The Luxury Car Depreciation Solution
Luxury 4WDs are the fastest-growing segment of the car market. They're also a way to beat inflation, losing less value over time than their luxury car stablemates
Luxury 4WDs are starting to stack up as a real hedge against vehicular depreciation. The Bob Browns and Penny Wongs of this world might revile them as CO2-belching harbingers of envirogeddon, but the Australian used vehicle market is in love with them. (Used luxury 4WDs, not Bob or Penny, that is…)
Luxury 4WDs are often faring better today in the resale stakes than similarly priced luxury cars wearing the same premium badges, as our case studies below demonstrate.
Depreciation is a kind of silent fiscal killer, which exsanguinates the unwary when the lease is up, when the ad is online and nobody calls. Like, tell ‘im he’s dreamin’. No matter how hard a bargain you strike at the dealership, if you buy a depreciation dud, you will get ripped off. (Perhaps it would be better if you paid your depreciation weekly, at the Post Office. What do you think of that as a suggestion?)
Supply and demand rule the used vehicle market. Demand drives the price up – so it’s pretty obvious the market likes used luxury 4WDs more than it likes used luxury cars. And since those vehicles often represent better value than the luxury cars at the same price point, it seems new luxury 4WDs are a win-win arrangement.
Well, they are if you’re in the market for a new one. If you’re buying used, it means you’ll have to fork out a premium – exactly the opposite scenario to buying new.
Here is a representative snapshot. (The research is from redbook.com.au.) The premise is: below are five-year-old (2007) vehicles bought new for over $100k. Today, the lease is up, and the owner is dreading the tide of depreciation that’s about to sweep over him. It's luxury cars versus luxury 4WDs in the five-year depreciation stakes.
Luxury: If you bought a long-wheelbase Audi A8 (released in November 2007) it cost you $221,900. Sell it privately today, in average condition and with 55,000-odd kays on the clock, and Redbook says you’re looking at getting an average price of $77,700. Over five years depreciation has eaten away 65 per cent of its net asset value. In absolute terms that’s $144,200, or $2403 per month. (And you thought the fuel was expensive.)
Sport: A 2007 Audi S4 is a very nice car that cost $132,500 new, but on a private sale today will reap only $54,150 (average). Depreciation? Fifty-nine per cent: $78,350 in total, or $1306 a month.
4WD: If instead you decided to buy an upmarket Q7 – the 4.2 V8 FSI – it would have cost you ‘only’ $118,900. Redbook says today you’re looking at an average private sale price of $70,000. Depreciation? An absolute hit of $48,900 over five years (costing you 41 per cent of the price) or just $815 a month.
Winner: the 4WD
Luxury: A 2007 BMW 740i (E65) cost $183,000 new but will yield just $64,550 in a private sale today. Depreciation hits the owner with an absolute slug of $118,450, which is 65 per cent of the price paid – $1974 a month.
Sport: The 5.0-litre V10 BMW E60 M5 is an outstanding performance car, which cost $230,500 back in 2007. Today it can be bought privately for $82,500 (average). This bargain is funded by the first owner … who underwrites today’s price by a massive $148,000, or 64 per cent. That’s $2467 a month.
4WD: Anyone who bought the elegant E70 X5 4.8 V8 fared better. This $118,300 4WD sells today for an average of $66,900, with an absolute depreciation of $51,400. Admittedly that’s off a lower base, but it’s still just 43 per cent lost – or $857 a month.
Winner: the 4WD
Luxury: Benz’s upmarket four-door coupe, the CLS 63 AMG sold for $253,300 in 2007. Today, it’s a private sale proposition for an average of $95,800 – with 62 per cent of its value frittered away by depreciation. Absolute cost of depreciation: $157,500, or $2625 a month. But the figure that will make your accountant flinch is this: 62 per cent lost.
Sport: The E 63 AMG was nimbler, quicker, cheaper and more conventional. It sold for $227,600, but Redbook says you’ll pick one up today in a private sale for $88,900. That’s 61 per cent down on what it originally cost, or $138,700 up in smoke – or $2312 a month.
4WD: The 2007 W164 ML 63 AMG was a comparative bargain, at $159,900 – a lot of vehicle and the same AMG engine as the other two. Today, Redbook says you can sell it privately for $74,350. That’s still $85,500 done to the black dog of depreciation ($1426 a month) – but it’s ‘just’ 54 per cent lost in relative terms, which is significantly ahead of the two other ‘… 63 AMG’ vehicles above.
Winner: the 4WD