No matter how well they research their purchase, most buyers of new cars don't pay enough attention to how well their purchase will hold its value.
They might if they knew that a wrong decision could cost them thousands of dollars in a relatively short amount of time.
Figures obtained by Drive show that the traditional Aussie large car could drop value at a rate of up to four times that of a small car.
According to resale value expert Glass's Guide, a 2008 Toyota Aurion is worth about $1000 more than a Toyota Corolla of the same vintage. Only problem is, it cost a mammoth $12,000 more when new.
Figures show large cars are by far the biggest losers when it comes to retaining their value after three years. And things don't get any better after five years. Ford's Falcon is the worst performer, losing more than 60 per cent of its value in the first five years of ownership.
To put that into monetary terms, if you were to buy a Falcon XT at its sticker price of $40,290 plus on-road and dealer costs, you would stand to lose almost $25,000 in the first five years of ownership - that's about the same as putting a $100 note in the bin every week.
Depreciation - how much value a car loses in its lifespan - is the biggest cost of owning a new car, easily ahead of more top-of-mind running costs such as fuel use, insurance, registration, servicing and repairs. And if you take out finance to buy your vehicle, you're also paying interest on the money you're losing. On the flip side, some cars that are best avoided as new cars become excellent value after someone else has taken the hit.
To clarify the murky waters of the resale issue, Drive has enlisted the experts to help compile a list of the brands that hold their value better than their rivals, as well as a few that are money pits.
One of the biggest influences on a car's longer-term value is its popularity as a new car. Large cars are failing to hold their value simply because they are unpopular with private new-car buyers.
Since 2004, large-car sales have almost halved, while other segments such as light (city) cars and soft-roaders have boomed - up by about two-thirds and one-third, respectively.
The changes in new-car buying habits have resulted in city cars holding value better than large cars, while almost all soft-roaders - regardless of brand - cope well when it comes to resale value.
Buyer trends are just part of the equation for used-car values, though. New brands, including cut-price Chinese companies, are arriving, with several more expected in the next two years. These are forcing new-car prices to stay low, while denting the value of used cars and, given the choice of a three-year-old large car and a new small one, buyers are attracted to the new-car smell and the peace of mind of a warranty.
So, if you're after a bargain used car, what's the pick of the pack? The head of research for Glass's Guide, Richard Plumb, says you can't go past an Aussie-built automobile.
A mainstay of fleet buyers, most are turned over in less than two years, still have some manufacturer's warranty and generally have less than 80,000 kilometres on the odometer.
''The amount of car you get for your money in terms of space, comfort, performance, equipment and durability-longevity is remarkable,'' Plumb says. ''Vehicle build quality is of a very high standard, while economy is excellent for the style of vehicle.''
Glass's Guide says many factors affect resale value, including styling, image, practicality, comfort, performance and reliability. Then there's the vast variations in initial purchase prices, the cost of financing the purchase, insurance costs (insuring a hatchback can differ by thousands compared with a coupe, for instance), servicing (more-extravagant cars will cost more to maintain) and the most obvious cost aside from depreciation, fuel.
A brand's country of origin can also play a huge part. Mainstream Japanese brands such as Mazda, Subaru and Toyota generally hold value well, as do European brands such as Volkswagen and Mini. Korean brands such as Hyundai and Kia are the biggest improvers, with new models and increased levels of quality lifting the desirability of these cars.
Longer-than-average warranties also tempt buyers. Hyundai and Kia offer five-year, unlimited-kilometre warranties, considerably better than those offered by Holden, Toyota and Ford (all three years and 100,000 kilometres), although Plumb says a car usually won't drop in value because its warranty has expired.
''If warranty is still applicable to the vehicle, it may make it easier to sell but not necessarily at a higher price,'' Plumb says.
He says three main things can keep a car's value high: a stable model range - one not constantly offering ''special-edition'' models; a nameplate that has been on sale for a long time (more than 10 years); and consistent pricing during the life of the car - big price fluctuations when a car is new generally make for big fluctuations when it is used.
If a particular make of car experiences a price cut, the resale of that car is likely to be harmed significantly. A prime example is Chrysler's 300C range, which was priced at $54,990 for the V6 and $60,990 for the diesel and V8 versions until late 2010, when the company slashed prices, with V6 models dropping to $40,000 and V8/diesel variants to $46,000. The range-topping SRT8's prices also realigned by $10,000.
Glass's Guide says similar amounts were wiped from existing models overnight and that 300C buyers stood to lose 7 per cent of the purchase price (close to $3000) within three months.
There's also the side-effect of losing consumers who were previously loyal to the brand. It seems fair that owners who had, in effect, lost thousands of dollars in one fell swoop may want to shop elsewhere next time around.
Glass's says luxury brands such as Audi and BMW are also tempting fate, chasing market share by offering deals.
Popularity can be a double-edged sword, with brand exclusivity diminished as more of the cars appear on the road. Another crucial factor affecting a car's resale is styling that dates quickly.
Cars that experienced a lack of market acceptance when they went on sale aren't likely to fare well on the used-car market.
Two examples include Ford's whale-tooth-grilled AU Falcon and Nissan's tall-bodied Tiida hatchback. Both have struggled to hold their value, as their challenging looks have haunted them into middle age. Other ''ugly ducklings'' include Mazda's tall-bodied Premacy MPV, Subaru's propeller-faced Tribeca and, from Honda, the boxy MDX.
Fuel use will also have an effect on resale value, with rising fuel prices driving buyers to smaller, more economical cars.
''These vehicles will offer continuing appeal on the second-hand market for years to come and they will be economical to operate throughout their life,'' Plumb says.
