Whether you’re planning to buy a new or used car in Australia, the goal is the same: narrowing down your choices to cars that suit your needs and won’t destroy your budget.
It’s also important to search for cars that will hold their monetary worth over time. The value of a shiny, new car you’ve just driven off the lot bears little resemblance to the resale value of that same car several years later.
Buying a fresh-from-the-factory vehicle comes with obvious advantages. You get the latest infotainment, driver assist and safety features, lots of choices in colour, spec level, engine preference and optional extras, a full manufacturer’s warranty and the comforting knowledge that you’re the very first owner.
This peace of mind is harder to come by for used car purchasers, who may have concerns about how well — or how poorly - previous owners have looked after the vehicle.
A new car is a beautiful, pristine thing - free from dents, stains, engine wear, rust and accumulated dirt. That reassuring new-car smell, gleaming look and untouched feel simply can’t be replicated in a used version, no matter how well it’s maintained.
A new car purchase has its disadvantages too, of course. You may find that some dealers will only extend the factory warranty if you have your car regularly serviced at their dealership.
You also need to be aware of any on-road costs and taxes that aren’t built into the advertised retail price. And naturally, a new car will cost a bit more than its pre-loved equivalent.
The main drawback of buying a new vehicle is a pesky little thing called depreciation. The moment you get behind the wheel and make that first exciting journey from the dealership to your home, you’re losing money — sometimes thousands of dollars in the car’s value.
If you’re planning to keep your purchase for many years, this isn’t a big problem but if you decide to sell that car reasonably quickly, you’ll need to be mentally prepared for the harsh reality of its diminished resale value.
It doesn’t matter if you’re selling it next year, more than a decade from now or anything in between, or whether you’re unloading it privately or trading it in to a dealership — depreciation will always play its part in shrinking your profit margin.
A car’s depreciation rate isn’t solely an issue for new car buyers, either. If you’ve purchased a two-year-old car and then sell it six years later, depreciation still applies, although somewhat less dramatically than with a new car purchase.
Depreciation is an inevitable part of car ownership but that doesn’t mean you’re completely helpless to fight against it. With a little research and knowledge, you’ll find there are many ways to reduce the wallet-draining effects of car depreciation and save money — both on the day of purchase and when you sell it later.
How to calculate car depreciation — and why you should
*Prices are indicative only
Although these figures will change over time, this table should provide you with a useful overview of how Australia’s most popular car models depreciate over time.
Buying a new car is a serious financial decision. It helps to know which cars depreciate the least and to be able to identify vehicles with the worst resale value.
Being savvy about average car depreciation in Australia is just the start — you’ll also save money by understanding how much resale value is lost from one year to the next.
Having a firm grasp of car depreciation rates by year can help you make an informed decision about the best time to sell your vehicle. The good news is that each passing year of car ownership normally brings a shrinking depreciation rate.
No matter which make or model you’re interested in, there’s a simple formula to calculate a car’s approximate depreciation. You can use Redbook or similar sites as a guide for your vehicle’s current value. Here’s the easy formula:
- Find the difference between the car’s value when new and its value today
- Divide that difference by the new-car value, multiplied by 100
As an example:
- $35,880 (new-car value) - $23,700 (car’s current value) = $12,180
- $12,180 divided by $35,880 x 100 = 33.94% (that’s the depreciation rate)
Using this formula, it’s a breeze to work out the overall depreciation rate of any car you hope to buy or sell.
Depreciation is not created equal
Buying the cheapest, most popular, safest or most fuel efficient car only tells you part of the story of its real-world value. To understand a car’s true worth, you should also compare depreciation rates between models and think about how long you plan to own the vehicle.
To spend $2,500 less on a car that loses its value twice as quickly as its nearest competitor isn’t necessarily a bargain. ‘Depreciation awareness’ helps you read between the lines and assess a car’s long-term value.
Here in Australia, popularity doesn’t always equate with value retention over time. As per our table, for example, the Toyota Rav 4 is currently the most sought-after vehicle in the country.
It’s safe, versatile, tech-rich, good-looking and has proven its worth on the road year after year. Unfortunately, these positive attributes don’t automatically bestow it with impressive resale value.
