Why do some vehicles depreciate more than others?

What is Depreciation?

Depreciation is the gradual loss of value in an item caused by multiple outside factors. When it comes to your vehicle, the main factors of depreciation are: manufacturer and vehicle reputation, time and age, the current market demand, wear and tear, history of use and even an abundance of fleet and rental sales.

So lets break it down now...

The hardest and fastest hit in depreciation happens immediately after the vehicle is registered.

The hardest and fastest hit in depreciation happens immediately after the vehicle is registered.

Market Demand

This is a tricky one. This is where people get confused when searching for the current value of their car. It's easy to stumble across a link that says your car is worth an amount that makes you happy or sad to see. However, that number could be based off of the current market value of your vehicle in a different country or region. Some manufacturers market their vehicles more prodominantly in some regions than they do in others. Which sometimes means demand for your vehicle can be higher or lower depending on your location. For example, if you live in Winnipeg, where we have snow 6 months of the year, SUVs and Trucks with AWD or 4X4 options have an easier time selling here. Especially imports or vehicles that are known to be resilient like Honda and Toyota. You wouldn't expect to find many sports cars selling in the winter months in Winnipeg, you might have to be more aggressive in your selling price for someone to buy a car they'll have a hard time driving. Comparing to somewhere like California, where you might see more high-end luxury cars, hybrid/electric vehicles, or economy cars. In other parts of the US you might find resell value to be higher on American made manufacturers like Ford.

Manufacturer and Vehicle Reputation

Some manufacturers look out for their customers more than others. There are a lot of things that tie into the overall reputation of a manufacturer and their products. Buying a vehicle that is known for recalls and defects from a manufacturer that is known for misleading consumers will damage your resell. I hate to do this, but I'm going to use the recent events with Volkswagen as an example. Volkswagen is the largest car manufacturer in the world with their hands in a lot of luxury vehicles. In recent years, Volkswagen was caught red handed in what people are calling an "emissions scandel". They admitted to lying on their emissions tests. While the lies only applied to one type of vehicle that they offered, their entire line up was tarnished. Preowned Volkswagens flooded the market, trust was lost, dealerships immediately started paying less for Volkswagen trade ins and consumers everywhere were in a frenzy when millions of cars had to be recalled. The manufacturer was forced to buy back vehicles, their shares dropped but most importantly they lost customer loyalty and a lot of business to other manufacturers. Volkswagen will bounce back, not quickly, but they will. For the time being, from a value perspective it makes very little sense to sell your Volkswagen as you are now effected by the hit.

The vehicles reputation is just as important. Is it a sought after car? Are the people who own them happy with their decision to purchase? Over the course of the vehicle's time being available on the market, has reliability been an issue for it? 10 years from now, will preowned car buyers be saying good things or bad things about your car based on what they remember or what they've been told? The Honda Civic is Canada's #1 selling compact car and it has been for 20 years. Safe to say it's built a reputation and anyone trading one in is likely to be happy with the trade in value when compared to the value of other vehicles.

Photo: Car and Driver 

Photo: Car and Driver 

Time and Age

It's no secret that the age of your vehicle plays a huge part in it's depreciation. Vehicles depreciate the most up front, however depreciation continues on throughout the life of the vehicle and eventually depreciation slows down as the years go on until you reach absolute zero or it becomes completely obsolete. Funny enough, the most depreciation a car will see actually happens instantaneously after you register the vehicle for insurance when the car is the best it's ever been! It's a scary thought, but the fact is you need a vehicle. So if time is a major factor in a vehicles depreciation and the longer the car is on the road the less it's worth. Then, why is my car depreciating by a quick 10% before I put the first 10 kilometers on it?

It's simple. Dealers mark up the car, manufacturers give you thousands of dollars in rebates and you pay taxes and maybe even interest on the vehicle. Costs aren't recouped over time like they would be with the purchase of a house or something that appreciates. They're lost in the value of the car because as soon as you drive away, the vehicle is now only worth it's wholesale price, wear and tear begins and as the first registered owner you've accepted the responsibility of purchasing the vehicle brand new at retail. Once it's yours, it's no longer a new car and if you wanted to turn around and sell it for what you paid for it, you'd have to be able to match the benefits of the low rate dealer finance options or their value inscentives, reverse your ownership on the car and turn back the kms (which is fraud by the way).

