The Indian automobile industry is at a brisk of paradigm shift in terms of the number of new cars sold versus the number of old cars or used cars sold. There used to be a time when owning a car was a luxury did. Things changed with the Fiat Premier and later Maruti 800 as people realized that automobiles are more than a luxury and infact they are a necessity.
Maruti 800 came in 1983 at a sticker price of Rs 43500. Now this was still a big amount, it was definitely not as big as some other manufacturers from the past. Things started changing rapidly and within no time, many manufacturers started selling affordable cars in India like the Hyundai Santro and the Tata Indica. Banks felicitated loans and in no time, people started shifting from 2 to 4- wheelers.
And a mentality cropped that new car is the best car and one should avoid buying a used car. Since the sale of the used car was very less, their values were high (simple economies principal of mass demand - more the sale, less the price). But over the years, used cars started selling in numbers and simultaneously, cost of used car came down.
So much so was the sale of the used cars, that in 2014, for every new car sold in India, a used car was sold. Now India is a 25 million annual car market, so this means almost 25 million used cars were bought and sold in 2014. That's a large number and that affected the resale value of the car. As if the cars were easily available, negotiations were high.
Also, the disposable income of the Indians was increasing rapidly. People started shifting to new cars quite quickly. This is why we decided to put up an article on factors that largely decide the depreciation on your car. Depreciation is the amount you lose between buying and selling of a car. We will explain how depreciation work and factors affecting it below -
So the simple science behind depreciation is as soon as you buy a car, whether used or new, it loses a good chunk of its value. There are few rues on which depreciation works, though not standard. Suppose you bought your car for Rs 10 Lakhs after all the insurance and road tax. The general rule says that you will pay 10% for road-essentials like the insurance and road-tax which you will not get back. And you lose 10% on car every year.
So in the very first year, the car will lose some 20%, followed by 10% every year. So after driving your car for 4-5 years, it values come down to 50%, or say Rs 5 lakhs. Now this is not a standard as we said earlier, but the depreciation on each car will hover around these numbers. This will be a bit different in terms of the used cars as you obviously don't pay for the insurance and taxes.
Now this is where you could play a role in getting the depreciation value as low as you can and sell your car for a good amount. We have listed down five essential factors that may hamper the resale cost of your car.
1. Choose the right model, variant and trim
The very basic of resale value start from choosing the right car, the right variant and the right trims or model. The homework done on these aspects will always help you get more resale value or less depreciation per se. Ain't Maruti Suzuki India's number one company for more than 2 decades for this reason only.
· First and foremost choose the right company that has good demand in the market - Marutis and Hyundais and Hondas are always in demand.
· Then choose the right car, the car you are looking forward to might have a good alternative in some other company. Like Maruti Swift may have good resale as compared to Hyundai Grand i10.
· Next comes the fuel type you are looking forward. While a diesel model might set you back by Rs 1 Lakh extra, it certainly is cheaper to run and gets you extra bucks. Do your calculation wisely.
· Also, the right variant or trim is essential to select. If you can shell out a bit extra money, go for a variant that provides maximum features and essential features like power windows, power steering, music system. These things fetch extra amount in the market and reduce the depreciation cost.
2. Keep your car for longer
We already explained you how the depreciation on the car works. It starts with 20% in the initial year, dropping down to 10% in the next couple of years. This is where one should think of holding a car. Because the depreciation afterwards ranges from 5-7%. So the message is loud-and-clear, if though you will lose upto 50% of your car value in first 5 years, the rate of depreciation will slow down gradually. But if it's worth it to hold a car for so long considering the maintenance it requires, is a different story altogether.
3. Maintain your car
Servicing a car regularly and maintaining a log book can fetch you some extra thousand bucks. A correctly serviced car will not leave be not face much mechanical trouble and can be easily spotted by the right hands. It also leaves the impression that the car has been taken good care off and it will not demand much work after being purchased. This can reduce the depreciation on the car and hence can get you some extra money.
4. Choosing the right model year
Another important aspect of reducing the depreciation on the car is choosing the right year model. And that is very much true in India considering the host of offers dealerships come up with during the couple of months in the transition years. Suppose you are looking for a vehicle in January - the dealership guy will pursue hard to buy the December made model because of sales target as well as the discounts they will offer. But the problem is, once you buy a December made model, it is counted in the previous year, adding another year to the life of the car. This will result in another 5-10% increase in the resale value. But you have to decide for yourself - whether the discounts given to you will make up for another 10% loss in the car. Sometimes the deal is worth taking and sometimes it's simply not.
5. Choosing the right color
BMW offers some 40 color options for their cars. While this may be a good news for the customers, as diversity helps them choose well, this is also becoming much problem in case of depreciation. We all need that special color that stands out of the crowd and makes you feel special. But the question arises, who else wants that color? Which leads to the increase in depreciation amount. The best way is the safe way - choosing a popular colour that will be accepted widely.
The color preferences vary from country to country. But without any doubt, white, silver and black are the most preferred colors across the globe. According to the leading paint manufacturer, DuPont, the buying preference for last year was as follows-
• White – 23%
• Black – 18%
• Silver – 16%
• Grey – 13%
• Red – 10%
• Blue – 9%
• Brown/Beige – 5%
• Yellow/Gold – 3%
• Green – 2%
These ratings were global and taking India into consideration, white color is approximately bought by 40% of car buyers followed by silver and black, with a minute margin. That doesn't mean that one should go for only these limited set of colors, but one has to consider and calculate how much depreciation does the green car attracts over a white car!
While these are the important factors that could help reduce the depreciation on the car, these are certainly not the only factors. Many other factors also contribute to depreciation of the car. We hope that after studying all these factors, you will be able to save money on your car next time you will sell it.