Most cars are depreciating assets, this means that the value of your car is likely to decrease the longer you own it and the more you drive it. However, there are ways to prevent its value from decreasing more than absolutely necessary. While factors such as market conditions, demand and other factors may impact the final resale value, it is important that we manage that which is in our control in the vehicle ownership journey.
WesBank has highlighted some of the key factors that affect the resale value of cars, with the aim of helping owners get the best value when the time comes to sell or trade in a vehicle.
Before we look at the factors more closely, it is important to understand some of the most common terminology used by the motor industry:
- Retail price: This is the recommended sale price, not inclusive of the extras on the vehicle nor the consumer demand. Dealerships incur costs of running businesses such as marketing, insurance, vehicle reconditioning and repairs, facility overheads and staff remuneration. Naturally, a dealer needs to factor some profit into vehicle prices, so retail values are normally at the higher end of the scale. This is the price you can expect to pay when acquiring a new vehicle. Any additional aftermarket extras can void the warranty of the vehicle. Therefore, it is advisable to rather purchase additional accessories directly from the dealer to avoid this.
- Trade/market price: Is always lower than the retail value, it’s the recommended trade price for a vehicle in good condition – these values may also vary in line with vehicle demands. This is the value that should be considered when trading in or selling your vehicle.
- Depreciation: The reduction in the value of an asset over time, due to factors such as mileage and wear and tear.
Doing some homework ahead of committing to a purchase can pay off down the line when it’s time to sell a car. Consider the historic market demand of a vehicle, for example, is the two-door or four-door model more popular? Is automatic preferred to manual? Diesel or petrol? Used car websites can be extremely valuable for researching which vehicles are the most popular and which have held their value more over time.
Consider exterior colour and interior trim options. Where luminous orange and acid green may be desirable on a supercar, it may not be on a budget hatchback. Likewise, beige cloth seats might pose a problem when it’s time to sell later on, whereas black leather might be more appealing. Keep in mind that generally neutral colours sell better.
Variables such as mileage and car condition will also affect resale value. It can be tempting to consider a bargain deal on a particular vehicle because it has high mileage, however this could prove a costly error down the line as the vehicle will likely require ongoing maintenance, especially if you drive it often, and it may be worth far less when you want to resell it one day.
It is also important to ensure the vehicle is serviced as per the manufacturer’s stipulated service intervals. The franchised dealer must have the necessary training to best keep the car in running order.
One of the first things a dealer looks at when assessing the trade in value of a vehicle is the odometer reading, and if it’s very high you can expect relatively low offers. Another element that a dealer looks at, is whether the vehicle had regular maintenance with consistent service trips. This will reassure the dealer that the vehicle has been taken care of and that there is less likely a risk of finding anything wrong with the inner workings of the vehicle.
Keeping your car clean and in tip-top shape is probably the best way of ensuring it retains value over the years. That small scratch might not be a big deal now, but accumulating many small scratches will detract from a car’s appeal when it’s time to sell. Do your best to keep the appearance and mechanical condition of your car as clean and neat as possible during your ownership cycle.
Lastly, try to resist overdoing it with aftermarket accessories. Part of the joy of owning a car is making it your own, often with personal style additions. However, this can have an extremely negative impact on its resale value, especially when some custom add-ons are permanent. You may see your oversized rims, outrageous body kit and banging stereo system as improvements, but it’s almost guaranteed that the next owner or more importantly, the dealer where you ultimately trade in, may not.
Owning and driving a car should be a fun and rewarding experience. By being aware of the factors above, and maintaining the condition of your car, the rewarding experience can last right up until the day you sell or trade your vehicle in.