South Africans spend real time behind the wheel, adding up to a mind-boggling number of kilometers driven each year. But every mile and minute chips away at your car’s value, a process known as depreciation.

Car depreciation is the loss in value from when you buy your car to when you sell it. There are three main components:

• The age of the car - even a car sitting in a garage tends to lose value
• Mileage - the more you drive, the faster your car’s value drops
• Transaction costs - you generally buy a car at a retail price, and sell at a trade or wholesale price. The dealer’s margin reduces the value you receive

Mark Ridgway, Chief Technical Officer of used car pricing experts getWorth, shares some details: “GetWorth has invested heavily to gather vast amounts of data and build pricing algorithms to give us an accurate view of the used car market.”

“Brand, model, mileage and even the post-Covid used car bubble affect the data. However, if we step back and look at the whole market’s average, some interesting trends emerge.” 

“New cars depreciate much faster than used cars. It isn’t pretty,” he adds. How much faster? The average car will have lost in value:

• After one minute: around 10%
• After one year: around 15% to 20%
• After 5 years: around 30% to 40%
• …and these are drops in retail value. Add the transaction cost to that - a further 10% or so.

“The new car hit is a big one. Used cars depreciate less. If you bought the car above at the one-year mark, you only suffer half the depreciation the first owner did.”

Ridgway gives a list of other factors that affect a car’s residual value in the South African market:

• Price point: affordable entry-level models tend hold their value better 
• Class of car: Luxury cars generally depreciate faster
• Fuel economy: Cars with better mileage hold value longer
• Model popularity: In-demand models depreciate slower
• Brand Reputation: Reliable brands like Toyota depreciate less

He gives some tips to improve your outcome: “You can't stop depreciation, but you can make careful upfront choices and you can slow it down.”

“Upfront, consider the factors above, but also make sure you pay the right price. If you are buying a new car, look at the prices of the one-year-olds in the market so you have an idea how much value that model might lose. 

“Even for a used car, compare prices. If you pay above the market price, you won’t recover the difference. With a used car you also need to pay attention to quality and condition. My personal preference is to hunt the lowest mileage car I can find in top condition from a reputable dealer.”

“Then limit the mileage you put on the car where possible, and maintain it well, looking after both the mechanical and cosmetic condition. A car with above-average wear is less desirable in the used market, and mechanically unsound cars are a no-no.”

Ridgway concludes: “The biggest tip is to buy pre-owned. Used cars depreciate slower than new ones. New cars may look tempting, but buying reliable, gently-used cars makes a wiser investment.”

get\Worth helps its customers to manage the wealth impact of car ownership, by providing the necessary tools and information to make informed decisions. For more information visit www.getworth.co.za