Vehicle depreciation is a significant expense for fleet managers reliant on moving products on time and efficiently – and the losses often surpass the annual spend on fuel and maintenance.
Understanding factors that affect depreciation is crucial to making informed decisions about building a fleet that will retain its future value, while saving your business money by being sustainable and fuel efficient.
On average new models lose 15% to 35% of their original value in the first year alone. And although that rate of decline then slows, it still represents a loss that with careful management fleet operators can avoid.
What is vehicle depreciation?
It's the difference between the market value and purchase price, affected by the van or lorry's age, mileage, condition, brand reputation and market trends. By picking vehicles that retain their forecourt price, negotiating a better purchase price or finding the right time to sell or trade in, companies can stay ahead of the game and protect their initial outlay.
It's also wise to consider a vehicle's residual value – the expected value when the lease ends or after a certain ownership timescale. A vehicle with a higher residual value is often a better choice because it usually means the value will then decrease slowly.
How to stop the drop
It's good to consider general trends to avoid the significant impact. New buyers should brace themselves for the most significant depreciation hit, as new vehicles tend to lose value quickly especially during the first year of ownership.
Make and model, how well a used car or van is kept, its service history and even its colour can affect resale value so it's wise to have a full maintenance and servicing plan in place to protect your assets and ensure no lost time breakdowns.
Strategically choosing models alongside a knowledge of financing and leasing options will help fleet operators navigate the challenges posed by depreciation and make informed decisions about their next purchase.
Age and mileage matter
These are two big factors when it comes to managing depreciation. Generally, newer cars with low mileage are priced higher because buyers believe they have experienced less wear and tear. Older models, especially those with higher mileage, lose value more slowly but sell for less overall because they have already suffered a major drop in value. Other things also matter, like the overall condition and how well they have been maintained.
Monitor condition, maintenance and service history
The state of your fleet, inside and out, is crucial to its resale value so addressing minor issues quickly and keeping the fleet looking nice with full service history gives buyers confidence to pay more and will reduce maintenance costs. Taking care of your fleet is a smart choice for your firm's finances.
When buying think about models with traditionally lower depreciation rates - usually due to their reliability, build quality and high market demand. Doing your research protects your investment, gives you peace of mind and could save you money when it’s time to sell or trade in.
Simple things like sticking to scheduled services and maintenance will mean a higher resale price. A well-maintained van or lorry has lower running costs and faces fewer unexpected repairs, which is good for business and any potential buyer.
Innovations affecting depreciation
The automotive industry is changing fast thanks to innovations bringing positive benefits for fleets. In-cab technology and the advantages of a fuel card for companies means firms can save on diesel and petrol and rack up fewer miles by being guided to the best routes with discounted fuel prices along the way. Lower mileage and cheaper fuel saves money.
As new features revolutionise how safe vans and lorries are, their resale value is protected, drivers are less likely to experience accidents and the vehicle remains in pristine condition, enhancing its second hand demand. Plus vehicles with high-quality safety systems usually keep their value better.
When is the right time to sell or trade-in?
Companies that get this right will see the best resale value and a better deal. To maximise return, look at used market trends for vehicle makes and model pricing and consider when newer models come out. The key is to sell when vehicles still have good value but before they need major repairs.
Depreciation can change the total cost of owning the vehicle and affect your options for financing or leasing, so knowing how it connects to your financial decisions will help you handle the challenges of ownership better.
This depreciation curve reflects the falling value of company vehicles and can greatly affect their spending overall. Factors such as your fleet's annual mileage, maintenance programme and even the cost of insurance are all linked to your fleet's decreasing value because they affect what you pay over time.
Financing and leasing
Van, lorry and car leasing can be a good option, especially to avoid the drop in value that comes with new vehicles. With a lease, you pay for the depreciation during the lease term which means monthly payments are lower than with regular financing.
But whatever route firms choose, understanding the basics and being smart and proactive will help them manage vehicle depreciation well and reduce financial losses over time.
