Used values rising but depreciation still biggest cost

It’s an age-old adage – you can do everything you want to defray the cost of motoring, from buying a car that gets a few more miles to the gallon to selecting a low motor tax hybrid or buying something with bomb-proof reliability, but the biggest expense you’ll ever have kicks in about 30 seconds after you’ve driven off the forecourt. Depreciation.

Depreciation is occasionally a savage cost, as those who bought heavily discounted cars during the recession frequently found out to their personal discomfort. Buying certain brands or certain models can sometimes help keep the worst ravages at bay, but basically you’re going to lose your shirt as soon as you’ve turned the key for the first time.

How much?

How much though? How much do you have to budget for when you're buying a new car? Well, those of you buying on a PCP - or personal contract purchase - will know, the minimum that your car will be worth in three year's time as it's guaranteed and written into the agreement. Those of you paying cash, getting a bank loan or taking out a Hire Purchase agreement have to work in slightly murkier fields, not least because the Irish motor trade, unlike its UK equivalent, prefers to keep the trade values of second hand vehicles as murky as possible, so that the consumer is perhaps less than perfectly informed when going in.

The nasty figure you're looking at is that your car will be worth, to the trade, about one-third of what it was when new, and that's after three years. According to second hand values expert, John Courage of Motorcheck.ie, "overall, the market here is at about 35 per cent of it's original market value, for a trade-in, after three years, and there isn't any particular segment that is below that level, except for high end premium cars, and one or two exceptions."

We are in an anomalous period right now though, where the values of three-year old cars are actually rising slightly.

Sadly for most of us that doesn’t mean that a car we bought in 2013 is worth more than we paid for it. It means that three-year old cars are worth more this year than the same sample of three-year old cars was last year.

For instance, a three-year old BMW 3 Series (a 2012-registered car) was worth, according to Motorcheck's figures, €25,134 in 2015. A three-year old 2013-reg 3 Series this year is worth, on average, €27,808. As Courage points out, it's unsafe to read too much into the figures as "they're a snapshot in time. The data doesn't lie. Used car values have steadily increased over the past three years as demand has outstripped supply. However, historical performance should only be a small part of the equation. Ireland is a tiny market and open to any amount of volatility. This is further compounded by it continuing to be a dumping ground for UK's unwanted or overstocking issues as well as damaged/written off vehicles finding their way into the market."

Brexit impact

That volatility could be subject to a number of influences, not least of which is the looming spectre of Brexit. According to Courage: "every economist in the world is expecting a run on Sterling if the vote is to leave. Should this come to pass, expect more and more transporters to arrive into Ireland with shiny two and three year old UK vehicles. Nobody knows this for sure but I'd call it educated speculation."

The volatility is already having an effect. Year-on-year, used car prices have risen right enough, but the rate of increase is slowing significantly. When the same snapshot of the market was taken in 2013, looking at 2010 cars, the values had risen by 18 per cent on average.

Which means that you can't take robust second hand values for granted (just ask anyone who tried to trade-in a petrol-engined family car after 2008) and you still need to work hard to insulate yourself from the worst depreciation headwinds. The good news is that those of you buying the top-ten selling vehicles, which is of course most of you, are getting the best possible deal on depreciation.

According to Courage: "there isn't one that does not fare well in holding its value historically. The Hyundai Tucson is brand new, but if the ix35 is anything to go by it should be fine. The most in-demand right now are SUV's. There isn't a dealer in the country that would not want to have good quality three-to-five old ix35's, Qashqai's or similar. In fact, in all available segments, the medium SUV segment is the most crowded with nearly every single brand having an entry, so choice in this area is wide and varied."

Top 10 is a good guide

Courage says the best ways to minimise the effect of depreciation is to be cautious and conservative when buying. “Anything that is mid-size family car from a top ten selling brand is a good choice, something low on emissions, a good colour combination, for example don’t put cream leather on a silver car. Stick with the tried and tested black/silver/grey.” It’s not perhaps a recipe for an exciting set of cars, but it is financially prudent.

Finally, Courage has one last warning and it's about vehicle history. Fair enough, he works for a company that checks vehicle history, but the advice on keeping up a car's maintenance and provenance is sound even so: "Our stats are showing that still in this day and age only one in five consumers are carrying out their own history check prior to purchasing a used car. Yet the number one reason for more than normal depreciation on a car will be if there was something amiss in it's history when you purchased it and you didn't check it.If you didn't the dealer you are looking to trade-in with will, and if it turns out that it was clocked when you bought it or written off or previously used as a taxi, the value will plummet or the dealer will simply refuse to accept it as a trade-in and you'll be stuck with it. We have hundreds of horror stories and they have lost thousands on their resale value, a far more drastic effect than all the above advice can cover."