What determines the resale value of cars: valuation criteria and challenges for sale

The market for used cars is expanding partly due to the rising prices of new vehicles. In this context, a critically important element is resale value, as it could affect the success or otherwise of the sale in economic terms. 

Make and model, mileage, overall condition, maintenance history, and market demand are just some of the parameters affecting vehicle depreciation and could significantly swing the car’s value from its original price. 

With this in mind, the determination of resale value is not without its challenges: market fluctuations, consumer preferences, and overall economic factors can influence the selling price of vehicles, both positively and negatively.

What is car depreciation? 

Car depreciation refers to the difference between the purchase price of the vehicle and the value at which it can be sold as a used car. The car begins to lose value the moment it is bought, and it will be impossible to resell it at the same price even a few days after purchase. The value of depreciation is very difficult to calculate, but some parameters could help in estimating the possible selling price of the used vehicle. 

How to calculate car depreciation: the parameters

When you decide to sell your car, it is important to take into account a number of factors that could affect its final price: 

• year of registration: in this case there are no surprises, the more years that pass from purchase to registration, the lower the car’s market value will be;
• miles driven: mileage is a key element in the valuation of a car, as it affects the real state of the car. The calculation states that:
  • cars with above-average mileage lose 1.5 percent in value for every additional 5,000 kilometers driven;
  • cars with below-average mileage are revalued by 1% for every 5000 km less; 

N.B. average mileage varies by fuel type. For example, gasoline cars drive an average of 10,000-20,000 km per year, while diesel cars tend to drive between 16,000 and 30,000 km per year. 

• make and model: brands that are considered most reliable in the market will suffer less depreciation than those with a “bad reputation” in terms of quality and reliability. Thus, the greater the demand for a particular model, the higher the probability that the vehicle will not suffer significant depreciation; 
• quantity of owners: if the car has had multiple owners, it automatically loses value, as it takes into account the fact that there may be hidden defects of which the last owner is unaware. In addition, use by multiple individuals results in more wear and tear on the vehicle than use by a single person; 
• vehicle’s condition: the presence of scratches, dents or other types of damage negatively affects the selling price of the used car. This is precisely why maintenance is essential, not only in case of accidents. 

To these intrinsic factors, one must add several variables related to market trends, the fluctuations of which could undermine the value of used vehicles. In particular, one must take into account the demand for specific types of vehicles and assess the best time to sell them-a prime example is diesel-powered vehicles, which are rapidly losing value in the market due to new environmental regulations. 

Private or dealer sale? 

In the process of appraising and selling a used car, one must also take into account the manner in which the vehicle will be put back on the market. 

There is a clear difference between selling or buying a car through a private party versus a dealer, and both modes have well-balanced pros and cons. The choice of mode, therefore, should be based on the end goal of the seller or buyer. 

Selling through a dealer certainly has more advantages in terms of handling the sale and more legal guarantees, while selling between private parties may be more fruitful economically but require more effort in finding the right buyer. 

These valuations also affect the price of the vehicle, as selling through a dealer involves certification that can increase the value of the vehicle by guaranteeing its good condition at the time of sale. 

In summary, establishing the value of a used car is a difficult process, often subject to variables not always controllable by the seller. It is important, therefore, to take into account all the elements that affect car depreciation and to perform constant maintenance to prevent problems when it is deemed necessary to put the vehicle back on the market. 

Escargo supports companies and rental companies in selling cars at the end of the cycle through its remarketing service, contact us for more information on this.