A lot of people are switching to leasing vehicles that hold their value in attempts to keep their money in their pockets or in other investments over the term, before deciding if they'd like to invest completely by buying it out at the end. This is an entirely different topic and we're happy to explain it to you. Click Here to visit us on facebook, feel free to ask us anything, anytime.

Long story short, your car will eventually be worth nothing. Asking your sales person when the vehicle's sweet spot will be in regards to resell value might help you take a more calculated risk. However, thats exactly what investing in a vehicle is, a risk. Team Foui specializes in helping you understand how to properly manage the risk based on your specific scenario, by minimizing your costs and maximizing your resell.

Wear and Tear

As we grow old, our bodies stop working. We develop mobility issues and our nervous systems act up. Our immune systems suffer. We lose our hair, our skin wrinkles and our clock runs out. In the eyes of some governments, we're less valuable, have lower income and for some of us, we're less able to contribute to society. Sorry for being entirely morbid but this is exactly what happens to your car.

As your car grows old, the paint chips and the color fades. The Engine is worked and breaks down, especially without a proper diet (maintanence). Your car might find it hard to move, it will likely need more maintenence than normal and may be in and out of the doctors office (repair shop) more often than not.

Having the car that looks, sounds and drives the best when being compared to others of the same make, model and year on the preowned market in your city will benefit you greatly. However, if you're driving your vehicle regularly and don't have it in a collectors garage like Jay Leno, there's just no way around this form of a depreciation.

Photo by  Ramiro Mendes  on  Unsplash

Photo by Ramiro Mendes on Unsplash

Vehicle History

For about 20 years, history reports have been public for anyone to access as long as they have the VIN number of the vehicle they're looking at. This has created a transparency on the market that can negatively or positively effect depreciation. If you've made an insurance claim and you service the vehicle at a reputable shop on schedule, the chances are the value of the claim and where/when you serviced the vehicle will have been recorded on the Carfax or Carproof report and this effects depreciation.

Let's say you've had your vehicle serviced on time every time and you've never been in any accidents. Well, this will benefit you because now you can show the report to anyone looking to purchase the vehicle to give them the confidence they need to sign the line. This also helps when you're trading in with the dealer because some dealers (Team Foui Automotive and the rest of the Dilawri Group) are obligated to show these reports to customers upon request and we would much rather take in trades that come with clean history reports so we can confidentally show our clients a carproof marked as accident free with a trustworthy service history. We think transparency is key. All of our inventory pages online give you access to the carproof report up front without question. Feel free to browse our inventory HERE. You'll find by clicking on any of our available preowned vehicles, there is clickable carproof badge on every page.

On the opposite end, if you're the owner of a car thats been in multiple high valued accidents and you rarely service the car or choose to do your servicing yourself. This can hurt your resell value and actually prevent you from selling the car completely! It's not in a buyers best interest to buy a vehicle with a large damage claim attached to it's history report. If there's no history of servicing, the buyer will feel like there are too many unknowns and might refuse to purchase. As long as there are better options available, buyers will find them and you'll have a hard time. The more you know about your car the better and the history plays a huge part in it's resell value.

Photo: CarProof

Photo: CarProof

Over Saturation

A market thats flooded with a product at competitive pricing effects your resell value. If you don't have a competitive edge in regards to quality, you'll need to compete with price. In the automotive world, some manufacturers make their vehicles availble for fleet and rental use. When these companies are done with their vehicles, you might find them selling them online and at lower competitive prices. This forces you to compete, or at the very least show why yours is better. Imagine yourself as the buyer, with endless options at varying prices you're not forced to settle and you can spend time finding the good buys in your area. As the seller, you're now in the troubling position of not being able to sell quickly if needed, not being able to sell high and you'll be spending time meeting with more potential buyers than you'd like. If resell is a priority for you, our advice would be to purchase from a manufacturer that doesn't rely on fleet to get their numbers up. If there are a lot of one vehicle available preowned in recent model years, it's likely that people are trying to get rid of them for good reason or a rental company or fleet company is trying to manage depreciation by selling their fleet before the cars hit the tipping point.
Conclusion

If depreciation and resell value is your main focus. It's safe to say that your vehicle is going to depreciate no matter what. The questions you'll be asking are 'how soon?' and 'how much?'. We know depreciation can't be avoided. However, Team Foui is well versed in informing our clients on the current market trends, the vehicles that depreciate the least and what you can do to prevent the dreaded value decrease of your beloved set of wheels. You can contact us on Facebook or visit us at our head office at Winnipeg Honda in the Waverley Automall.