Selling your car or simply curious about how car values fluctuate over time? We’re breaking down everything you need to know about vehicle depreciation.
Knowing that a new car depreciates the minute you drive it off the showroom floor can be disheartening. Even if you changed your mind the day after making the purchase, you would still be looking at an initial depreciation of thousands of rands, with the vehicle now only worth the wholesale value.
Depreciation is inevitable. There are, however, several factors that could slow down the depreciation value of your car, namely; maintenance, model and mileage. Of course, some cars will always be more sought after than others and therefore retain a higher value throughout their lifetime.
Factors influencing the rate of depreciation
You always want to sell your car for more. Determining its actual worth based on depreciation will give you some bargaining power and help you make an informed decision when selling your car.
Whether you’re buying or selling a car, it’s important to know what the realistic market value is and what affects that value.
- Economic factors – including inflation, interest rates and fuel prices – can significantly impact a car’s depreciation rate. During periods of high inflation or high interest rates, car values are likely to depreciate faster.
- Vehicle-specific factors – such as brand reputation, model popularity, performance, and safety features – will influence the depreciation rate.
- Supply and demand in the market play a crucial role in car depreciation. If a particular make and model are in high demand, its rate of depreciation may slow down.
- Residual value represents the estimated worth of a vehicle at the end of its lease or loan term. Car manufacturers and financial institutions use complex algorithms to determine a car’s residual value, taking into account historical data, market trends and projected future values. This directly impacts depreciation as a higher residual value generally indicates slower depreciation. (Yes, we know that is quite a mouthful, but you need to know the hard facts).
How depreciation affects your car’s value
In the automotive industry, car depreciation is not linear but typically follows a depreciation curve. In the first few years, the depreciation rate is rapid and is then followed by a slower decline in value over time.
- Mileage will always be a factor. High mileage generally accelerates depreciation as potential buyers see it as a sign of increased wear and tear.
- Age affects the technology, availability of parts and potential wear and tear which all play a role when calculating the depreciation rate.
- Make and model impacts a car’s depreciation rate as some brands are known for their long-term reliability and quality manufacturing, thus retaining their value more effectively. Different car brands and models will always experience varying levels of depreciation. (Luxury cars often depreciate at a faster rate compared to economy cars, and popular models from reputable brands tend to retain their value better).
- Market demand and consumer preferences can affect depreciation rates. Vehicles that are high in demand and have desirable features often retain their value better over time.
- Maintenance history and vehicle condition are big players in car depreciation rates. When selling your car, a well-maintained vehicle will likely get you more cash in hand. (If a car has been in an accident, it will also lose value at a quicker rate, despite a professional repair job).
- Technological advancements and newer models often lead to a quicker depreciation of more recent vehicle models.
All these factors will directly affect a vehicle’s financial implications in the long run and should be taken into consideration when buying or selling a car.
Investing in add-ons – are they worth it?
The effect of modifications on depreciation depends on various factors, including the type of modification, the quality of the workmanship, the car’s make and model, and the preferences of potential buyers.
Some add-ons – safety features, infotainment systems and aesthetic enhancements – can potentially increase your vehicle’s value, but they seldom make an appreciable difference to the realizable value when it comes to selling your car.
You can calculate the potential ROI (return in investment) or you can read our blog where we discuss the do’s and don’ts of car modifications to ensure you sell your car for more.
But here’s the general gist when it comes to modifications and depreciation:
- Positive impact: Certain modifications can improve a car’s appeal and value, leading to a slower depreciation rate. Adding high-quality aftermarket parts, improving the interior, adding a tow bar or installing advanced technology features might attract buyers who are willing to buy your car over an alternative.
- Negative impact: In most cases, vehicle modifications are a personal preference and tend to increase a car’s depreciation rate. Prospective buyers prefer vehicles in their original factory condition as they believe modified cars have potential reliability issues. Extreme or unconventional modifications also limit the pool of buyers.
- Quality and workmanship: Quality always matters. Professionally done modifications that are well integrated into the vehicle’s design and function may have a milder impact on value depreciation compared to amateur modifications.
- Insurance and warranty: Some insurance companies may charge higher premiums for cars that are modified. Modifications can also void or limit the manufacturer’s warranty, which can be a concern for potential buyers.
- Trends and market demand: The impact of modifications on depreciation can also vary based on current automotive trends and buyer preferences. For example, modifications that were popular at a certain time may lose appeal over the years, leading to a faster depreciation rate. (You may want to rethink that lowered suspension or those underbody neon lights!).
Be Weelee sure
Selling your car for more is always going to be dependent on a host of variables; many beyond your control. And although the inevitability of depreciation plays a role, so does the market. There is also seldom a time when all the stars align before selling a car. (And sometimes you need the best price you can get right now).
But one thing you can be sure of is Weelee. It is ALWAYS worth getting a second opinion from us to ensure you get the best deal when you are ready to sell.