagine that many buyers of large cars simply want a new car and can afford it, whereas for smaller cars there are plenty of willing buyers who don't feel that they absolutely have to have the very latest model.

Model changes are usually bad news - expect to lose money on your car when a new model comes out.  The nearer your car is to being the last of the old model, the more of a hit you'll normally take.

Depreciation can be worse when warranties run out.  If you can buy a car with a three year warranty, and sell it when there's still a year to go, you might cut your losses.

Cars with Turbochargers used to be particularly bad depreciators.  That's not so much the case these days, but it can still be a factor - buyers are terrified that they'll get a car with a blown turbo and will face a huge repair bill.

Diesel cars are often better than petrol equivalents - there is evidence that Diesels can last longer than petrol cars. 

Most buyers are put off higher mileage cars, but in fact modern cars can last for several hundred thousand miles when looked after correctly; so a regular service history is more important than low mileage.  If you find a good car at a discount price just because it has a high mileage then you might be able to do a good deal.  This will particularly work out for you if you're a low mileage driver, and can therefore get the car's mileage 'back to normal' (about 10 to 12K per annum) before you sell it.