23 August 2008
It's bad news for owners of large cars - their resale value has slumped, write Richard Blackburn and Toby Hagon.
LARGE-CAR owners struggling with high fuel bills have been dealt another blow - the value of their cars has dropped dramatically in recent months.Resale values for larger cars have plummeted due to the slowing of the economy and waning demand for used cars. At the same time, new car sales continue at record levels, creating an oversupply of used models.The dramatic drop in values means there's never been a better time to buy a used Ford Falcon or Holden Commodore.Depreciation is the biggest single cost of owning a car - making up about 40 per cent of total running costs. In comparison, petrol makes up about 20 per cent.Chris D'Sousa, operations manager for used car valuer Glass's Guide, says large cars have "taken quite a hiding" in the used market."There's no doubt smaller cars are holding their value better. The rate of depreciation [on large cars] has accelerated a lot more."He says vehicles are also losing a lot more money in the first three years, with large cars the hardest hit."In 2003 a large car would lose 19 per cent of its value in the first year, 4 per cent in the second and 7 per cent in the third. Now it's more like 26 per cent in the first year, 8 per cent in the second year and 10 per cent in the third year," he says.Generally, the rate of depreciation for new cars has been running at almost twice the previous rate in the first six months of 2008.Glass's Guide forecasts are predicting large cars bought today will perform worse than any other style of vehicle, retaining just 46 per cent of their value after three years. Small cars are tipped to hold 54 per cent of their value, which is more indicative of the rest of the market.Speaking earlier this month, Ford Australia president Bill Osborne (pictured) admitted petrol price hikes had dented used car prices."The price of fuel affected consumer confidence and it also affected used car prices. Used car prices have dropped dramatically," he said.Osborne said auction prices had slumped over the past month."Over the last 30 days we've seen auction values deteriorate 12 to 13 per cent."Those drops have in turn had an effect on private sales of new cars."Typically speaking, when you see a fall in residual values used cars become very attractive relative to new," he said.The overall new car market is still reasonably strong - the first half of 2008 set a new sales record - but private sales dropped 15 per cent in July. Large cars have also suffered from a shift in consumer preferences and a decline in residual values.Osborne said demand for new cars in August looked "significantly weaker"."Our order booking rates and our retails are running significantly lower than we projected," he said. "We think there's some underlying consumer confidence issues and those are exacerbated by higher fuel costs." Higher interest rates and falling used car values have meant people are less able to fund big purchases, such as new cars.Dealers agree with Osborne's prognosis. "Credit is a lot harder to get at the moment," says Michael Atkinson, a salesman at Bartons Bayside Holden, in Wynnum, Queensland.Atkinson says a 2006 Commodore with about 40,000 kilometres on the clock can be had for less than $16,000."There are a lot of four-cylinder cars moving, but six-cylinder cars have slowed," he says.V8s have escaped the downturn, however, Atkinson says. "People that want a V8 will always buy a V8, and petrol prices won't put them off."At Knox Ford, in Ferntree Gully, Victoria, BA Falcons are selling for about $14,000, with 20,000 kilometres on the clock, says salesman Keith Baker."The bigger cars have definitely slowed," Baker says, "with the exception of Territorys, which are holding up pretty well."Sales of large cars are also heavily dependent on the region they're sold in. Camden, in Sydney's south-west, is a large-car stronghold, says one salesman at Camden Holden, who did not want to be named. "We don't have people baling out of large cars here and fuel economy is not much of an issue because the locals do a lot of open road driving," he says. "So we are sheltered a bit from the overall trends in the market."