There are many factors to consider before deciding to buy a car besides the obvious purpose of driving from point A to point B safely. While you may also review the price, overall design, safety features, or its fuel consumption rate, there is one key factor that many overlook – the car’s depreciation value, also known as the future car market value.
Knowing the depreciation rate of your soon-to-be car is important because it helps you estimate its value within the next five years. So, here is what you need to know about the depreciation rate, including factors that affect the car market value, how the estimate of your car’s depreciation rate, as well as the estimated buyout price of popular cars that are sold to Carsome.
What does the Depreciation Rate of a Car Mean?
The depreciation rate of a car refers to the difference between the original value of a car at the time of purchase and the final value at the time of sale of that car.
Usually, the declining market value of a car depends on its daily use (wear and tear). In other words, if a car is used regularly, the depreciation rate is higher and that lowers down the current market value of a car.
However, the depreciation rate of a car also varies depending on the car model, brand, and the year it was manufactured – typically, the average depreciation rate is around 15 to 35 percent in the first year, while it can hike up to 50 percent when it reaches its fifth year and above.
For example: If you buy a Perodua Myvi for RM55,300 today, you will probably lose between 40 to 50 percent of its original value if you sell it in the next five years – this means you can sell it off for a price range between RM27,000 and RM33,000. This, of course, could fluctuate depending on your car’s condition as well.
Meanwhile, according to automotive experts, selecting a car with a higher resale value is better (and more profitable) than selecting a fuel-efficient car. A medium-sized family car purchased three years ago may depreciate or lose an estimated RM12,559 off its original value today. Yet, the cost of petrol may cost more than this depreciation rate, based on a calculation of 12,000 miles per year, over a period of three years.
10 Factors that Affect the Car Market Value
Here are some factors that can affect the depreciation of cars in the market:
- Mileage – If a car is used regularly or if the mileage reading of a car is high, the higher the depreciation of the car. On average, the estimated mileage for a year is around 10,000 – 12,000 km.
- Reputation and Reliability – Some models or brands have a certain reputation that makes them popular among buyers. Therefore, the reliability rate of a particular brand or model can affect the depreciation rate of a car. Cars with a bad reputation (eg: model recalls) have a potential of depreciating even faster.
- Consumer’s Choice – Just like fashion trends, consumers’ choice of cars also changes according to situation and circumstances. As seen from the current automotive trend, it focuses more on the usage of SUV-like vehicles such as Proton X70 and X50. Popular car models usually have a lower depreciation rate.
- Number of Owners – If a car has been sold or changed owners several times, this tends to affect the depreciation rate of that car.
- Car Condition – Certain damages to the vehicle’s body, interior, and exterior features will also reduce the car market value.
- Service History – Maintenance or services that are done regularly, or according to schedule ensures that the car is in good condition. This, in turn, slows down the depreciation rate of your car because it is maintained well. It is advised to keep records of the servicing schedule or receipts of expenses in the maintenance manual to show proof of proper maintenance.
- Warranty Period – Some car manufacturers offer a warranty period between five and seven years. A longer warranty period can indirectly be a bonus when selling your car.
- Desirability – Some car models offer a facelift version or an upgraded design every few years. So, if you purchase a recently upgraded car, the resale value of that car would be high as well.
- Size – Larger-sized cars tend to depreciate more compared to smaller-sized cars because they usually require larger maintenance costs (car servicing, spare parts) and expenses (fuel costs).
- Fuel Efficiency – Typically, cars with fuel-saving technology are offered at a higher price as they are more popular among used car buyers.
What is the Average Depreciation Rate of a Car?
Although there are many factors that affect the depreciation rate, new cars generally depreciate faster than used cars regardless of the model or brand.
Here is a generic car depreciation timeline:
- After one minute: As soon as a new car is driven off from the sales center, it starts to depreciate somewhere between nine and 11 percent. For example, if you bought your car for RM60,000, driving it home for the first time lowers your car value by a whooping RM6,600.
- After one year: Based on statistics, new cars experience the largest depreciation in the first 12 months of ownership. After a year, your car would have a depreciation rate of up to 20 percent from its original price.
- After five years: New cars typically depreciate between 15 to 25 percent annually until the fifth year. After the fifth year, the car loses about 60 percent of its original value.
The table below shows the estimated depreciation rate for cars in Malaysia. For this, we will use the actual selling price of a Perodua Myvi (RM55,300) as an example.
|A New Perodua Myvi 1.5L AV||Percentage of Depreciation Rate||Value of Depreciation Rate||Car Valuation After Depreciation|
|Price Before Purchase||5%||RM2,765||RM52,535|
|First 6 Months||10%||RM5,530||RM49,770|
|6 Months – 1 Year||15%||RM8,295||RM47,005|
|1 Year – 2 Years||20%||RM11,060||RM44,240|
|2 Years – 3 Years||30%||RM16,590||RM38,710|
|3 Years – 4 Years||40%||RM22,120||RM33,180|
|4 Years – 5 Years||50%||RM27,650||RM27,650|
|More than 5 Years||Determined jointly between the owner and the insurer||–||Determined jointly between the owner and the insurer|
What is the Estimated Buyout Price of Cars at Carsome?
While most new cars experience a significant drop in its depreciation rate, there are a few popular brands and models with a relatively lower depreciation rate.
Based on Carsome’s Insight 2020, popular brands such as Perodua, Honda, and Toyota have a high reputation and reliability among consumers, therefore recording lower depreciation rates.
