CarSwitch discusses the used car resale value
How to get the better value of your car, UAE’s tech firm CarSwitch share the tricks of the trade
CarSwitch DMCC, one of the UAE’s latest and fastest-growing technology platform providing an innovative customer-centric service that completely reinvents the painful process of buying or selling used cars. CarSwitch offers buyers and sellers better prices through direct seller-to- buyer deals, complete transparency and peace of mind through a proprietary 200-point inspection and guaranteed warranty for every car. A completely hassle-free experience by taking care of every step of the process. With CarSwitch, buyers pay less, sellers get more, and neither have to do the work!
We’ve all heard cars depreciate, a lot! Particularly in the UAE, where the average lifespan of used cars is quite short (almost 4-5 year shorter than other markets). It can be quite a distressful thought if you’re selling car, particularly in a tough market as was observed in 2018 where the first half suggested new car sales declines of 20-25% YoY. These revelations can be quite daunting as you consider the financial loss you may face versus the initial car price. So why do cars depreciate? How quickly does it happen? Do some makes or models do better than others? CarSwitch have scoured through thousands of car transactions, across their platform over the last 3 years, to answer many of these questions
- Cars depreciate, and that’s only fair. Though mechanical and in more recent years electrical marvels used cars ultimately that takes its toll on the resale value of any car. CarSwitch analysis of used car sale transactions suggests used cars in the UAE lose 15-20% of their value every year. Ironically, the depreciation is highest (20-30%) in the very first year even though wear & tear is likely limited in its early months of use. The rationale behind this is even if a car is barely driven, it is still a “used car” as soon as its driven off the dealer’s lot and loses at least 10-15% of its value. This essentially marks the shift from its retail price (what a dealer sells the car for) to its wholesale price (what the dealer, or others, are willing to buy the car back for)
- The lower the maintenance costs the better the resale value is a fair conclusion, and data backs it. CarSwitch has consistently found that Japanese makes, renowned for lower maintenance costs, maintain better resale value. More popular models of Nissan, Toyota, and Honda generally have lower depreciation rates than American or European makes (40% versus 50% depreciation after the second year). One factor that can help protect your resale value is a service contract, as it covers the maintenance costs that prospective buyers may be fearing. When buying a new car in the UAE, keep an eye out for the frequent promotions where new cars are sold with several years of free service!
- Rarer cars have better resale value. It’s not surprising that CarSwitch found some rare iconic cars become collector items, and can even appreciate in value over time. As one extreme example, a 1954 Mercedes W196 Formula 1 car was sold for Euro 25m almost 60 years later (in 2013). More relevant to everyday consumers, more subtle definitions of “rare” can support better resale value. We have found on average coupes, which are generally less common, retain better value than sedans (60% vs. 50% after 2 years). Do be mindful though, even though these “rarer” cars may retain better value they can take longer to sell
- Basic cars retain better value. Used car models with only the basic set of features retain value better than their counterpart models that come with all the bells and whistles. When new, a consumer would pay 10-30% more if they chose the car model with all the options versus the basic version. However, after 4-5 years we observed that the price difference between the two models is closer to 5% indicating a greater loss in the absolute value of the more premium cars. This is particularly true for customized cars that might not fit everyone’s taste (think yellow seat belts).
- Condition matters, but generally only a +/- 5% impact on value. The condition of the car certainly affects its resale value. We have observed a 5% difference in value between a car in great condition and one in worse condition. Most common condition related issues behind this 5% decline are repainted panels indicating accident history, and body parts wear & tear. Of course, cars with rather serious mechanical issues see a much larger drop in value (of the 5,000 cars inspected by CarSwitch.com last year, only 5% of cars displayed serious mechanical issues)
The data behind these insights have been aggregated into a free online used car valuation engine you can visit to check the value of your car, or the next used car you plan to buy. It’s particularly helpful to determine how well, or poorly, cars you are considering retain value. Some of those insights are synthesized in this piece on used cars that retain the best value, and you can draw individual model comparisons on the CarSwitch.com valuation engine