Ask Honest John Question of the Week: Why has my car lost 30% of its value in 12 months?
Fri, 09 Aug 2024
Dear Honest John,
"I bought a 2017 Lexus RX450h Luxury last year from a Lexus dealer for £27,000. Now the price has dropped by nearly £10,000. How and why could this happen? Will the price go up in the near future?"
- SP
Dear SP,
The value of a vehicle, or the price it will sell for, varies depending on who or where it is being sold. Main dealer prices are generally the highest, followed by independent car dealers. Private sales are usually cheaper still, while trade-in values and trade sales between dealers are the lowest of all.
Although you paid £27,000 for this vehicle last year, if the same vehicle was sold at the same time by an independent or as a private sale it would have been advertised at a lower price. If a private seller tried to sell the same car for the same price as a main dealer, no private buyer in their right mind would choose the private option.
Similarly the trade-in value for that same vehicle would also have been significantly lower. Although it may seem unfair, this is the mechanism by which the vehicle retail industry generates its profits.
The other factor to take into account is depreciation which affects almost all vehicles, with only older or exceptionally rare vehicles ever increasing in value. Other factors can also affect the value of a car, such as its popularity or any known faults that could make buyers more wary.
Unfortunately there is no way to avoid these effects, only to mitigate them as best you can. Depreciation is at its most severe in the first three years from when a vehicle is new, so one approach is to buy a car at three years old and then sell it once it is five years old, thereby enjoying the relative newness of the car while missing the steepest period of depreciation.
Also trading in your old vehicle against a new one is convenient, but it does not offer the best value for money. To get the best price for your old car selling privately is likely to be the best option, although this requires more time and effort.
