Is depreciation the killer it once was?
Discussion
With the vast majority of new cars now being leased either personal or via a business, depreciation is not a factor. I'm generalising but say a typical used purchase is £6000 and returns 35mpg, in 10,000 miles that equates to about £1800 of fuel a year. Over three years that's £5,500. A lot more than the depreciation as the car would then surely be worth two or three thousand. Anyone got any real life examples?
Depreciation very much effects leasers - what do you think makes up the majority of the cost of the lease? 
I think depreciation is as much as it ever was as a proportion of the new cost of cars. The difference is that fuel prices have risen and purchase prices have (in real terms) fallen.
Depreciation will still be the biggest single cost for most new buyers (whether that depreciation is hidden in a lease or not) and other costs will exceed it for buyers of older cars, which is as it always has been.
I think depreciation is as much as it ever was as a proportion of the new cost of cars. The difference is that fuel prices have risen and purchase prices have (in real terms) fallen.
Depreciation will still be the biggest single cost for most new buyers (whether that depreciation is hidden in a lease or not) and other costs will exceed it for buyers of older cars, which is as it always has been.
Edited by kambites on Friday 13th December 15:57
kambites said:
Depreciation very much effects leasers - what do you think makes up the majority of the cost of the lease?
Bingo. Depreciation, if anything, is more rampant than it once was imo. Where folks would be at a Ford, Peugeot, Renault, Citroen, Rover or Vauxhall garage buying the cheapest models outright or with a bank loan, they're now going to BMW/Mini, VW, Audi etc and leasing cars that are relatively expensive by comparison.
I think when the relation you are drawing between running costs (fuel) and depreciation would be more apt if you were trying to examine the justification of purchasing a newer car which for example might give 45-50mpg instead of 35mpg but could depreciate significantly further in that time, thus meaning that although you aren't spending it on fuel the overall cost over 3 years would be roughly the same.
My latest purchase was a diesel Golf (I know a PH'er with a diesel golf)and it was more or less a straight swap (cost wise) for my previous car, except my justification was that it would both return better MPG and depreciate less than my current car so over 3 years I would be significantly better off.
However nowadays as you say many people don't factor in depreciation like they used to, with everywhere you look the MPG is being pushed as the primary reason for purchase over all else (build quality, depreciation, servicing/parts costs etc etc) because people seem to only look short term at the moment.
My latest purchase was a diesel Golf (I know a PH'er with a diesel golf)and it was more or less a straight swap (cost wise) for my previous car, except my justification was that it would both return better MPG and depreciate less than my current car so over 3 years I would be significantly better off.
However nowadays as you say many people don't factor in depreciation like they used to, with everywhere you look the MPG is being pushed as the primary reason for purchase over all else (build quality, depreciation, servicing/parts costs etc etc) because people seem to only look short term at the moment.
Thankyou4calling said:
With the vast majority of new cars now being leased either personal or via a business, depreciation is not a factor.
Bit of a generalisation that, particularly given you go on to say that a typical used purchase is £6000, which certainly wont be a leased car and almost certainly wont have been bought by a business as part of a fleet.Thankyou4calling said:
I'm generalising but say a typical used purchase is £6000 and returns 35mpg, in 10,000 miles that equates to about £1800 of fuel a year. Over three years that's £5,500. A lot more than the depreciation as the car would then surely be worth two or three thousand. Anyone got any real life examples?
Depreciation is VERY relevant for ALL car purchases, but some people chose to ignore it.There will be an infinite number of examples to support an infinite number of viewpoints.
Depreciation seems to be very much a factor.
In a moment of insanity, I recently found myself considering a new car. List price £24k.
Then I find that plenty of dealers are offering pre-reg examples, with delivery mileage, for £17k. And then I see that a year old example with 10,000 miles on it, comes in at around £13k from a franchised dealer.
So anyone buying new is losing £7k out of the door and almost 50% of the car's value over the first year.
I think that I'll be buying the year old one, thanks!
In a moment of insanity, I recently found myself considering a new car. List price £24k.
Then I find that plenty of dealers are offering pre-reg examples, with delivery mileage, for £17k. And then I see that a year old example with 10,000 miles on it, comes in at around £13k from a franchised dealer.
So anyone buying new is losing £7k out of the door and almost 50% of the car's value over the first year.
I think that I'll be buying the year old one, thanks!
Thankyou4calling said:
With the vast majority of new cars now being leased either personal or via a business, depreciation is not a factor. I'm generalising but say a typical used purchase is £6000 and returns 35mpg, in 10,000 miles that equates to about £1800 of fuel a year. Over three years that's £5,500. A lot more than the depreciation as the car would then surely be worth two or three thousand. Anyone got any real life examples?
And the purpose of finance deals is achieved. 
The fundamental purpose of breaking payments down into smaller increments is so that the buyers lose touch with what they are actually paying.
Why pay £100 when you can buy it for just 12 monthly payments of a measly £10. That's ten times cheaper.
I've lived my working life in finance and the sole purpose of any deal is to confuse more so you can charge more. And all while getting the client to think you're a great bloke.
God, I despise retail finance.
Edited by DonkeyApple on Friday 13th December 18:51
phib said:
Two examples :
730d 2008 64k new, 20.5k at 2.5 years old 8k at 5 years old
640ise 79k new 33k at 2.5years old
I would say depreciation is still rampant !!!
Phib
An interesting aside re 2008, the docks were full of top end BMWs as the credit crunch bit and most were bulk sold for next to nothing. 730d 2008 64k new, 20.5k at 2.5 years old 8k at 5 years old
640ise 79k new 33k at 2.5years old
I would say depreciation is still rampant !!!
Phib
For example, a fully specced 730D could be bought for £25k back then if you knew who to talk to. Dealers and speculators were buying blocks of cars and practically turning them out like dodgy watches in pubs.
At the same time I think I'm right that production bold of other cars fell hard and so residuals have been held up by a restricted supply from this period.
As such, I wonder if there is an anomaly in the data for cars over this period?
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