The figures show that the base model Rav 4 has a higher first-year depreciation rate (more than 33% for a private sale) than any other car in the top ten, dropping in value from $33,990 to between $20,500 and $22,990 in its first year. Its trade-in depreciation rate comes in at around 29%.
These numbers don’t make it a poor buying choice, of course – the Rav 4 is a proven performer offering solid value for money. You just need to keep in mind that if you plan to sell it a year or so after buying it, you can expect to cop a hefty drop in value.
By hanging onto it for several years instead, its depreciation rate will become far less relevant.
It’s useful to compare private sale price depreciation rates with rates for trade-in, too. The well-loved Toyota Hilux is a classic example: the base model manual 4x2 Workmate boasts a pleasantly low first-year depreciation rate when sold privately (around 15%), but selling it as a trade-in means the depreciation rate jumps to more than 30%.
A car’s long-term value isn’t just about when you sell – it’s also about who you sell to. Cars that depreciate the most are only an issue for owners who sell them quickly or aren’t too concerned about who buys them.
First-year car depreciation rates can look a bit scary, but they needn’t be. Most of us keep our new vehicles much longer than a year - the average age of an Aussie car is about ten years.[i]
The longer you own your car and the better you maintain it, the less you will have to worry about depreciation. It’s simply one of many factors to consider when acquiring or replacing a vehicle.
If you’re someone who loves the idea of owning a luxury car, please beware: those $80,000-$130,000 vehicles with all the trimmings are some of the worst performers when it comes to retaining their value.
Both in terms of depreciation rates and dollar value, luxury cars don’t make the soundest automotive investment. Having the latest Lexus, BMW, Mercedes-Benz, Audi or Land Rover in your garage may provide lots of pleasure but when you sell, you may be less pleased with their high depreciation rates.
Car depreciation made simple
Depending on the new car model you choose, 10-15% of its value normally vanishes the moment you drive it off the dealer’s lot. By the end of the first year, another 10-15% will likely be wiped off its value.
Depreciation is the single biggest cost of car ownership in Australia – bigger than fuel, servicing or insurance.
Cars with typical depreciation rates might lose up to 58% of their value in three years, 49% in four years and 40% in five years.
And because car manufacturers seem to be bringing out new and improved models at ever-increasing rates, previous versions are becoming out of date faster than ever.[ii] That’s why it’s so important to choose new car purchases wisely and look after your vehicle well while you own it, to get the maximum price possible when you’re ready to sell.
Depreciation (and market value) for Australian vehicles is influenced by several factors including the car’s age, condition, fuel efficiency, maintenance quality, mileage, whether it’s auto or manual and the manufacturer’s/model’s reputation.
Aussies are big consumers of dual cab utes and family-friendly SUVs (thereby increasing their perceived value) and tend to gravitate toward brands they know and trust: Mazda, Toyota, Hyundai, Ford, Mitsubishi, Honda, etc.
Brand perception has become just as important as reliability, safety features and a sporty look.
Depreciation is most evident during the first year of ownership, so that’s where so you should focus your attention when researching a new car to buy.
Looking at the list of Australia’s top ten best-selling vehicles, it’s clear that in the base models, the three cars that depreciate the least during Year 1 are the Toyota Hilux (15.67%), Mazda CX-5 (19.37%) and Mazda CX-3 (22.94%), with the Hyundai i30 close on their heels at a 22.96% depreciation rate.
Conversely, the three vehicles with the highest first-year depreciation rates on this list include the base model Mitsubishi Triton (26.63%), Ford Ranger (27.12%) and Toyota Rav 4 (33.85%).
When you finally choose the right new car for you, it’s more likely to be because of its usability, features, appearance and lifestyle suitability than any considerations about depreciation, but that’s not to say depreciation should be ignored.
When you stop and consider the immense dollar value a car can lose in a relatively short time through depreciation, it can have a tangible effect on your long-term budget.
Why do certain vehicles depreciate faster/slower?
According to Harrison Astbury, Finance Journalist at Savings.com.au “It’s not unusual for cars to lose around a quarter to a third of their value in as little as two to three years, and at slower rates after that. This means that on a $30,000 car, it could be worth only around $20,000 in three years’ time.”
“Popular, in-demand models tend to depreciate at slower rates. Hard-to-find enthusiast models such as the hardy Toyota LandCruiser also tend to have better depreciation rates as the enthusiast demand on the used side of things may outpace supply.”
