Forget depreciation – now used cars cost more than new ones

IMF discusses inflation trends in the global economy

Instead of depreciating as everyone expects, used car values are now starting to appreciate instead. This means owners can sell them for more than they originally paid. 

It’s another example of the upside down financial world we are living in today.

Almost every motorist dreams of buying a new car but many are put off by the dreaded D-word, as new cars have traditionally made a terrible investment.

The rate of depreciation varies between makes and models but typically is between 15 percent to 35 percent in the first year alone.

Within five years, the not-so-new-car will have lost roughly half of its value when the owners tries to sell it on.

Now they can bank a profit.

New figures from used car marketplace show the average value of a used Hyundai Santa Fe increased by nine percent in 2021 and then 20 percent in 2022.

Last year, the price of the average used Mini One jumped 20 percent, with the Nissan Juke up 22 per cent and Vauxhall Mokka up 22 percent.

Separate figures from Auto Trader show used car prices accelerating at a staggering 19.5 percent in the year to July 2022. They have since slowed but March was still a record month for used car sales with the average price hitting £17,720.

Post-Covid supply chain hiccups and microchip shortages have slashed the number of new cars available for sale. This has forced buyers into the second-hand market and increased competition for the limited stock available.

Higher prices are the result.

Appreciation is a blow for buyers hoping to bag a bargain while sellers can’t quite believe their luck (until it’s their turn to buy a car).

Sometimes local factors apply, said Alex Buttle, co-founder of Motorway.

“London’s Ultra-Low Emission Zone (ULEZ) and other initiatives such as Bristol’s Clean Air Zone and Birmingham’s Clean Air Zone are affecting pricing as the value of compliant models stays relatively high.”

As ever, the rate of depreciation depends on the make, model, age and condition of the car.

Mileage also plays a key role. “Average UK annual mileage is around eight to 12,000 miles per year. Doing a lot more will mean your car depreciates faster,” Buttle said.

Having several previous owners will also lower its value. “It means trusting a higher number of people with a greater chance of potential issues.”

Warranty and service history also plays a role when deciding used car prices. “Some manufacturers offer a seven-year warranty with new cars, which helps to maintain resale value. As does having a full service history.”

Smaller, more fuel-efficient cars tend to depreciate less, Buttle added. “They cost less to run and appeal to a larger pool of buyers.”

Larger, expensive luxury cars like SUVs typically cost more new which means their value has further to fall, plus there are higher costs associated with fuel, parts and maintenance.

“Less polluting cars incur less road tax, which makes them more appealing to buyers.”

Cars with widespread faults or manufacturer recalls are less appealing, as are old designs that have been superseded by new ones, Buttle said.

More than a third of new car buyers don’t consider depreciation but they should take it into account, said Ben Wooltorton, chief operating officer at InsuretheGap.

“Depreciation hasn’t been much of an issue lately but that trend may soon go into reverse.”

Even colour plays a part in depreciation, he said. “Generally speaking, grey, black, silver, blue and white are the best colours for holding their value. Bolder reds and other off-the-wall colours may put some buyers off.”

What Car research shows the BMW 8 Series is the fastest depreciating car, with its list price of £111,650 falling to £38,950 after three years.

Among cheaper models, the Citroën C3’s value drops away rapidly, from £22,810 to just £9,375 in three years. reckons Land Rover models depreciate at the lowest rate, followed by Honda, Fiat, Mercedes, Jaguar, Toyota, Nissan, Vauxhall and BMW.

Electric cars can still depreciate rapidly, though. Drivers can now save £17,000 on used electric cars as Audi and Tesla prices tumble.

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