You recently mentioned that one of the biggest costs of motoring is “depreciation”. Please explain how that process works. Len K
All brand new cars lose value from the moment they drive out the showroom. The decline is most rapid in the first year, then progressively slows down and finally levels out near the end of the car’s design life.
There is no universal formula because the rate of depreciation varies considerably depending on the make and model reputation, provenance, usage, mileage, market trends and, especially, on mechanical and cosmetic condition. Not just age.
After all, some cars are worn-out wrecks by the time they are five. Others are still faithful members of their current family when they are 30! And if they are very well cared for (or perfectly restored), or popular and rare, or desirable classics, their value can start to go up (!) again – sometimes to stratospheric levels.
Aside from such exceptions, there are also “norms” to the extent that each market can establish a formal list of used car prices (by monitoring actual transactions) based on make, model and age. That price assumes an “average” mileage and condition (designated B).
If those factors are unusually good (A) a higher price is warranted; if they are significantly worse than par (C) a price discount is to be expected.
These ups and downs are not specific, but in practice the price difference between the highest and the lowest – of the “same” car – might be as much as 50 per cent.
In terms of the impact of depreciation on the buyer’s overall costs, the basic formula is the purchase price, plus the running costs (including insurance), minus the resale value.
Over the usual ownership term of about 5 years, depreciation is likely to be the biggest single cost element.
This is most certain with high-end luxury cars, which can depreciate by as much as 30 per cent of millions in just one year (shs 10,000 per day!) and then at 15-20 per cent a year thereafter.
What that means is that you can probably buy an old and neglected Rolls Royce for the price of a used Probox. Why? Because you might have to spend the same amount again every time you get the Rolls serviced, and meanwhile spend shs 60 per km on fuel.