“The colour of your car can also affect resale value — you may have to sell your hot pink Mitsubishi Mirage for less than you would have if you opted for a more common silver or white car.”
“Luxury vehicles, on the other hand, tend to depreciate much faster — often losing up to half or two thirds of their value in as little as three years. Questions over reliability and maintenance costs may drive down prices. Gas guzzling cars may also lose value quicker as many drivers prefer smaller-engine cars.”
Factors that can influence the rate of car depreciation
David Lye is the Founder & CEO of Pricemycar.com.au, and provides the following comments and factors that can influence the rate of car depreciation.
“Almost every new consumer product will depreciate in terms of resale value following the purchase but particular focus is given to cars and for good reason – it’s often the second biggest purchase an Australian is likely to make so the impact of depreciating dollar value can be significant.”
“Like most assets, car values will decrease exponentially with the greatest dollar value of loss occurring in the first few years of ownership but what this curve will look like is based on several factors including:”
The brand of vehicle
This can make a huge difference with some vehicles dropping drastically in value in short order while others may hold up better with rare examples actually bottoming out and remaining more or less level for the last few years of the vehicle’s lifespan.
A lot of this comes down to build quality & reliability or, perhaps even more importantly, the perception of these qualities. If a car brand is viewed as cheap and cheerful, the market may not place much faith in longevity and therefore demand will drop off sharply in later models.
On the other hand, strong well-established brands with good market reputation will hold up better when it comes to resale.
Stating the obvious but the better maintained the vehicle, the higher resale value it will attain.
This goes for all consumer products but there are many items that are unique to vehicles such as servicing records, history of accidents and number of owners.
Unlike most consumer products, cars have a built-in, tamper-proof record of how much they have been used – the odometer. This will rightly be considered as a key factor to a vehicle’s worth when it comes to resale.
The impact high mileage will make on a cars value can depend on the brand as well as the fuel type (diesel motors are generally considered to tolerate higher use than petrol for example).
There are a few sides to this factor. For example, a brand-new car manufacturer entering the market may find that their vehicles depreciate rapidly because they are an unknown, not tried and tested in Aussie conditions.
A lot of the recent Chinese brands have suffered from this in recent years for example. On the flipside, a car manufacturer exiting the market may spook owners and potential buyers if they fear not having warranty or other OEM support moving forward. More common is when models are superseded.
Buying the last of an existing model prior to a facelift or a major overhaul may cost the buyer in the long-term.
The exact same model car will have a different future valuation depending on whether it exited the factory in December or January the following year.
The build date of the car will forever be used to describe it and when it comes to sell it will make a not-inconsiderable difference. Just make sure that the purchase price of the earlier plated car is offset by a deeper discount than its newer equivalent.
It's impossible to accurately predict depreciation of course as you really don’t know what’s likely to occur in the future that might affect valuations. Things as diverse as global pandemics or scandals around emissions testing etc. can all play havoc with predictions.
But give yourself the best chance by choosing a solid brand, a popular model not about to be discontinued, maintain it well and you won’t go far wrong.
How to reduce depreciation and boost your car's resale value
When hunting for a new vehicle that will offer a higher resale value and a slower rate of depreciation, it pays to research thoroughly, buy carefully and negotiate shrewdly.
You should consider not just the sort of car you want today, but the sort of car a prospective buyer might want several years from now when you’re eventually ready to offload your prized possession.
For example, a popular-brand vehicle with automatic transmission, a wide range of modern safety features, practical versatility, a fairly normal paint colour and a reasonable price point will have a better resale value than a lime-green manual car with an unpronounceable foreign name.
What types of cars are currently in high demand?
The answer to that question can affect future resale prices. Anyone in the Australian car industry will tell you that at the moment, SUVs are all the rage, hatchbacks are doing quite well, tough utes have a loyal following, sedans are losing ground and infotainment and safety features are incredibly important to today’s new car buyers.
Knowing what is selling strongly right now can help you decide on a car that will give you a good price at resale time later.
How you treat your car matters too. One of the best ways to minimize depreciation and value loss is to regularly clean and maintain your car.
Scheduled maintenance and servicing prolong the new appearance of your vehicle and reduce the wear on tyres, body, engine and other mechanical parts.
