Wednesday 24 January 2018

How you can drive a much better deal by balancing mileage and condition

Buying a car: Generally as a car ages, it gets cheaper
Buying a car: Generally as a car ages, it gets cheaper

Aidan Timmons

A car's residual value can be the result of myriad effects. Time is the greatest and perhaps most linear depreciator. Generally, as a car ages, it gets cheaper. That is perfectly logical and straightforward.

However, some things help to offset or reduce the effects of Father Time, even if only temporarily, while others accelerate them.

Knowing a little about them could save you money and let you plan your purchase more beneficially.

Take supply and demand as an example. If 10 people want a type of car for which there are only three models available on the market, then residual values will likely remain strong until everyone has been satisfied.

That is how our market behaved from 2010 onwards. Most people wanted a cheap, low-tax, diesel car, but the market was barren and so residual values for diesel cars steadied.

Anything that became available was gobbled up and there was a queue of people for more of the same coming behind it.

Conversely, at the same time, petrol cars were fringe players in the market. Their values were sorely hit after 2008 (this was because we changed our car taxation system to an emissions-based one and diesel vehicles benefited substantially) as supply was outstripped by demand.

This culminated in widening price gaps between petrol and diesel cars of equivalent models.

So, if you could buy a diesel car for X, then the petrol version was X minus Y.

Now, the market is receptive to petrol cars again. And guess what? There are not enough petrol cars to satisfy demand so values are firming.

At the same time, diesel cars are plentiful and while they are still in good demand (and rightly so, I think), the price differentials to petrols are narrower than they were last year, or the year before that.

Another contributor to the rate at which a car depreciates is mileage.

When it comes to motoring, kilometres and currency are inextricably linked. The further you travel, the more it can cost you in fuel, maintenance and even residual value.

However, just to make this cocktail of arithmetic that bit more potent, mileage has varying degrees of effects depending on the age of the car.

What that means is that you cannot apply the same logic for additional mileage on a one-year-old car as you can on a 10-year-old car and vice-versa.

Everyone buying a one-year-old car expects the mileage to be low and so values tend to be bunched much tighter together.

However, a lot can happen to a car over the course of its life, so if an older car has low mileage, then it sets itself apart from the competition and it does that by costing more.

Mileage can be such an influential factor on the values of cars that it can lead to cases where differentials between one registration plate and another appear implausibly tight.

As no two used cars are the same, buyers need to consider far more than simply brand, specification and colour when they are making a decision about purchasing.

If you travel short distances, then you might capitalise on a car priced a little cheaper if it has higher than average mileage.

Alternatively, if you travel long distances, perhaps you should ignore the age of the car and buy something with a low odometer.

Used cars and their residual values are extremely complex, but paying a bit more attention to condition and mileage should go a long way.

Indo Motoring

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