The saying goes that a car loses value the moment you drive it off the lot. But how much value is that? And what about a year or two, or three, later? While predicting the exact depreciation your car will experience isn’t an exact science, it is almost guaranteed that there will be some depreciation. In fact, a 2017 Study found New Zealand had the highest level of car depreciation in the world!
Canstar takes a look at what factors impact depreciation, and how you can minimise depreciation on any new car you buy.
In this article we cover:
What is car depreciation?
Depreciation simply means a decrease in value over time. Even if a car is kept in great condition, as it ages it loses value simply because it is getting older. In addition, there are a range of other factors that can lead to higher or lower rates of depreciation.
Cars are not the only assets that suffer depreciation. As most things age they depreciate. Just think, how many items can you resell for a higher price than what you paid new?
Do all cars depreciate?
Almost all cars depreciate in value. And, most likely, any car you purchase as a family runaround will suffer from depreciation.
The only real exception is collector cars. Old models of Ferraris, Lamborghinis and other classic cars can appreciate in value. But even then, it is mainly limited to certain models that have been kept in pristine condition.
So unless you have a car that’s garnered a cult following among wealthy car collectors, depreciation is likely unavoidable.
How much does a car depreciate?
As we’ll get to below, not all cars depreciate by the same amount. There are a lot of factors that can impact depreciation. And, at the end of the day, depreciation is impacted by how much someone is willing to pay for your car. It’s not a set figure.
So while we can try to estimate how much a car depreciates, or look at the average price a car sells for second-hand, it’s very difficult to set exact depreciation figures.
For example, in 2017 a study found that New Zealand vehicles suffered the highest rates of depreciation in the world. It found that new cars over a three year, 56,000km ownership period lost 53.67% in value.
In reality, this is probably a little high. But, it is true that you can expect significant depreciation. As a generalisation, you can expect your vehicle to lose around a third of its value (or more) during the first three years of ownership. The rate of depreciation then decreases after that period.
While these figures can help you get a clearer picture, it’s important to emphasise that these figures are an approximation. Again, it all comes down to what someone is willing to pay. If your car is sought after, (for a range of reasons we’ll cover below) it’ll likely depreciate less than other similar models.
A prime example of how demand impacts depreciation can be seen by the current new car supply shortage. Trade Me recently reported that the median price for secondhand 2021 and 2022 model cars has jumped $12,000 since 2020. They even quoted several listings where second-hand vehicles were being sold near to the original retail price. And in some cases, above the retail price.
Why? Because Covid supply issues have meant people can’t get new cars. And because of high demand, the laws of supply and demand have kept prices for second-hand cars buoyant.
Not all cars depreciate the same: factors to consider
Once you’ve accepted that your car is most likely dropping in value by the day, you can start thinking about what factors impact depreciation, and how you can help minimise it.
Buying a brand new car in New Zealand can cost you a lot in depreciation.
For starters, a brand new car becomes a used car the moment it leaves the lot. As a result, it depreciates by 15% the moment you buy it due to the GST component of its asking price. And then, by about another 10-15% in the first year. That’s a 20-30% loss in value in the first year alone.
That means a $50,000 new car could be worth just $35,000 after only one year…
The level of depreciation slows down as the car gets older, as long as you maintain it. And not all new cars will suffer depreciation this high. But the fact remains, brand new cars are hit by the highest levels of depreciation.
Many new cars in New Zealand are sold to fleet car businesses, such as rental car companies. Because these companies buy in bulk, they receive substantial discounts on the price of the cars they purchase. This means a few years down the line, they can afford to resell them at a discount, too.
So come time to sell your car, if it’s a model that’s popular with bulk car buyers, you may find yourself pitching your car against a large number of similar, cheap ex-fleet cars. This could bring down the resale price of your vehicle and could contribute to higher depreciation.
Not to mention the general stigma that often follows popular rental cars marques, making them less desirable to a lot of consumers.
Petrol prices are a hot topic right now, and gas guzzlers are not a popular choice. Look for fuel-efficient models, as these will be more desirable on the second-hand market.
Furthermore, plug-in hybrids (PHEVs) and electric cars (BEVs) may hold their value well, as they are fuel-efficient and are currently attracting a lot of attention.
→Related article: Top Selling Electric Cars in New Zealand
SUVs are all the rage here in New Zealand. So it follows that there is also a bigger resale market for them. Even Kiwis looking for smaller cars tend to go no smaller than a compact SUV or crossover.
Sedans are well out of fashion, and apart from the odd exception, hatchbacks aren’t fairing too well, either.
When considering depreciation, you not only have to consider the resale value but how likely it is to actually sell. Sure the car might be worth $20,000, but you still need to find someone willing to buy it. Factors such as strange colour choices will reduce your pool of willing buyers.