A logbook with consistent servicing stamps and a thorough record of ongoing maintenance is just the thing to impress a discerning would-be buyer.
Mileage makes a difference when it’s time to sell. Avoid unnecessary long-distance trips wherever possible. The lower your odometer reading, the higher your car’s resale value and the fewer dents, major repairs and smashes your car has suffered through, the more favourably it will be looked upon by potential buyers.
Keeping a vehicle in optimal condition will not only improve its efficiency but can also offset a lot of the pain of depreciation.
In an age where concern about climate change, environmental impact and carbon emissions is at an all-time high, fuel efficiency increases a car’s appeal.
The classic gas-gulping V8 engines of yesteryear are largely being replaced by smaller turbo or four-cylinder options with excellent fuel economy.
Choosing a fuel-friendly car can give you the edge when you’re ready to sell, years down the track.
A car’s resale value can be boosted by certain modifications or after-market extras. A leather interior, top-of-the-line audio system, professional rust-proofing or tinted windows can improve perceived value and prove the tipping points that lean a buyer’s interest toward your vehicle.
Unless you absolutely must have a brand new car, why not consider purchasing an almost-new car instead?
Since new cars depreciate most during the first few years, a sensible way to avoid those initial value drops is by buying a good-condition car that’s just a few years old.
You can save loads on the purchase price and get a vehicle with relatively low mileage that will retain much of its value.
Be on the lookout for cars that aren’t used very often, too. A seven-year-old car that spends most of its life in someone’s garage may turn out to be much better value than a three-year-old car that receives heavy, sustained use.
Claiming car depreciation on your tax
If you use your car for business, you might be able to claim a percentage of its depreciation against your tax if you meet the ATO’s deduction conditions, which include using the logbook method and either owning the car or hiring it under a hire-purchase agreement.
You’re only allowed to claim a deduction for a year in which you used the car for work-related purposes. If you only owned the car for part of the tax year, you must apportion your deduction accordingly.
The ATO’s Guide to Depreciating Assets 2020 and Work-related Car Expenses pages can provide more information about deductions related to car depreciation (what the ATO calls ‘decline in value’). Claiming for work-related car depreciation can save some decent money at tax time, so it may be worth seeking professional advice from a financial advisor or tax consultant to ensure you’re making the most of your permitted deductions.
There’s an upper limit on business-related car depreciation deductions put out by the ATO for each year. The car limit for 2020-21 is $59,136.[iii] Always consult a taxation specialist for tax advice on your situation.
How does an accident affect my car’s value and depreciation?
Any time you have an accident, your car’s value diminishes — which negatively affects its depreciation. Even if the vehicle has been expertly repaired and looks much the same as it did before the smash, it will be worth less.
For potential buyers, it’s all about perceived safety: in the back of their minds, they’ll always harbor doubts about whether the repairs were performed properly and with original manufacturer’s parts and whether all the damage from the accident was discovered and properly corrected.
A car that has never been in a collision is always going to be more attractive in a competitive market than one with a ‘more thrilling’ history.
Because every car accident ends up in a car’s vehicle history report and this report is easily accessed online by prospective buyers, your car’s accident history and diminished value is a matter of public record.
Having an accident also affects your car insurance. Under most Australian car policies, your insurer will decide whether to repair the vehicle, pay you to have the repairs done or ‘write the car off’ (declare it a total loss after the smash).
Each state and territory has laws outlining the conditions under which a vehicle can be ‘written off’. [iv] If you’re shopping around for repair estimates, your insurer can help guide you to repairers for a quote. Alternatively make sure you get quotes from at least three different reputable repairers.
After an accident-related insurance claim, your premiums may increase — it all depends on your insurer and the circumstances of the crash.
Being the at-fault party increases the likelihood that you’ll see a premium rise but your insurer will take a number of factors (including your overall claims history) into consideration when assessing your future risk.
Knowing what to do at the scene of an accident and how to make an insurance claim afterwards can make your life a lot easier.
Every insurer is a little different in how they handle accident-related claims so it’s essential to read your policy’s Product Disclosure Statement and ask your insurer any questions you might have about post-accident claims and assessments of car value.
You can also check out our handy FAQs about claiming on car insurance.