The increasing favour of smaller cars has seen resale values for light (city) cars rank highest, with 68 per cent to 71 per cent of their purchase value retained after three years, while during a longer (five-year) term they retain 51 per cent to 53 per cent of their value.
Small cars are the next-best option, averaging between 67 per cent and 71 per cent value retention after three years and 56 per cent to 58 per cent after five years. Mid-sizers follow, with 67 per cent to 69 per cent/49 per cent to 51 per cent. Large comes last, with 44 per cent to 47 per cent of the purchase price kept after five years.
Soft-roader buyers will be better off upsizing - as well as spending more upfront. Luxury soft-roaders offer the best value retention of all cars on the market. Three-year trade-ins fetch 76 per cent to 78 per cent of their initial purchase value and 60 per cent to 65 per cent after five years.
Large soft-roaders also fare well, with between 75 per cent and 77 per cent retained after three years and 60 per cent to 64 per cent after five years. Mid-sizers slip slightly (72 per cent to 76 per cent and 55 per cent to 58 per cent, respectively), while compact soft-roaders are worst off, with 65 per cent to 69 per cent retention after three years and 50 per cent to 53 per cent after five.
Utes and vans are typically good for resale, though the trend to more ''lifestyle-focused'' four-wheel-drive utes has led to increased second-hand demand (and kept trade-in values high), with three-year-old models attracting 68 per cent to 72 per cent and five-year-old vehicles trading for 54 per cent to 56 per cent. Two-wheel-drives are better for short-term turnaround (67 per cent to 74 per cent retained value) but slip out of favour in the longer term, with a 51 per cent to 55 per cent five-year keep.
All the above resale values take into account the standard vehicle only - meaning any options the original buyer may have paid for aren't considered in the calculations.
But what if your vehicle isn't standard? Will added-cost options ever recoup their price? In short, it appears the answer is no.
Glass's Guide advises buyers not to ''option-up'' a lower-specification vehicle - for example, buy an entry-level Volkswagen and tick all the options boxes (which could prove an extremely costly exercise) - as the outlay is extremely unlikely to be recouped.
Instead, consider buying a higher-spec model. If you can't afford it, some options such as a leather interior or a sunroof may attract future buyers. Less-conspicuous options - chrome exhaust tips, mudflaps, upgraded audio and foglights - may be totally irrelevant to subsequent owners.
It's also worth remembering that high-tech options such as satellite navigation will date quickly, so it could be worth more discussion of whether the $2500 GPS option makes sense when a decent hand-held sat-nav system is worth a fraction of the price.
http://smh.drive.com.au/motor-news/bigg ... 1ean8.html
Goes down like a $10 ho...
Goes down like a $10 ho...
“If you trust in yourself, and believe in your dreams, and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and weren't so lazy.”
Re: Goes down like a $10 ho...
Gob,
This is a fascinating subject that I have studied for years. One aspect of it that I didn't note in the article is how it affects Leasing (but maybe the market situation is different Down Under). Here, a car with a good resale value can be leased for considerably less than a car of equal price with a poor resale value. This is the major advantage that, for example, the BMW 3-series has here over other cars in the same category.
One interesting thing I noted many years ago (based on what we call the Kelly Blue Book, which is the Bible of used car values), is that the rate of depreciation continues after the first few years. In other words, a car that depreciates rapidly in the first few years (e.g., a full-sized Buick), will continue to depreciate at about the same annual rate until it reaches junk value (<$4k).
As I've indicated here before, my general strategy in buying a used car (I rarely buy new) is to find one that has terrible resale value, for reasons unrelated to the quality of the car. In all honesty, this has not worked out so well. I got great prices on, for example, a late model Saab 9-3 and a Cadillac Catera - less than half of their new-car sticker prices after only two years - but found in both cases that they were very problematic and ungodly expensive to have repaired. This may be partly the result of the fact that the dealer service departments, having so few cars sold, found it necessary to extract every available dollar from those of us who were unfortunate enough to require repairs or service.
My current car, an '06 MB C230Sport, was another one that I bought at an excellent price - again about half of the original sticker after two years - but is always in need of some expensive repair.
The good thing about this whole car situation is that the cars they are selling now are generally capable to providing 200,000 miles of reliable service, so what they may be worth as used cars is only an issue if you choose to make it an issue by turning over your cars more often than you actually need to.
This is a fascinating subject that I have studied for years. One aspect of it that I didn't note in the article is how it affects Leasing (but maybe the market situation is different Down Under). Here, a car with a good resale value can be leased for considerably less than a car of equal price with a poor resale value. This is the major advantage that, for example, the BMW 3-series has here over other cars in the same category.
One interesting thing I noted many years ago (based on what we call the Kelly Blue Book, which is the Bible of used car values), is that the rate of depreciation continues after the first few years. In other words, a car that depreciates rapidly in the first few years (e.g., a full-sized Buick), will continue to depreciate at about the same annual rate until it reaches junk value (<$4k).
As I've indicated here before, my general strategy in buying a used car (I rarely buy new) is to find one that has terrible resale value, for reasons unrelated to the quality of the car. In all honesty, this has not worked out so well. I got great prices on, for example, a late model Saab 9-3 and a Cadillac Catera - less than half of their new-car sticker prices after only two years - but found in both cases that they were very problematic and ungodly expensive to have repaired. This may be partly the result of the fact that the dealer service departments, having so few cars sold, found it necessary to extract every available dollar from those of us who were unfortunate enough to require repairs or service.
My current car, an '06 MB C230Sport, was another one that I bought at an excellent price - again about half of the original sticker after two years - but is always in need of some expensive repair.
The good thing about this whole car situation is that the cars they are selling now are generally capable to providing 200,000 miles of reliable service, so what they may be worth as used cars is only an issue if you choose to make it an issue by turning over your cars more often than you actually need to.