You may like a standout hot-pink car, but a simple black, silver or white car will almost always be easier to sell.
The car’s reputation
Whether justified or not, some cars simply have a better rep than others. Here in New Zealand, we love Japanese cars. They’re seen as cheap, reliable, familiar, and easy to fix should you need to. On the other hand, we’re less familiar with a lot of European models, and many Kiwis are more hesitant to buy these.
Opting for a car with a good reputation and familiarity could make resale much easier.
Kiwis are big consumers of utes and family-friendly SUVs from brands we know and trust (thereby increasing their perceived value/minimising their depreciation). So while it’s hard to say for certain, you can assume that a Toyota SUV will probably depreciate less than a Saab hatchback. Simply because more Kiwis are likely to be in the second-hand market for the former.
Furthermore, not all releases of the same model are equal. Car manufacturers constantly update and re-release their most popular models. To varying degrees of success. And newer isn’t always better. A 2018 model may have been a smash hit and thus have great resale value. While a newer 2019 model could have been riddled with design flaws and be less popular.
It pays to not only research makes and models, but years, too.
The hard to measure
The fact is, vehicle depreciation isn’t a straightforward or easy thing to measure. And there’s not a heap of data laying about to accurately track the resale value of popular car models. This means despite the above advice, it’s by no means a car depreciation bible.
For example, the Toyota Rav4 is a popular fleet car, which we said is best to avoid. But it’s also a popular brand, and vehicle class. And thanks to hybrid models, is efficient to drive. That points to it being a good car with less depreciation.
You also have Subaru, which has seen its reputation take a hit over issues with its Legacy and Outback models. Yet New Zealand has the most Subaru drivers per capita in the world. So there’s clearly a big market for them.
And, of course, you can’t forget the Suzuki Swift. A wildly popular small car that defies trends here in New Zealand. Despite being an unpopular vehicle class, and having plenty of competition from cheap second-hand imports, new Suzuki Swifts tend to hold up fairly well in terms of depreciation.
Looking for a great car loan?
The table below displays some of the unsecured personal loan products available on Canstar’s database for a three-year loan of $10,000 in Auckland (some may have links to lenders’ websites). The products are sorted by Star Rating (highest to lowest) followed by company name (alphabetical). Use Canstar’s personal loan comparison selector to view a wider range of products on Canstar’s database. Canstar may earn a fee for referrals.
How to minimise depreciation
The best way to minimise depreciation is to do what you can to combat the above points. One of the best ways is to avoid buying a car brand new, as this is where you get hit with the steepest deprecation. By buying a car just one or two years old, you avoid the off-the-lot price drop, while still getting a car that should look, feel, and drive new.
Some other steps to minimise depreciation could be to:
- Avoid cars popular with rental companies – Not only can this avoid rental car stigma, but you won’t be competing with rental companies flicking off vehicles for cheap.
- Opt for electric/hybrid vehicles or petrol cars with good fuel efficiency – Keep in mind that electric vehicles have the issue of battery capacity reducing with age. While a younger second-hand EV should hold its value fairly well, an EV eight or nine years old might not.
- Choose a popular vehicle class – Such as SUVs and crossovers.
- Pick a safe colour – nothing too out there, both inside and out.
- Choose a car that is seen as reliable – Mitsubishi, Toyota, and Nissan, all have long-standing histories in New Zealand and Kiwi consumers are familiar with them. These may be better choices over lesser-known European brands like Saab or Skoda.
Some steps you can take to minimise the depreciation of your existing vehicle include:
- Look after your car – keep it clean and tidy, keep it serviced (and keep service records) and repair any damage.
- Keep the car for longer – spread over 10 years, steep depreciation is less of a factor, but expect increased maintenance costs.
- Drive less – cars with fewer kilometres hold their value better.
Do your research
If you’re looking at buying a new car, search around to get as much info as you can. One great way to measure depreciation is to keep an eye on second-hand sales on sites such as TradeMe, and to compare them to the sticker prices of those vehicles.
This can give you an idea of how much these cars are losing in value.
Another great way to minimise depreciation is to get a great price on your car purchase. If you pay too much for the car, you’ll be hit harder by the loss of value come resale.
And as most new cars in New Zealand are bought using a car loan, it’s important you get the right loan at the cheapest price. And that’s where Canstar can help. We compare personal loan providers, to help you get the best loan. Check out the table below, or click the button to compare all the personal loans in our database.
About the author of this page
This report was written by Canstar Content Producer, Andrew Broadley. Andrew is an experienced writer with a wide range of industry experience. Starting out, he cut his teeth working as a writer for print and online magazines, and he has worked in both journalism and editorial roles. His content has covered lifestyle and culture, marketing and, more recently, finance for Canstar.
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