Depreciation; Do you know how much it's costing you?
Intricate financial modelling is not the first thing to spring to mind when you consider buying a new car……but it really should be. Choosing the wrong vehicle can cost thousands of dollars and leave many burnt fingers. The inconvenient truth is that the lifetime cost of a vehicle does not take centre stage in most vehicle purchase decisions; immediate cost, styling and other considerations usually take precedence.
What causes fast or slower depreciation?
The depreciation of any given vehicle is subject to one factor alone; re-sale demand. If you own a car that holds no demand in its second hand form you may be in a spot of bother irrespective of how much you think its worth. Size, styling, reliability and popularity seem to be the most important factors and, in a recent report by drive.com.au, size and popularity (shown in the faster depreciation of some large and popular sedans) seems to be the single biggest factor in any given vehicles rate of depreciation.
How to manage as a fleet buyer
Fleet buyers should have a clear understanding of what a given vehicles goal is and they should approach the depreciation issue with vehicle purpose in mind. Monitoring past depreciation is a good start and the records gained from doing this can go a long way towards creating well crafted fleet car remarketing policy. Writing and maintaining a firm policy on what targets (financial and otherwise) vehicles are bought to address should also help purchasing departments make sound decisions based on real business measurables.
Relate expected vehicle lifespan to expected depreciation schedules to work out the best time to sell older fleet cars.
Stay on top of all depreciation related accounting techniques and practices.
Avoid unusually styled cars unless a real business case applies.
How to manage as a private buyer
Some very simple tips can go a long way in this area, by just jumping onto a car sales website you can check the re-sale value of vehicles you are considering in the simple click of a mouse. Once you know how much these vehicles were at first sale you can then calculate their depreciation over time. In cases where the model is new or significantly different to previous models, the following questions should be asked prior to buying a vehicle whether on a novated lease or otherwise.
Will the styling last or will it be out of fashion by the time of resale?
Is the car well regarded for its reliability and performance?
Are their any features of the car which may be markedly less popular in the years to come?
These are very subjective questions but they must be considered as unfortunately depreciation does not run in a straight line. There are no quick answers to these questions so you really have to invest time in researching manufacturers track records, industry commentators, forum rooms and review sites.
Buying a new vehicle is a challenge, and getting a great deal is an even bigger challenge. When we stroll onto new vehicle forecourts it is easy to fall in love with all the styling and features and forget the rationale behind your new vehicle purchase. Emotional decisions, although sometimes the most rewarding, can be the most risky when it comes to important purchases. The best advice is to research vehicles with life value as the main decision factor.
Have you had a bad experience with depreciation?
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