Thinking of buying a brand new car? Think again

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.

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.

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.

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