The high cost of depreciation

Depreciation is the largest expense you will incur over a five-year car ownership period, according to national car sales website Cars.co.za. In fact, it says that, generally, after five years, the car that you bought new will be worth about half of what you paid for it.

Most cars depreciate at a rate of 15 to 20 percent a year, with the most severe drop in the first year of ownership, Cars.co.za says. The rate of depreciation decreases as the car gets older.

Cars.co.za gives the example of a BMW 3-series bought in 2012 for R363 052. In the first year it loses 15 percent of its value, in the second year 13 percent, third year 10 percent, fourth year nine percent, and fifth year eight percent. After five years, the car’s resale value is R202 292, with the total loss due to depreciation amounting to R155 197.

“BMW is considered a luxury brand and holds a strong position in the market. The depreciation on a BMW is therefore generally considerably less when compared with other brands,” Cars.co.za says.

“To avoid the brunt of depreciation, consider buying a used car with low mileage,” the site says.

You also need to check that your car is not over-insured, by reviewing your vehicle policy once a year.

WHAT AFFECTS DEPRECIATION?

Many factors influence a car’s rate of depreciation, Cars.co.za says. These include:

Make. Reputable car brands with notable track records hold value better over time.

Model. Popular models generally have a lower rate of depreciation.

Age. New cars generally lose value faster than older cars.

Valid warranty. If you sell a car that is still within its warranty period, the resale value will be higher.

Accident history. Cars that have been in accidents have considerably lower resale values.

Colour. Cars in neutral colours, such as black, white or silver, tend to have higher resale values.

Added features. Comfort and safety features, such as central locking, alloy wheels, CD/MP3 player, navigation equipment and anti-lock braking system improve a car’s resale value.

Fuel consumption. Cars that are light on fuel tend to have higher resale values than gas guzzlers.

You can’t avoid depreciation, but you can reduce it, Cars.co.za says. It suggests that you:

Keep your car clean and well maintained and serviced.

Try to keep your mileage as low as possible.

Park your car in a garage or, if you don’t have a garage, consider buying a cover for protection against the elements.