How Does Depreciation Affect Used Car Prices?
One huge factor that car owners often overlook is depreciation. We have all heard of depreciation but what is it exactly, and why does it matter?
Whether in the market for a new vehicle or looking to sell your current one, understanding how depreciation works can save you thousands of rands and help you make smarter automotive decisions.
Here’s your guide to understanding car depreciation in South Africa so you can buy or sell a car at the right price!
What Is Car Depreciation?
Car depreciation refers to the decrease in a vehicle’s value over time. Did you know that from the moment you drive a new car from the showroom floor, it begins to lose value? This loss continues throughout the car’s lifetime, affecting its resale or trade-in value.
In South Africa, where the automotive market is diverse and dynamic, depreciation rates vary widely depending on several factors.
Let’s take a look at factors that influence depreciation and how it impacts used car prices in our local market.
Factors Influencing Depreciation In South Africa
Brand And Model Popularity
In the South African market, certain brands and models hold their value better than others. For instance, Toyota and Volkswagen are known for their reliability and strong resale values. Popular models like the Toyota Hilux or Volkswagen Polo tend to depreciate less due to high demand in new and used markets.
Mileage
The number of kilometres on your odometer plays a crucial role in depreciation. Keeping your annual mileage low can help maintain your car’s value.
Vehicle Age And Condition
Newer cars generally lose value quicker in the first few years, but the rate of depreciation slows down as the vehicle ages. However, the overall condition of the car is paramount. Factors like sun damage to paint or interior can accelerate depreciation if not properly maintained.
Market Demand
The used car market is influenced by economic factors and consumer preferences in South Africa. For example, fuel-efficient cars often retain their value better due to the rising cost of petrol. Similarly, SUVs and bakkies remain popular, which can help slow their depreciation compared to less sought-after vehicle types.
New Model Releases
The introduction of new models can accelerate the depreciation of older ones. When a car manufacturer releases a new version with updated features, the older model’s value often decreases more rapidly.
Want to know how to calculate depreciation on a car? Click here for an example from the South African College of Business.
Impact On Used Car Prices
Depreciation significantly affects pricing in the used car market. While it may seem negative for sellers, it often creates opportunities for buyers to get more value for their money compared to buying new.
For instance, a car that costs R300,000 new might be available for R180,000 after three years, representing a 40% depreciation. This means buyers can often afford a higher-spec or luxury model in the used market than they could when buying new.
Depreciation Trends In South Africa
According to recent data from TransUnion, the average new vehicle in South Africa depreciates by about 15-20% in the first year and up to 50% over three years. However, these rates can vary significantly based on the factors mentioned earlier.
Tips To Reduce Depreciation
While you can’t completely avoid depreciation, here are some strategies to minimise its impact:
- Regular Maintenance: Keep detailed service records and make sure that your vehicle is well-maintained. This can significantly slow depreciation and increase resale value.
- Choose Popular Models: Opt for vehicles with high resale demand in South Africa.
- Manage Mileage: Keep your annual mileage below the national average (about 15,000-20,000km per year) to maintain better resale value.
- Consider Buying Used: If you’re looking to minimise depreciation, consider buying a lightly used car that’s 2-3 years old. The first owner will have absorbed the steepest part of the depreciation curve.
- Avoid Modifications: While personalising your car might be tempting, extensive modifications can negatively impact resale value in the market.
Why Understanding Depreciation Matters
Understanding car depreciation is crucial for making an informed decision when buying or selling a car. Factoring in depreciation when buying or selling can help you maximise value and minimise financial loss.
At Group1, we understand the intricacies of the local market and offer a wide range of quality used cars. Our expert team can guide you through the depreciation considerations for different makes and models, ensuring you make a choice that aligns with your financial goals.
While depreciation is inevitable, smart choices and proper maintenance can significantly impact your car’s long-term value.
Explore our selection of quality used cars and learn more about making a depreciation-savvy automotive investment.
