Buying a luxury car is not just another transaction. It is a choice the buyer makes. A choice to get the very best in terms of performance, comfort, and brand prestige. But if we were to quote the ‘automobile fanatic’ version of Spiderman’s Uncle Ben, “With great power comes great depreciation”.
In terms of automobiles, depreciation refers to the decline in a car’s value over time, owing to factors such as its age, mileage, and market demand. This happens faster and with much more intensity in luxury cars when compared to regular cars.
But why is this the case? Luxury cars come with a huge initial cost, high-end and lucrative technology, and brand exclusivity. The super-high maintenance costs, swiftly changing technology, frequent facelifts, and new models tend to drastically reduce their resale value within just a few years.
If you’re a luxury car owner, this is something that you must be aware of and consider. Why? Because it will help you figure out when to sell your luxury car and get the ideal resale value.
In this blog, we’ll help you understand how depreciation works in luxury cars, how to spot the right time to sell, and how to minimize any losses in the resale market!
What is Car Depreciation?
As mentioned above, car depreciation is the reduction in a vehicle’s value over time. Basically, the moment you drive your car from the showroom, the process of depreciation begins. Influenced by factors such as overall condition, age, and mileage, your vehicle’s march of depreciation continues.
On average, a car loses around 15% of its original value in its first year, which is followed by an annual 10% decline for the next few years. But things are different in the case of luxury cars.
The Luxury Difference
- Luxury cars tend to depreciate faster with some models losing around 50% of their original value in the first 3 years.
- Regular cars, on the other hand, lose around 30%-35% in the first three years.
- In some cases, a luxury car may even suffer a depreciation of anywhere between 50% to 60% if a particular model is discontinued or there’s a massive change in technology, or a facelift of that model arrives.
It is noteworthy that the rate of depreciation (even in luxury cars) differs based on the model. Therefore, depreciation rates are not consistent across brands either.
Factors That Influence Luxury Car Depreciation
Several factors influence the depreciation rate of luxury cars. These include:
Brand and Model Popularity
When it comes to luxury cars, not all brands command the same value and market demand. Brands such as BMW and Mercedes-Benz tend to hold their original value better than some less popular brands.
Even within the brand itself, you’ll find that some models promise better resale value than others.
Initial Purchase Price and Taxes
If the luxury car’s purchase price is high, it has more value to lose. And it isn’t limited to the actual price of the car itself. Buyers should also factor in insurance, road tax, and registration fees (These don’t carry over when the buyer sells the car later on).
Usage and Mileage
Excessive mileage also speeds up the depreciation of luxury cars. Usually, buyers prefer luxury cars with mileage below 10,000 km to 12,000 km per year. Furthermore, high-mileage luxury cars suffer more in terms of value than high-mileage economy cars.
Maintenance History and Condition
This one’s quite obvious! Luxury cars that are well-maintained and have a full-service history depreciate slower.
On the other hand, a poor service record along with a multitude of dents and scratches are like red flags to buyers (obviously, they don’t fare well in the luxury car market).
New Launches and Facelifts
Luxury brands refuse to rest on their laurels and consistently innovate. They launch new models that feature the latest technology in the industry. So, when a new model with updated features and technology arrives, it hampers the appeal of an older model.
Technological Obsolescence
Apart from the updated models, the tech industry also continues to expand and grow at an alarming rate with new innovations in AI, ADAS, etc. So, a sharp rise on this front can also make even quite recent luxury car models outdated.
Fuel Type and Market Trends
Trends in fuel type indicate that the demand for diesel luxury vehicles is plummeting with the shift towards EVs, hybrid, and petrol cars.
However, electric cars also tend to lose their value fast, primarily thanks to concerns about their battery life.
Owners of luxury cars need to keep a tab on the trends and understand these variables to figure out when to sell their luxury car.
Depreciation Timeline: When does a luxury car lose the most value?
Year 1: Sharpest Drop
Often, luxury cars lose between 15% to 25% of their original value in the first year itself.
This is mostly because the taxes, mark-up, and ‘new car premium’ evaporate as soon as your luxury car is registered.
Year 2 to 3: Gradual Continued Decline
The next two years witness a steady yearly depreciation of 10% to 15%. By the time the luxury car completes 3 years, it might end up losing around 50% of its original value.
Year 4 to 5: Depreciation Slows Down
During these two years, depreciation slows down a bit, averaging around 8% to 10% yearly.
However, if that particular luxury car model sees a new facelift version in the market, these rates might increase.
Year 6 and Beyond: Depreciation Plateaus
After the fifth or the sixth year, depreciation of luxury cars usually flattens.
From here on, the car typically retains its market value (especially if it is well-maintained).
If one looks at it from a strict value standpoint, the best time to sell your luxury car is at the end of the 3rd year. Other factors like major warranty expirations or arrival of new models must also be considered.
What are some signs that it’s the right time to sell your luxury car?
Here are some tell-tale signs that the time is ripe for you to sell your luxury car:
- Sell it before a major warranty expiration comes close (note that most cars come with either a 3-year or 5-year warranty).
- Sell it when the time for a major service is coming closer, such as transmission servicing. At such a time, many buyers consider selling a better option than repairing.
- Sell it just before a model update to preserve your car’s appeal. We know you can’t possibly know when a new model is going to get launched but keep an eye out for the news and updates to stay in the know.
- Sell it if you find that your used luxury car still boasts high demand in the resale market.
- Sell it if a major market shift is happening and there’s still time for you to sell your dream car before it suffers a massive decline in resale value.
How to minimize depreciation before selling?
Although depreciation is inevitable, some smart practices can reduce the financial sting. These include:
- Make sure that the service records of your luxury car stay updated as a complete service history goes a long way in reassuring buyers and boosting resale value.
- Aim to keep your car’s usage below 12,000 km/year as higher mileage is taken by buyers as an indicator for greater wear and tear.
- Avoid too many cosmetic customizations as they can also steal from your luxury car’s resale value by rendering many buyers uninterested.
- Invest in stuff like interior detailing and ceramic coating to give your car a clean and well-maintained appearance.
- Before showcasing your luxury car in the resale market, invest in minor updates that can boost its resale value.
Where and How to sell for the best resale value?
Choosing the right channel or platform to sell your luxury car can make a huge difference in terms of the money you can get.
Here are some options and the benefits they can provide:
- Authorized Dealerships: Selling here will provide convenience and reliability but it can also mean lower resale value due to the overhead costs and margins. However, one might get the benefit of an exchange bonus which can make the price equivalent to selling anywhere else.
- Luxury Car Marketplaces: Platforms like Motozite cater only to high–end vehicles and luxury cars. Selling here would mean that your car reaches the audience that it should.
- Direct Buyers: If you can find a direct buyer and sell to them straight away, it will eliminate the intermediary fees that you might have to pay with other options.
At Motozite, we specialize in pre-owned luxury cars, featuring curated listings, trusted valuation of luxury cars, and a network of buyers who are as passionate about luxury automobiles as you!
Understand Depreciation to take home the best resale value
It’s a given that depreciation is something that is unavoidable and your dream luxury car probably gets the worst of it. However, if you know the exact time to sell it for the best value, you’ll get the most out of your investment.
But as Charles Bukowski said, “there is nothing worse than too late”. So, don’t keep on waiting for too long. Make the ‘selling decision’ at the opportune moment and look toward us at Motozite for a profitable and seamless selling experience!