Question:
How fast does a new car lose its value? Is it true that some models lose as much as 40 percent in their first year, thereby making it a waste to buy a new car?

Answer:
The generally accepted depreciation of a new car in its first year is 20 percent to 25 percent, depending on the condition and popularity of the vehicle.

For example, a new BMW 330i automatic costs R388 000 (excluding registration etc), and if you tried to sell it six months later, a dealer would offer you R303 000 for it (representing around a 22 percent decrease in value).

A 40 percent reduction in value is on the steep side but if the car has high mileage and it has been in an accident or it is in bad condition, you could well see that kind of drop.

Losing game

So yes, buying new cars are a losing game. You will do better buying a one-year-old second-hand vehicle. However you will not get the dealer price. The dealer will sell the vehicle for around R355 000. The difference between what the dealer buys the car for and sells it for is called Trade VS Retail, and clearly they too have to get their profit.

While buying a second-hand car through a dealer will cost you more than buying it from a private seller, it will afford you a little more security if anything goes wrong. Although in the same breath, lately I have seen many instances of dealers not living up to their end of the bargain.

If you buy a second-hand car, make sure the dealership is well-known. If you buy through a private buyer, get the AA to check out the car first.