What is depreciation?
Depreciation refers to the loss of value that an asset will experience over time. This loss of value is often linked to wear and tear or the process of becoming outdated.
Why does car depreciation matter to your fleet?
As a fleet manager, if you own your fleet vehicles, then you will need to consider depreciation as a factor in your buying decisions.
Vehicles will be a big expense to your business. And with expenses, comes risk. As soon as you drive a new vehicle off the forecourt it will depreciate in value. The value of your business asset will be worth less than you paid for it. This is therefore going to impact your business finances. Particularly if you happen to purchase vehicles that depreciate quickly or depreciate more than others.
Obviously you need vehicles to run your business. But considering how much value you could be set to lose when you come to sell your vehicles should be kept in mind.
How do you calculate car depreciation values?
In simple terms depreciation is the difference in the retail value of a vehicle, compared to the price achieved once the vehicle is sold. This is known as the residual value.
There are many sources available which can be used as a guide to what your vehicles residual value is likely to be. These include the Glasses Guide and the CAP Monitor
Whilst these guides can give a good indication to the value of a vehicle, there are many other market factors which will effect exactly how much you can sell your vehicle for.
Many sites talk about calculating the depreciation of you vehicle by looking at the purchase price, the number of year’s ownership of the vehicle and the typical level of depreciation per year.
There are various car depreciation calculators available from a variety of sources so it is definitely worth using one of these to get an idea of a vehicles depreciation value. You may need to input factors such as mileage, CO2 emissions and fuel usage.
This is also an interesting article looking at wholelife vehicle costs when it comes to vehicle selection which may be of use to fleet managers trying to make vehicle choices.
How do different types of vehicle depreciate?
Different vehicles will depreciate at different levels.
Some suggest that vehicles made by brands which are perceived as premium will depreciate less than those from brands perceived as less desirable.
Others suggest that the vehicle maintenance and mileage will have a big impact.
Currently it is thought that electric, hybrid and plug in hybrid vehicles may hold their value better than petrol and diesel vehicles.
Lists are often released each year looking at the best and worst cars in terms of depreciation. So something like this may be worth referring to. For example, these two articles from WhatCar.com give an indication of the slowest depreciating cars and the fastest depreciating cars for 2019.
Can you minimise depreciation of your fleet vehicles?
There are steps you can take to try and manage and ultimately reduce the depreciation of your vehicles. These include looking at areas such as:
Minimising mileage where possible – we know this may not always be possible when meeting the needs of your business. But small changes can make a big difference especially over the entirety of your fleet.
Maintaining your vehicles – wear and tear is a big factor in depreciation. Make sure your vehicles are as well looked after as possible.
Keeping your vehicles serviced – As well as keeping your vehicle serviced in line with manufacturer requirements, make sure you keep a well maintained service record.
Looking at your vehicle acquisition strategy – ultimately the vehicles that you decide to purchase will have the biggest impact on depreciation values. Keep an eye on market trends to see which vehicles are most popular for resale. Choose manufacturers sensibly – some manufacturers vehicles hold their values better than others so be savvy to this. Decide if you really want to buy new? New cars will depreciate the quickest. Some estimates suggest they can lose as much as 10-40% in just the first year.
At Anthony Jones we specialise in Fleet insurance. Working with our fleet customers we can help you to not only arrange your fleet insurance but also to understand the types of risk which your business may face. If you have any questions about your fleet insurance needs, don’t hesitate to get in touch with us today.
