Used Car Prices: What to expectThe value of a new car drops as soon it is driven from the showroom. But just how much value does a new car lose and can that rate of depreciation be slowed down? Daniel Attwoodfinds out
According to GE Money, which tracks the value of used cars in Ireland, motorists will be lucky if their new car is worth more than 55 per cent of what they paid for it after three years.
Indeed, there is only one type of car - the average family or fleet car - that is consistently worth more than 55 per cent at the end of the traditional three-year cycle, when most motorists trade in for a new model. Most other categories of car, such as executive models and compact hatchbacks, will be worth just over half of their original value when it comes time to trade in.
However, there are two exceptions to this rule - luxury cars and compact city cars - which may be competing at opposing ends of the price spectrum, but which are both hit hard from falling values.
A small city car that cost €13,000 new will be worth just €6,400 after three years, or 49 per cent of its showroom price. If owners keep the car a couple more years, they should expect its value to fall to €4,150, or just 32 per cent of its original value.
Luxury cars perform even worse.
Successful businessmen may cruise the M50 in their new S-Class Mercedes or latest Lexus LS, but their success is not down to buying luxury motors, which plummet in value from an average of €108,000 new to just €52,200 after three years. That's a loss of €55,800 over 36 months or more than €50 every day in depreciation alone.
As Peter Quinn, a director of Foster Motor Company and a man with over 20 years dealing in used cars, explains, large executive cruisers are not bought as a long-term investment:
"These cars are more of a statement than a practical purchase," he says. "People will always need a practical family car, but they don't need a BMW 7-Series with €30,000 worth of options."
Even if successful fat cats are wealthy enough to afford to squander €350 every week on depreciation, the majority of motorists would prefer to slow the rate at which their cars' value falls.
According to the Used Car Index, a car's colour can have a dramatic effect on its resale value. "Colour and colour combination have risen to the top of this list when it comes to achieving a big welcome at trade-in time, and could add a €1,000 or more to the vehicle's value," explains Eoin Lynam, GE Money commercial director.
"If you really get it wrong, you could be living with it for years to come as no-one will take it. Bottom line is that if you've made a poor selection when ordering your car, you will really suffer when it comes to the trading in."
The simple rules are: white is for ambulances and bright red is for fast cars. The most popular exterior car colour, and one that is unlikely to negatively impact on residual values, remains silver. While it may not be the most imaginative colour, it has been Europe's favourite for at least five years and looks set to continue to remain the default choice of car buyers.
However, as Quinn points out: "With the huge popularity of silver, we are being asked more and more for alternative colours, such as black. But white and fire engine red cars remain the most difficult to sell on."
With an acceptable exterior, the battle is only half won.
Interior shades need careful consideration too. The rule of thumb is do not opt for clashing colours or extreme contradictions.
"Getting it right on the outside but wrong on the inside is one of this year's motor fashion faux pas," says GE's Eoin Lynam.
"A black exterior with sparkling white leather seats may speak loudly of wealth and prosperity but it says little of taste. So don't commit a crime of colour and have to pay the price, quite literally, for your mistake."
While buying a green coloured car would spell disaster at resale time, buying an environmentally friendly vehicle is a different story.
SECOND-HAND VEHICLES that have hybrid engines, or can be powered by bio-fuels, are gaining greater acceptance by the used car industry and second-hand buyers.
As such, their resale values are strengthening. In addition, the impressive economy from diesel engines ensures that while they cost more in the showroom, that premium is retained at resale time.
Ticking all the options boxes in the showroom will add thousands to the bill, but can that additional cost at trade-in time?
Options such as leather, automatic transmission and sports wheels are expected on anything more expensive than a family saloon, but they are a waste of money on most cars smaller than a hatchback, unless they are convertible or performance models.
"Air conditioning is something most used car buyers are looking for and are prepared to pay more for," says Peter Quinn. "However, alloys may make a car more attractive, but they will not make it worth any more."
The good news is that, thanks to burgeoning demand, the market for low mileage '02 and '03 models in good condition and with a high specification level is very strong.
In addition, resale values of top-of-the-range diesel SUVs have remained consistent, though the used values of the petrol equivalent, which were always much lower, are starting to plummet.
There was a belief amongst dealers that there will always be buyers for premium petrol 4x4s, but this attitude is changing, so much so, that it would be wise to join the majority of new SUV buyers who will now only consider ones with a diesel engine under the bonnet.