Meanwhile, here are seven popular car models sold to Carsome in 2020
- Perodua Myvi
It is no surprise that Perodua Myvi ranked first in sales for the year 2020 (29,313 units), followed by Axia (28,107 units) and Bezza (25,416 units). This makes Myvi the best-selling Perodua model in Malaysia for the year 2020. In addition to that, Perodua Myvi recorded a high demand within the used car market. Basically, increased demand for Perodua Myvis in the new car market has a positive influence on their demand within the used car segment.
Based on Carsome’s internal data, the depreciation for a five-year-old Perodua Myvi 1.5 AV is 33.44 percent or one-third of its original price. Hence, a new Perodua Myvi purchased at RM56,518 (excluding insurance) in 2015 can be resold at an average price of RM37,618 in 2019.
In fact, this car has a lower depreciation value compared to other Proton models in the market such as a Proton Iriz 1.6 Premium CVT, which was valued at RM59,731 in 2015 – this model later depreciated by 49.31 percent in 2019 to RM30,277.32.
2. Honda City
Honda Malaysia has maintained its number one position among the non-national car brands segment in Malaysia for six consecutive years. The Honda City model recorded the highest sales at roughly 34 percent. This new model, which comes with an attractive price package, received an encouraging response among buyers. Similar to the Perodua Myvi, this car also recorded a low depreciation rate of less than 50 percent in five years.
According to Carsome Insight 2020, Honda City recorded an average resale value of between 68 and 75 percent of the original price of a new Honda City. With that, you will not suffer from major losses if you decide to sell or trade-in your old Honda City car.
3. Nissan Grand Livina
Nissan Grand Livina recorded an average depreciation rate of 35 percent in the first three years of ownership. This low depreciation rate is – to some extent – influenced by the fuel consumption factor which is arguably low for such a large-sized car. Based on a Carsome survey, a used 2015 Grand Livina model can be purchased for around RM50,800 – which stems from a depreciation of about 49 percent from its original value (RM99,800).
The Nissan Grand Livina can be categorized as one of the best compact MPV models sold in Malaysia with a spacious interior that can accommodate seven people at a time, thus making a great vehicle for long-distance travel.
4. Toyota Vios
The Toyota Vios is also arguably among the most used car models on the road. This compact sedan model has a variety of features and advantages that are comparable to its competitors from the same category, as well as class such as Honda City, Nissan Almera, and many more.
According to data from Carsome Insight, Toyota Vios recorded an average depreciation rate of around 35 percent in the first three years of ownership. For comparison, Vios (2016) recorded an average resale value of around 76 percent compared to the original price for three-year-old cars.
In fact, the Toyota Vios (2014) also recorded an average resale value of around 68 percent for a five-year-old car. This high resale value is indirectly driven by consumer trust in Toyota’s brand, as well as the safety aspects offered by this model.
5. Proton Saga
Proton car models recorded a depreciation rate of around 35 percent for the first three years of ownership. Based on data from Carsome Insights, Proton Saga retained 71 percent of its original value over a three-year period, which was better than the Perodua Myvi that only retained 65 percent of its original value over the same period.
However, the Proton Saga was only able to retain about 47 percent of its original value compared to the Perodua Myvi (53 percent of its original value) after five years. This situation is could potentially be influenced by external factors including the warranty (Saga offers a longer warranty than the Myvi) and safety features (Saga BLM/FLX is not equipped with stability control) offered by previous models. However, as noted above, the depreciation rate or resale value of a car can change depending on the type of model (latest model, enhanced safety features, and so on).
6. Mercedes-Benz C-Class
Luxury brands generally have a high car market value and lower depreciation rates than other brands. In Malaysia, Mercedes-Benz models have a higher resale value than other luxury brands such as BMW, Volvo, or Lexus.
Mercedes-Benz C-Class is one of the bestselling models in Malaysia from the brand itself and recorded an average depreciation rate of around 40 percent in the first three years of ownership.
7. BMW 3 Series
In addition to Mercedes-Benz, BMW is also one of the famous manufacturers of luxury cars. The driving quality, safety features, and luxurious elements fueled its high demand, especially in the used car market. On average, BMW models recorded an estimated depreciation rate of around 35 percent in the first three years of ownership.
As for the BMW 3 Series model, it recorded an estimated depreciation of up to 40 percent over the same period. This low depreciation rate is indirectly influenced by the factors of the brand, quality, comfort, and safety aspects offered by BMW.
Tips to Minimize the Depreciation Rate of a Car
Unfortunately, you can’t run away from the value of your car depreciating. However, here are some steps you can take to minimize and slow down the depreciation rate if you plan to sell your car.
- Keep mileage readings low.
- Focus on the care aspect. Repair immediately if there is any damage.
- Buy a used car to avoid significant depreciation rates.
- Avoid excessive modifications such as spoilers, larger tires, flared wheel arches, etc.
- Sell the car at the right time before the brand introduces a facelift or upgraded model.
- Choose a popular car color. While you might like some bright colors for your car, that might not appeal to general buyers when you sell.
- Do a survey before buying a new car. Identify depreciation rates for similar models from the brand.
- Make the best choice when buying a car. A selection of metallic colored paint and leather elements is best for executive cars.
- Regular car maintenance. Keep a history of scheduled maintenance to give peace-of-mind to potential buyers.
For any other used car services and news, do check Carsome out! You can sell your used car at Carsome for the best price, fast payment, and no paperwork hassle. Check the website today to know more.