Beating depreciation

When you’re thinking of buying a new car it always pays to do your homework.

You will consider the retail price and which options you choose; then you’ll probably look at its claimed fuel consumption; and maybe even the cost and frequency of servicing your new wheels. But will you also consider what is perhaps the biggest cost you’ll incur during your new car’s life?

In cost of ownership calculations by bodies such as RACV or NRMA depreciation is a huge component. Yet for most private buyers it’s been a cost that traditionally has been either ignored or difficult to determine. This is a situation that’s changing…

Simply, depreciation is the value your new car loses as you own and drive it. The phrase “you lose ‘x’ dollars the moment you drive it out the showroom” should ring a bell, even for the financially incoherent.

Choosing the right car to drive “out the showroom” can make a huge difference. Indeed, all other factors considered, choosing a car or brand with high retained value can significantly reduce your cost of ownership.

Online pricing authority and part of the Carsales Group, RedBook.com.au, monitors the value of all makes and models in the marketplace. Based on its research we know top-performing new car models can retain over 70 per cent of their value over a three year period. The worst performers almost flip that statistic – losing up to 70 per cent of their value.

Based on Redbook.com.au’s extensive research we’ve listed the top three performers over the past three years in six general categories. If you’re a car aficionado there may be a few surprises.

Family Car
Mazda 6 – 75%
Honda Accord – 74%
Honda Odyssey – 73%

Green or City Car
Suzuki Swift - 83%
Mazda 2 – 82%
VW Polo – 81%

Sports
BMW 125i – 83%
Mercedes Benz C63 – 82%
Mini Clubman – 80%

Luxury/Prestige
BMW X5 – 76%
Mercedes C200 Kompressor – 75%
Volkswagen Touareg - 74%

SUV
Volkswagen Tiguan - 84%
Toyota Kluger – 82%
Mazda CX9 – 81%

Offroad 4x4
Toyota Landcruiser – 82%
Landrover Defender – 81%
Nissan Patrol – 78%

LOOKING FORWARD WITH CONFIDENCE
Of course it doesn’t necessarily follow that what has performed well over the last three years will continue to do well. So, back to the drawing board?

Not quite… Measuring depreciation on three-year-old cars is one thing but RedBook.com.au also compiles predicted retained value data using a combination of historical data, market relativities, future trends and price cycles.

As well as pointing you toward your next car (see below), these predicted retained value figures also point to an expected drop in retained values across the board over the next few years.

In five of the six categories listed above, time has shown the top three-year-old vehicles held more than 80% of their value, whereas the projected figures for today’s new cars show none topping that figure. Toyota’s ever popular Landcruiser Prado goes closest at 78%.

Further, it seems our love affair with SUVs may be waning slightly, with the top trio from three years ago all recording figures of 80%-plus, while forward projections for this market segment have the best performers ranging from a high of 76% for the Mazda CX9, to 73% for its little brother, the CX7, in third place.

The cause of this slide is a moot point, but the sheer numbers of SUVs now available is likely to be a contributing factor.

More evidence of the expected decline came in the Light Commercial ute category, where the perennial favourite, the Toyota Hilux, while still retaining the number-one ranking in its class, drops from an expected return of 82% to 75% for a car that’s bought new today.

Of course these are predictions but it’s very useful to have some statistical back-up when you start the search for your next vehicle.

THE BEST OF THEIR BREED
So what are Redbook’s best buys in terms of retained value?

If you’re looking for a Family Car the Volkswagen Passat leads the way on 72%, narrowly ahead of Honda Accord Euro  in second place on 71%. A surprise in third is Hyundai’s eight-seat peoplemover, the iMax.

The iMax claims the remaining place on the podium with a retained value of 70%. Despite this we’d suggest this is a case where retained value doesn’t tell all of the story. Given the vehicle does not offer car-like levels of safety we’d be reluctant to recommend it to a family buyer.

When it comes to Green or City Cars, Honda and Mazda have the top rankings all to themselves. The best performer on Redbook’s predicted retained value is the Honda Jazz on 76%, followed by the Mazda 2 with 75% and Honda’s City light sedan on 74%.

If it’s a sporty drive you’re after then, according to RedBook, look no further than BMW coupes. The Bavarians have scored the trifecta in this class, with the 320d and 125i recording a dead-heat for first place on 75%, followed by the 135i just one per cent behind in third place.

On the Luxury/Prestige front the message is clear: forget the S-class, 7 Series and other luxo-sedans, the premium-badged medium-sized SUVs are the way to go if you want to get most of your money back down the track.

Buyers of the latest Range Rover Sport can expect to recoup 77% of their purchase price after three years of ownership. This is the second highest figure recorded for any new vehicle regardless of category. Next in line is the BMW X3, with third place in the Luxury/Prestige field going to Volvo’s XC60, on 75%.

In the SUV category proper Mazda has scored more goals. Redbook predicts the Japanese marque’s CX9 will leading the high-riding way on 76%, with little brother CX-7 in third place with 73%. The Volkswagen Tiguan splits the two Mazdas, taking second place with 75%.

Finally in the Off-road 4x4 category, the results are nothing if not predictable. Toyota’s Prado and LandCruiser 200 Series top the class comfortably, with 78 and 76% retained value predicted. Land Rover’s Discovery picks up the bronze medal with an expected retained value of 73%.

If you’re one of those people that like to turn everything into a competition, Redbook’s predicted retained value rankings determine that over our chosen categories it’s an even split between Japanese and European-based manufacturers… At least when it comes to the highest-ranking car in each category -- each camp scores three ‘wins’ out of six.

However, the more important take-home message from these figures appears to be that Mazda, Honda, Volkswagen, BMW, Land Rover and Toyota (in no particular order) are all recognised as good bets when shopping for a three-year-old car. Going forward their prices on the second-hand market will continue to reflect this.

It also strongly suggests that if you want to choose a vehicle that will hold its value better than its rivals, you’re best advised to avoid large sedans and stick with the better quality SUVs… Or if you’re looking for a smaller car, go for the more ‘prestigious’ Japanese brands.

Finally, it’s worth bearing in mind exactly what these figures mean. A one per cent difference in resale value between two cars each costing $20,000 amounts to only $200. Increase the purchase price to $200,000 and a couple of per cent means real dollars.

Note: RedBook.com.au considers a great many variables in compiling retained values thus, it’s worth remembering:
>> Percentage figures refer to the proportion of the car’s original recommended retail price (not including options or on-road costs) that you would expect to pay for the same vehicle from a dealer today.
>> Calculations are based on well-maintained vehicles in good original condition
>> Average mileage is assumed: 15,000km per year for passenger vehicles, 10,000 for luxury vehicles and 20,000 for commercial vehicles  
>> All variants of a given model are amalgamated to produce a single result for each model
>> Assumed vehicles come with at least 50% of their registration and associated annual taxes and insurance costs paid.

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