What is car depreciation and why is it important?

Car depreciation – the amount of money a car loses in value after you buy it – can be a confusing and contentious subject. But it is also the single biggest factor in the cost of owning a car, often outweighing the costs of fuel, servicing, tax and even insurance combined.

While depreciation is often overlooked by buyers over other concerns such as MPG, it’s estimated that most cars lose between 50-60 per cent of their value during the course of the first three years of ownership – with the percentage being dependent on various factors such as price, running cost, and quality.

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Quick links

What affects car depreciation

How do you minimise car depreciation?

Why is car depreciation important?

Top 25 least depreciating cars

When it comes to leasing, the rental fee you pay per month is essentially to off-set this depreciation over the course of your contract – whether you have a lease for two, three or four years – and is referred to as ‘residual value’. This is what the vehicle is worth at the end of the leasing period, with car depreciation taken into account.

With this in mind, depreciation is the difference between how much the car is worth when new and how much it is worth when it is traded in or sold on, with cars depreciating the most in the first year and ceasing at the eight year mark.

Residual car values are expressed as percentages of what the On The Road price will be. While the percentage terms of depreciation between manufacturers and even body types can seem slight – an Aston Martin DB11 coupe and a Kia Sportage both retain 58 per cent of their original new cost figure after three years/30k miles – when you factor it into bottom-line costs the difference can be considerable when the DB11 costs £167,015 and the Sportage costs £17,760 new.

What affects car depreciation?

There are a variety of reasons why both the Sportage and DB11 could depreciate 58 per cent and these could include:

  • Mileage: The average is 10k per year and the more miles on your odometer the less your car is worth
  • Reliability: Not so much an issue these days, but previously various manufacturers had a reputation for unreliability
  • Number of owners: Simply put, the fewer owners the better
  • Wear and tear: Any damage to the bodywork, interior or exterior will drastically reduce value.
  • Service history: If you’ve stuck to the manufacturer guidelines in regard to servicing and got the stamps to prove it it will increase your cars value
  • Warranty: Many manufacturers come with lengthy warranty’s, with Kia’s seven year warranty still the market leader, so if you sell within that period it makes your car a more enticing proposition
  • Fuel economy: The bigger the MPG the better. This is why, historically diesel cars have retained their value more than petrol cars. As engines improve and environmental issues surface this is changing however.

How do you minimise car depreciation?

  • Lease: It’s an obvious solution to the issue of depreciation if you don’t like the idea of spending a chunk of change on a car only to then have over half of its residual value disappear
  • Buy ‘nearly new’: This helps you miss out the biggest hit of depreciation you’re likely to experience
  • Comprehensive maintenance: Everything from regular servicing, keeping all your documents in order and ensuring everything is clean
  • Keep ahead of the curve: If you’re going to sell your car ensure you do it before any refreshed or updated models arrive
  • Avoid modifications: No spoilers, wide wheels or any other boy-racer type mods
  • Colour: Keep it simple with the colours. While burnt orange may be en vogue with manufacturers at the moment, black and silver will always retain value.

Why is car depreciation important?

By ignoring the factors that help contribute to the depreciation of your chosen car, you are potentially letting a lot of money go to waste. Whereas most motorists remain fixated on MPG as the biggest money-saver when it comes to a car, and buying a more efficient car will not only save you money in the short term, a badly depreciating car is going to cost them as much if not more than fuel does during those three year/30k miles estimation.

If all of this sounds rather daunting, and you don’t necessarily like the idea of losing a massive chunk of cash on your new car, leasing really is the most sensible option out there for you. As stated, depreciation isn’t a factor for you to worry about as you’re not only getting the benefits of a great new car, you’re just essentially renting it and give it back to the dealer to worry about at the end of your contract.

Top 25 least depreciating cars

If you’re wondering how depreciation affects the value of new cars in detail, or you’re looking for a car that’s going to depreciate less than its rivals, here’s the current list of cars which depreciate slowest.

This list is based on current CAP data* and is sorted by how much value they retain after three years/30k miles:

Top 25ManufacturerModelDescriptionCurrent New Price% Original Cost New  Retained at 3yr/30kOCN Retained at 3 yr/30K in £Depreciation of OCN after 3 yr/30K in £
1Land RoverRange Rover Sport  Estate2.0 SD4 HSE 5dr Auto£59,46067%£39,550£19,910
2PorscheMacan EstateS Diesel 5dr PDK£45,94266%£30,425£15,517
3PorscheCayman Coupe3.8 GT4 2dr£64,45166%£42,525£21,926
4Land RoverRange Rover Evoque Hatchback2.0 eD4 SE 5dr 2WD£30,54561%£18,525£12,020
5SeatAteca Estate1.0 TSI Ecomotive S 5dr£17,93560%£10,750£7,185
6BMWM2 CoupeM2 2dr£43,52560%£26,025£17,500
7Land RoverRanger Rover Evoque Convertible2.0 TD4 HSE Dynamic 2dr Auto£47,30060%£28,200£19,100
8Mercedes-BenzGLA Class HatchbackGLA 200 SE 5dr£25,07560%£14,925£10,150
9Mercedes-BenzGLC CoupeGLC 220d 4Matic Sport 5dr Auto£40,39559%£23,950£16,445
10BMWAlpina EstateXD3 3.0 Bi Turbo 5dr Switch-Tronic£56,10559%£32,925£23,180
11FordFocus RS2.3 EcoBoost 5dr£30,64558%£17,875£12,770
12Aston MartinDB11 Coupe Special EditionV12 Launch Edition 2dr Touchtronic Auto£167,01558%£97,175£69,840
13ToyotaPrius Hatchback1.8 VVTi Active 5dr CVT£23,24058%£13,425£9,815
14KiaSportage Estate1.6 GDi 1 5dr£17,76058%£10,250£7,510
15AudiQ5 EstateSQ5 [326] Quattro 5dr Tip Auto£45,57557%£26,125£19,450
16AudiRS3 Sportback2.5 TFSI RS 3 Quattro 5dr S Tronic [Nav]£40,25057%£23,025£17,225
17FordMustang2.3 EcoBoost 2dr£34,83557%£19,825£15,010
18BMWX5 EstatexDrive40e SE 5dr Auto£52,05057%£29,525£22,525
19PorschePanamera Saloon3.6 V6 4dr PDK£63,91356%£36,075£27,838
20JaguarF-Pace Estate3.0 Supercharged V6 S 5dr Auto AWD£51,59556%£29,100£22,495
21BentleyBentayga Estate6.0 W12 5dr Auto£160,20056%£90,350£69,850
22Mercedes-BenzGLA Class HatchbackGLA 200d SE 5dr£26,68056%£14,900£11,780
23Mercedes-BenzAMG GT CoupeGT 2dr Auto£96,50556%£53,825£42,680
24Land RoverRanger Rover Sport Estate3.0 V6 S/C HSE Dynamic 5dr Auto£63,46055%£35,175£28,285
25PorscheCayenne EstateDiesel 5dr Tiptronic S£52,68955%£29,200£23,489

 

*Accurate as of 08/11/16