Is low depreciation a selling point for a new car? If so, is it possible to ‘design-in’ low depreciation? The recipe for low depreciation is simple, on the surface. For a new car to have low depreciation, people must want to buy the used ones.
There are various ways to make used cars more desirable. One is to make a car practical to repair economically throughout its lifetime. Unfortunately this is very low on a manufacturer’s list of priorities. An OEM will never compromise the competitiveness of a new model’s performance or its showroom price in order to benefit a subsequent owner, five or ten years down the line. Minimising assembly cost often leads to non-serviceable sealed assemblies that require replacement in their entirety when faulty. Competitive performance in areas such as power output, economy, safety, ride or handling, dictates the use of increasingly complex and sophisticated technology. This trend frightens away cost-conscious buyers of used examples who prefer simpler, more easily maintained models.
A more realistic route to low depreciation, one requiring no compromise between the first, and subsequent, owner’s priorities is to increase the inherent desirability of the car from new. The greater the number of buyers chasing a particular car, the higher will be its long term value. Newly introduced models that are perceived to offer something different or better than established market competitors frequently enjoy a ‘honeymoon’ period of strong residual values. A good example is the Skoda Yeti, the only modestly priced family car to make last year’s CAP top ten list of low depreciators, a list dominated by low volume niche and prestige sports cars such as Morgan and Lotus, for which demand frequently exceeds supply.
Based on actual values of 3-year old cars, the CAP list was topped by the Audi Q5, its desirability presumably fuelled by badge status, frugal diesel powertrains, perceived build quality and relative scarcity. Clearly, in the used market, these virtues overwhelm any reservations about the long term costs of maintenance and repair, with the Audi retaining over 70 percent of its value at three years old.
The corollary is that high depreciation stems from a lack of desirability when a car is new. Perhaps the styling missed its target, or concerns arose over reliability. Even worthy mainstream models can have their residual values torpedoed through oversupply, discounting and badge ‘snobbery’.
Interestingly, a car’s desirability can fluctuate over time as market tastes change, turning a high depreciator into a low one. Cars like the Audi A2 (considered complex and expensive when new) or the BMW Z8 (which received a lukewarm reception) now have a cult following which is levelling or even reversing their depreciation. However such examples are rare and do not affect the overall picture.
Of course, there is more to depreciation than percentages. Number six in CAP’s top ten was the Ferrari California, retaining 63.7 percent of its value. At £152,000 new, that’s over £55,000 lost in three years. Languishing well down the ratings is the Dacia Sandero with only 40 percent retained, however that 40 percent equates to just £3600 over the same time period. I’m not suggesting that anybody is going to choose between a Ferrari and a Dacia, but the message is clear: while percentages are a useful guide, it is the actual monetary loss that matters.