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If you’re in the market for a new car, you’ll no doubt have been given countless cautionary tales of how much you’ll lose on the car the second you drive it off the forecourt – the truth is, you’ll instantly lose a minimum of 20%, simply as a result of the VAT you pay on a new car.
This means that if you pick up a new £20,000 motor, HM Revenue and Customs instantly trousers £4,000 of this, leaving you with a £16,000 car! Brilliant! In addition to that, the dealership has to make a few bob out of the sale, and then there’s the simple fact that once you become the registered keeper, the car can no longer be classed as new, so the value drops even further. So before you’ve even parked your new car outside your house, there’s a good chance it will already be worth a good six or seven grand less than the £20,000 you paid for it a matter of minutes ago.
Depreciation – the amount of money a car loses in value after you buy it – is the single biggest factor in the cost of owning a car. It even outweighs the combined cost of fuel, servicing, taxing and insuring the car – all things generally considered when choosing a new car. However, when it comes to depreciation, not all cars are created equal, meaning it can be almost impossible to factor it in to your car-buying decision. Not only that, industry experts often report depreciation as a percentage, rather than in terms of cash value, which can quickly become confusing for anyone trying to decide which car is going to lose them more money. To illustrate the problem CAP, an independent car valuation specialist, has analysed depreciation across the UK market during the three years to May 2014. The results of the study have been reported in two ways – the percentage of each car’s new cost that was lost during the three years to May 2014, and the 20 cars that depreciated the least in absolute cash terms. Here’s what the analysts found…
Topping the list of cars that held on to more of its initial value over time than any other car was the Porsche Cayenne, which retained 74% of its original cost over three years and 60,000 miles.
However, the study also revealed the smallest cash depreciation was the £4,010 knocked off the initial value of the Kia Picanto over the same period and mileage. So while the Porsche Cayenne was the clear winner in percentage terms, it lost an average of £11,477, costing Porsche owners almost three times as much as Kia drivers in depreciation – and it’s surely useful for motorists if depreciation is reported in cash terms as this gives them a better idea of exactly how much they stand to lose over time. Even if they are driving a Porsche!
Playing the percentages
Philip Nothard at CAP’s said: “The car industry gets very excited about percentages because they are an easy way to talk about the relative strength of a brand in comparison with others. “If one car retains 45% of its new cost, after three years, while another only holds 38% over the same period, it’s easy to argue that the first car is a better depreciator than the other. “But what really matters is the cash behind the percentages because that’s what directly affects the motorist.” So if you’re in the market for a new motor, and re-sale value is important, try to focus on the actual cash value of depreciation rather than percentages when making your decision – it could save you a packet in the long run.