Huge depreciation in new cars in three years

Industry officials have recently said that the depreciation seen in new cars in the space of just three years could mean that for many consumers the £2000 car scrappage scheme introduced by the government may actually leave them worse off.

Officials have suggested that many consumers would actually be better off spending their own cash on a car that was two or three years old and had already fallen in value than to trade in their old car, get the £2000 towards a new car, and then have to stump up the rest of the cash, amounting to thousands of pounds, only to find that a few years down the line the car was worth less than half of what they paid for it.

Research has shown that many cars lose up to 65 percent of their original value by the third year, which means that consumers will have wasted thousands of pounds extra b y taking up this scheme. The research, by Brewin Dolphin Investment Banking, showed that by the second year cars can lose up to 40 percent of their value, and by the third year the loss in value can be between 50 and 65 percent.

Consumers considering taking up the scrappage scheme are now being urged to think about the effects of depreciation on any new vehicle that they buy.

There are some vehicle models that do not depreciate in value as much as other cars, such as the Mini and the Honda Jazz. One official involved in the research stated: ‘The best performing cars over the last 12 months in terms of residuals have been super-mini and city cars. ‘People have priced these down during the recession and reduction in production has caused a shortage of supply of used vehicles in this segment.’

Tags: scrap cars, residuals, Business and Economy, car depreciation, consumers, industry officials, shortage, Honda Jazz