Cars depreciate, an ugly truth! Uglier still is the rate at which this decline happens particularly in the UAE, where the average lifespan of cars is quite short (almost 4 to 5 years shorter than other markets due to the large expat population and high cross border flows). In order to understand the degree of used cars' depreciation, and variations between models, body types and other factors, we have scoured through thousands of data points across our platform and other listing portals to inform your next used car buy.
Depreciation is huge, but does slow down. Overall, used cars depreciate 20 to 30 per cent after the very first year of its ownership. However, the rate of depreciation does slow down over time (15 to 20 per cent per year in the following 3 to 4 years and drops further to 10 to 15 per cent in the years to follow). Both perceived and actual value changes support the deceleration of depreciation, as consumers' perceived differences of a 2017 used car versus a 2014 are typically less stark than a 2007 model versus a 2004. Furthermore, as older cars have already lost the majority of their original value, the differences in percentages depreciation rates are less material in absolute dirham terms.
Condition matters, but generally only a +/- 5% impact on value. The condition of the car certainly affects its resale value. We have observed a 5 per cent difference in value between a car in great condition and one in worse condition. Most common condition related issues behind this 5 per cent decline are repainted panels indicating accident history, and body parts wear & tear. Of course, cars with rather serious mechanical issues see a much larger drop in value.
Supply and demand plays a role. Cars that are slightly less in supply will likely retain better value though may take longer to sell if generally less popular (for example a convertible, or higher end sports vehicle). Our analysis suggested that sedans and SUVs lose 15 to 20 per cent in their second year while convertibles and coupes only lost 10 to 15 per cent. Iit typically takes twice as long to sell a convertible compared to a sedan, maybe because it is difficult to find a buyer for a sportier car with more premium. Also bear in mind spurts of grey market imports certainly pressure retail prices of those vehicles (for example if a large dealer imports 150 used Nissan Patrols this month, that will have downward pressure on market prices).
Basic cars retain better value. Used car models with only the basic set of features retain value better than their counterpart models that come with all the bells and whistles. When new, a consumer would pay 10 to 30 per cent more if they chose the car model with all the options versus the basic version. However, after 4 to 5 years, we observed that the price difference between the 2 models is closer to 5 per cent, indicating a greater loss in absolute value of the more premium cars. This is particularly true for customised cars that might not fit everyone's taste (think yellow seat belts).
The writer is a growth hacker at CarSwitch.com. Views expressed are his own and do not reflect the newspaper's policy.