Thinking of buying a brand new car? Think again

RSM Australia 28 May 2021 16
Volkswagen Golf car

Buyers prepared to wait until a car is a few years old can save more than 40 per cent on the purchase price. Photo: File.

Following the incredible hailstorm Canberrans experienced in early 2020, car yards across the ACT were flooded with thousands of buyers on the hunt for a good deal on a new car.

Many of these buyers would have been faced with the age old question of whether to buy a brand new car, or a used one.

People often answer this question emotionally, rather than financially. We may love the feeling of driving a brand new car, or the status it grants us when we roll up and hear the ‘oohs and ahhs’ from friends and family, but would we still buy brand new if we knew what it was really costing us?

RSM Australia’s director of business advisory Andrew Sykes says most people would be shocked if they knew how much they stood to lose by purchasing a brand new vehicle.

“You can’t discount the emotional reasons for wanting to be the first person to drive a car out of the car yard,” he says. “But you really do lose anywhere up to 20 per cent of its value the minute you drive it away, and it only gets worse from there.”

Andrew and his team ran the numbers on the depreciation of a range of vehicles to see what it really costs the first buyer. What they found is enough to make anyone think twice before signing up for a brand new car.


READ ALSO: Is it worth owning a car in Canberra?


Looking at a mid-size luxury SUV over five years, Andrew says the average cost of a mid-size luxury car in 2015 was $87,193, including luxury car tax, registration, stamp duty and insurance. If kept in reasonable condition, that same car was worth $48,318 in 2018, and $32,187 in 2020.

“This means the person who buys the car when it’s three years old receives a whopping 44.6 per cent discount,” he says. “On the flip side, the buyer has lost almost 50 per cent of the car’s value.

“A person who waits until the vehicle is five years old gets an even better deal – a 63 per cent discount.”

For those looking at lower priced cars, the depreciation is not as large but is still significant. The average purchase price of a mid-price car, such as a Volkswagen Golf, was $35,826 in 2015 including registration, stamp duty and insurance. If the same car was purchased in reasonable condition in 2018, it was worth $23,305, a 35 per cent discount. At five years old, it’s $19,123, a 40 per cent discount off the initial purchase price.

Looking at the lower end of the market, the purchase price of a Hyundai i30 in 2015 was $30,641, depreciating 34 per cent to $20,362 after three years, and 39 per cent to $18,667 after five years.


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RSM Financial Services Australia paraplanner Ross Trimboli adds that with some manufacturer’s warranties now extending up to seven years, it’s difficult to argue the benefits of buying brand new.

“One of the top reasons people cite buying a new car over a used one is repairs,” he says. “But these days you can certainly expect to get a five-year car warranty from the date of first ownership, and some manufacturers even offer seven years.

“So if you take the time to look around for a three-to-five-year-old car in good condition, the chances are you’ll find one with a few years’ warranty on it, too. And this drastically reduces the risk of having to pay for expensive repairs.”

When it comes to shopping for a used car, Andrew and Ross both suggest approaching it with a calm but determined attitude.

“There are great deals to be found from both private sellers and used car yards – it just depends on the type of car you’re searching for,” says Andrew.

“Try to set a budget and a list of ‘must-haves’ and ‘nice-to-haves’. Then keep a lookout.

“You may find something beyond your wildest dreams, and the money you save could be used to pay off credit card debt, your mortgage, or simply to make everyday life a little easier.”

For help with budgeting, investments, debt restructuring, tax and more, call the RSM in Canberra office on 02 6217 0300.

This is a sponsored article, though all opinions are the author’s own. For more information on paid content, see our sponsored content policy.


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16 Responses to Thinking of buying a brand new car? Think again
Jon Rooks Jon Rooks 12:09 pm 29 May 21

And this is why I never buy new

    Michael Bee Michael Bee 8:17 am 28 Jun 21

    Hi mate, please get in touch as i lost your number 0422760306, cheers

Futureproof Futureproof 12:03 pm 29 May 21

I bought a new 4WD ute. Not worried about depreciation as it is the last vehicle that I will buy. Bought it in country NSW and not Canberra. Canberra tax was an extra $3k

Capital Retro Capital Retro 9:03 am 29 May 21

This analysis is based on a private user buying a car.

Leasing one (which is the way most business purpose vehicles are acquired) is a totally different kettle of fish as the owner (lessor) claims the depreciation.

I’d like to hear a sequel on leasing from RSM.

Rick Davis Rick Davis 8:52 pm 28 May 21

Such great research guys well done!

“New asset is more expensive than the same one that is 3 years old”

Aside from property, what can you buy for more than $10k that doesn’t depreciate?

Nate Mooré Nate Mooré 11:42 pm 27 May 21

This may be the rule of thumb, but not currently. Look at the current 4wd Ute market - people are selling 12mth old cars for more than they paid in some cases. Manufacturing delays have dried up new car supply. It’s almost a short term investment strategy. I’m sure there are other categories where this is true too.

Michael Dunn Michael Dunn 9:18 pm 27 May 21

Compare values of new cars to used cars right now and see which you'd rather buy.

Bronwyn Wilson Bronwyn Wilson 7:35 pm 27 May 21

I bought a brand new car ... 6 weeks later it was severely damaged in the big hailstorm of 2020 ... but not enough damage for it to be replaced.

It was repaired.

Poorly.

Totally tainted the new car experience.

I’m still finding things wrong with the repairs.

    Kel Spnce Kel Spnce 6:14 am 28 May 21

    Bronwyn Wilson get back in contact with either the repairer or your insurance and make them fix it

chewy14 chewy14 6:24 pm 27 May 21

This is a really meaningless analysis unless they look at the actual running/repair costs over time vs simple depreciation.

What good would a second hand car be to you if it breaks down a year after buying it?

I have no doubt that there is a financial penalty from buying new over used, just that this effort doesn’t come close to showing it.

Stephen Esdaile Stephen Esdaile 6:20 pm 27 May 21

I bought a 10 year old Jag with 40K on the clock for one sixth the original price. It's a gorgeous car, but the original owner losing over $120,000 for 40,000 kms is just stupid. I wish I was rich enough to be stupid....

Deborah Gale Deborah Gale 5:30 pm 27 May 21

Great if the 5 year old car has all the service updates needed - tyres, brakes, battery etc. if not your big saving can set you a lot of $$.

Linda Stapleton Linda Stapleton 4:40 pm 27 May 21

I had a brand new car once...it was the biggest dud I have ever driven. Everything went wrong with it. Second hand all the way........ well until I gave up cars altogether and went public transport ;-)

Rollersk8r1 Rollersk8r1 3:56 pm 27 May 21

All well and good to throw depreciation figures around but I suggest you look what’s happening in the real world, in Canberra especially. The used car market is insane, plus new car dealers have a captive market and don’t offer much in the way of discounts. A friend of mine bought a near new VW Tiguan and sold it for the same price 12 months later. Used prices are also remaining stubbornly high – or even appreciating for popular models like Toyota Landcruisers and the last of the V8 Holdens and Fords.

    JC JC 6:19 pm 27 May 21

    A lot of the car makers these days have fixed prices on their cars. So the Canberra captive market theory goes out the window.

Capital Retro Capital Retro 7:45 am 27 May 21

I doubt if the principals of RSM are driving around in cheap, second hand cars. Before I retired from the financial services sector 10 years ago every business principal I knew in that industry services drove a luxury car and they changed them frequently.

CBR Tweets

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