Buying anything brand new may seem like the best way of ensuring you always get the best possible product, but it comes at a cost. Depreciation affects just about everything, and if you’ve ever heard someone talk about how much the cost of a new car drops the moment you drive it out of the dealership, you’ll know it can actually be quite expensive.
According to car leasing company Be Car Wise that cost is about 10-11% of the car’s value. If you buy a $60,000 car brand new, that’s around $6,000 you’re wiping away the moment you simply drive it away. Things don’t get much better after that, either.
Comparison site Finder says a car could only be worth 55-60% of its original value after only three years — numbers that certainly hurt to think about.
While you’d be forgiven for thinking ‘new’ lasts longer these days with all of the technology crammed into modern cars, sadly, that’s not quite the case.
“With the rapid advances in technology, a new car remains new for a much shorter period of time these days,” Chris Noone, CEO of vehicle subscription service Carly, told Business Insider Australia.
“A late model car may look new, but if it does not have in-demand features like Bluetooth or collision avoidance technology it may be considered almost obsolete. If you just bought one like this it may be worth a lot less than you paid for it when you sell it.”
It’s easy to see how depreciation is among the biggest costs associated with owning a car. So how does one get around such a hairy dollar figure?
Well, there are a few ways.
One way is simply buying pre-owned — not only cars but anything that depreciates at a rapid rate. Applying the knowledge that a car loses a decent slice of its value the moment it’s driven out of the dealership, you should always be able to get a tidy deal on a near-new model which is still in good nick.
Buying trusted makes and models in popular colours is also a good way to ensure your car maintains a decent price when it comes time to sell. Another way to avoid the true cost of ‘new’ is by simply not having a car at all. Noone said:
“People are turning to subscription services as a way to specifically avoid depreciation, as well as the other big costs like maintenance and insurance. Subscription services open up access and provide the freedom to choose a car that suits your lifestyle. Think of it as the Netflix version of your everyday transport.”
For those who don’t drive all that often, a car subscription is a good way to save money while still having the convenience a car can bring. While cars are the obvious example when it comes to depreciation, there are plenty of other industries where buyers are actively avoiding the dreaded depreciation.
The Private Financial Group senior accountant and depreciation expert Nicole Cosgrove told Business Insider Australia that technology items like smartphones are prone to rapid depreciation simply because the industry moves so quickly. Once a phone is superseded by a new model, its value practically plummets.
These days, new smartphones are being released with fewer new features, meaning many are happy to stick with the model they already have rather than jumping on a brand new unit. This behaviour is certainly showing in Apple’s iPhone sales, along with other players in the industry.
Cosgrove said buying second-hand is particularly useful for “those who don’t want to outlay large amounts of money, especially for teens or less tech-conscious buyers”.
Kym Atkins, CEO and co-founder of fashion lending platform The Volte said the avoidance of depreciation is being felt across not only the fashion industry but the greater retail sector in general.
“People are changing the way they think about ownership of items particularly due to the large depreciation and huge retail prices of brand new items,” Atkins told Business Insider Australia. “In an age of Instagram where people never want to wear the same dress more than once, the fashion sharing economy is a great antidote, both environmentally and financially.”
In many ways, the cost of new seems to be growing the sharing economy across many consumer industries. While depreciation has a hand in this switch of mindset, it’s things like environmental awareness and accessibility which are pushing it even further.
Why buy new if you don’t have to?
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