Auto Expert Pinpoints Financial ‘Sweet Spot’ When Australians Should Upgrade Their Cars
For both revheads and average Joes, there’s nothing quite like buying a new car. Coffees at the dealership, new car smell, driving away in the latest and greatest… It’s a shame that we don’t get to do it more often, frankly. Sadly we don’t all have Kardashian money to be out buying a new whip every year.
But the reality is that glamour rubs off quickly. Not only do most cars lose a huge chunk of their value in depreciation as soon as they roll off the lot, but with the growing intensity of technological innovation and competition in the auto industry, cars become superseded quicker and quicker. Long gone are the days where carmakers could sell a model for decades upon decades – we’re looking at you, British Leyland and Porsche.
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So with the pace of change in car tech becoming ever more rapid, and budgets getting slimmer thanks to the unfolding disaster that’s 2020, how long should we be holding onto our cars before we sell them in order to maximise returns (and automotive pleasure)?
DMARGE spoke exclusively to Mike Sinclair, Director of Content and Editor-in-Chief at Carsales, who shared some valuable insights around car ownership and when to ‘upgrade’.
“According to the Australian Bureau of Statistics (ABS), the average Australian owns a car for 7.8 years,” Sinclair shared.
“However with more and more cars on lease, people are holding onto cars longer.”
Getting cars on finance has never been more popular, and one of the main drivers (pun intended) of this phenomenon is the commercial vehicle segment. As utes have become bigger and more luxurious (and therefore more expensive), consumers who need these kinds of vehicles for work are finding themselves less and less able to purchase them outright – making finance more appealing. Moreover, because commercial vehicles are becoming more ‘car-like’ in terms of amenities as well as aspirationally, many buyers would rather have just one nice car that can do everything, rather than a work vehicle and a personal vehicle. Same difference: more utes are being sold, particularly on lease.
Sinclair suggests that the sweet spot for when you should consider replacing or upgrading your current car – from a depreciation perspective – is around 5 years.
“Most of the loss of a car’s value due to depreciation happens within the first 2-3 years. After that, given you look after your car, you won’t lose too much more of its value.”
“Your car will be worth more if it’s still in warranty – with many brands offering warranties that are 5, 6, even 7 years long, this is easier than ever.”
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Sinclair relates that most cars on the Australian market have around a 5-8 year model cycle, with longer cycles for commercial vehicles, and somewhat smaller cycles for popular passenger segments such as hatchbacks. While most auto makers make an effort to ‘refresh’ older models with new tech and options in order to stay relevant, the pace of technology provides a very strong incentive to get the most up-to-date model available – much like mobile phones, as soon as they’re out, they’re almost dated anyway.
As to when in a model cycle you should buy a new car, Sinclair says it’s “horses for courses.”
“The early adopters and fanboys will want to buy something as soon as possible. Conventional wisdom would say that you should wait 12 months into a model cycle ‘just in case.’ Others would say you’d be mad not to buy at the very end of a model cycle because that’s when you’re likely to get the best price. Personally, I think those kinds of people are just laggards.”
“The most important thing you need to consider when getting a new car is that you’ve got to be looking back at the car as you walk away. Getting a new car’s different for everyone. But it’s got to excite you… It’s a treat getting a new car.”
Sinclair’s biggest piece of advice would be to buy a demonstrator model, regardless of where in the model cycle the car you’re looking at is.
“Demos are incredibly good value, particularly when brands go into runouts. Near the end of a model cycle, dealers will often be instructed to list more cars as demos in order to shift them.”
At the end of the day, any car purchase should be dictated by a considered combination of financial jurisprudence and heart. You don’t want to be going through cars like tissue paper, nor do you want to be doing yourself a disservice by driving something outdated and not fit for purpose. This is particularly true when you consider advances in fuel efficiency, hybrid drivelines and electric vehicles. Not every car becomes a classic, nor are cars disposable.
Live within your means, do your research, and don’t buy boring cars.