Buying a car is a big decision, but also one that happens more frequently in current generations when compared to how our parents or grandparents experienced it. Keeping a car until it stops running isn’t a wise nor popular choice. With car financing deals that change and evolve all the time — coupled with the allure of newer, safer technologies being brought to market on an ongoing basis — it’s not uncommon to keep a car for three or four years, and then trade-up.
The decision on what car you get next hinges on what deal you can get for your current model, so understanding car valuation and car depreciation is a good way to be sure that you can make informed decisions.
What is car valuation?
Before a used car ends up on a second-hand car lot, a price has to be determined.
Used car valuation is the process of finding the fair market value of any used car and differs based on make, model, trim, KMs driven, year of purchase, current condition — and more. While the car valuation is a standardised process based on formula, the actual value of the car isn’t predetermined and is based on the unique history and use of the specific car in question.
Think of it like this: If two friends buy new Subaru’s at the same time for example and keep them for exactly two years, you wouldn’t simply price them the same way based on the age of the car. What if one friend used their car for work every day, seeing clients and attending meetings, averaging up to 100km’s a day, while the other friend worked from home and averaged that same distance in a week? The car valuation of each would then be radically different. Both people’s lifestyles are perfect to them, but the extent of how hard the car has worked over the same timeframe would be very different.
Remember that there are two different values for your car.
- Retail Price
- Trade-in value
The retail price is the closest value to the replacement cost of the car.
The trade-in value represents the average price that a dealership would pay for your car.
Car Valuation vs Depreciation
How to calculate car valuation?
Car valuation experts can calculate the car value through a detailed inspection while considering all the factors that affect the price. The basis of each calculation is the residual value of a car, which is determined by:
- Make
- Model
- Age
- Mileage of the vehicle
Additional elements that impact the general residual value include:
- Damages
- Current demand for this type on the used car market
- Special extras/equipment added to the car, etc.
The realistic value is linked to numerous car-specific factors such as equipment, colour, inspection (service) history and technical and physical (cosmetic) condition.
Why do cars depreciate?
Cars (like pieces of equipment being used) depreciate because they’re a resource that loses its value through gradual wear and tear. The more mileage your car covers, the more likely it is that servicing and repairs will be required. This loss of value is accounted for by depreciation.
What is car depreciation?
Car depreciation is another factor that has to be considered. Before any service history or mileage is considered, car depreciation is a factor that is unavoidable.
How to calculate depreciation on a car?
Not all cars have the same rate of depreciation, but a fair consideration is that most cars depreciate at a rate of between 15% and 30% per year (with the highest depreciation rate happening in the first year and then tapering off as the car gets older). As a guideline, you can expect your car’s value to halve over five years — depending.
To get the most accurate and fair car valuation, it should be examined extensively. If you are in the process of seeking out the value of your vehicle so as to help you determine what your next steps might be, don’t be hesitant on getting more than one opinion. In fact, get as many as possible!
Different dealerships will offer you different deals based on the supply and demand of their outlet; a great place to start however is the same place you are looking to buy a new car from. This doesn’t mean however that you shouldn’t be informed of the truest value of your current car as possible. You might still get a better deal through a private sale anyway.
Now if it’s a Subaru you’re looking for, you’ve come to the right place. Talk to us about your current vehicle, what you’re looking for and let’s get you from behind the steering wheel of the car you’ve looked after, to one that’s going to look after you. Call us on +27 11 608 0116 or email info@subaru.co.za and a skilled member of our team will be happy to assist you. Alternatively, use our store locator to find your nearest dealership, and of course if you’re looking to experience any of our six incredible models first-hand, get behind the steering wheel by booking your test drive today.
