Your car burns cash

A new car will typically lose 25 per cent of its value the moment you drive it off the showroom floor.

A few years ago, a former colleague of mine bought a second-hand Aston Martin DB7. He was of that age when one can afford to drive an expensive car - his kids and, indeed, his wife had left home - but probably shouldn't. But within a year, he'd grown tired of the unwanted attention his dream car drew, and fed up with the high cost of maintaining such a thoroughbred. So he decided to trade the Aston in.

It was only at the point of sale that he realised the full price of his little dalliance with supercars - a staggering Dh105,000 in depreciation costs alone. That's Dh287 a day, or Dh12 for every hour he owned the car (night and day), a calculation that does not even take into account the regular costs of running such an automotive beauty. By any estimation then, his year of infatuation seems little more than the expensive folly of someone who should have known better.

And before that tale overwhelms you with the warm feeling of schadenfreude, have you ever worked out what sort of hole your car leaves in your wallet every year? It's fair to say that even a relatively ordinary car can be expensive to run. In particular, depreciation is the nasty little secret that most car dealers really don't like to talk about with their customers. In fact, if you've recently taken delivery of a new car, you might want to look away now or, at the very least, move to a place in your house where no one can hear you sob.

A new car typically loses more than 25 per cent of its value (sometimes up to 30 per cent) as soon as you drive it out of the showroom. If that figure leaves you scratching your head wondering why or how, that large chunk of money can be explained away as representing the difference between the wholesale price it costs the dealer to procure the car in the first place, and the retail price you, the consumer, pay for the vehicle.

And in spite of the marketing spin woven into carmaker's glossy brochures, only a tiny percentage of new cars are good investments in the sense they may offer a return on the money you have staked in them. Typically, these are unlikely to be anything other than recently launched premium offerings that may be in short supply worldwide, including the new four-door, four-seat Porsche Panamera. With customers already subject to a reported six-month waiting list, it is not unheard of for Panameras to resurface on the second-hand market at marked-up prices only days after being first registered. Don't expect this situation to last too long, however, as the more Panameras that Porsche delivers the less demand will outstrip supply.

Worse still, for the average buyer, a car's value will typically fall to around half its original ticket price over the first four years of ownership, or less if you are forced by circumstances to make a distress sale. On the upside, by the time a car is 10 years old, depreciation will have slowed down a little and your car should be worth around 10 per cent of its original value. Dennis Bridgewater, 45, bought a new three-door Nissan Patrol in Abu Dhabi in September 2006. He did not put a deposit down on it, and the car cost him Dh100,000 plus a Dh17,000 loan arrangement fee. Mr Bridgewater duly began pay back this sum over four years at Dh2,449 a month.

Unfortunately, the Australian expatriate lost his job in the capital last summer, and was forced to sell the car before moving back to his home country. He estimated the Patrol, with 75,000km on the clock, was worth Dh55,000. But, realising he had little time to waste getting rid of the car, he willingly took Dh45,000 from a cash buyer. However, before he sold, Mr Bridgewater had to pay the outstanding element of the loan (10 monthly payments plus an administration charge for settling the balance early) of Dh27,459.

In total, in three years of ownership, the Patrol cost him Dh120,521 in finance payments and a further Dh55,000 in depreciation, plus the day-to-day running costs. If all of this has got you hopping around, wondering how much cash your car has burnt, then use the information box on this page to calculate your day-to-day running costs and contact an online car-valuation service to get an accurate sense of how quickly your wheels are depreciating.

I used www.logta.com, a website that offers this service to consumers in the UAE, Saudi Arabia and Egypt through its Evaluate Your Car engine. If you prefer the personal touch, you could have a chat with your local dealer. To use Logta's service, I simply uploaded a couple of pictures of our 2007 Ford Explorer and filled in a basic form listing the car's condition and current mileage. Two working days later, I received a no-obligation cash offer of Dh50,000 for the Explorer from a dealer in Dubai. Logta told me that this figure should be accurate to within five per cent if I wanted to start negotiations. I don't, but at least I can calculate that our SUV has swallowed around Dh35,500 worth of cash in depreciation and running costs - or Dh97 a day - in 12 months of motoring.

If you are planning to change your vehicle this year and are worried about the cost of depreciation, then the best advice you can heed is to buy an older model or keep your existing car on the road for a little while longer. Any vehicle over five years old will, assuming you don't drive it into the ground, depreciate much slower than a new or nearly new car. You'll pay less money for the car in the first place (because of its age), and you'll lose less money over the longer term as the hard hit of depreciation slows down.

However, if you heart is really set on buying a newer car, then don't be sweet-talked by the dealer into driving away in a special edition. It may look great in the showroom, and it may make your next-door neighbour green with envy when he sees you driving it, but the extra money the car costs you will not be rewarded with higher residual values. And if you're tempted by the seemingly value-added extras on offer when you specify a new car with a dealer, you'd be better to think aftermarket rather than options list - at least you can transfer a portable navigation system or a Bluetooth device from one car to another.

You could also consider leasing as a better option than buying, either from a main dealer or from one of the many car rental shops in the UAE - particularly if you work in an industry vulnerable to redundancy or relocation. You can, for example, lease a 2010 3.5L Mitsubishi Pajero for approximately Dh4,000 a month, or a 2.7L Toyota Land Cruiser Prado for Dh5,000 a month. For that, you'd get fully comprehensive insurance and maintenance, roadside assistance and a like-for-like courtesy car in the event you had an accident.

You'd also be driving the latest model, not have the hassle of disposing of the car if your circumstances suddenly changed and could trade your rental car for a newer model every year. The disadvantage is you'd be paying a premium price for this convenience, although the cost of leasing appears to stand up pretty well when compared to Mr Bridgewater's Nissan Patrol. These sorts of contracts also usually have monthly mileage restrictions, too, so check the small print.

Whatever you do, though, don't be fooled into thinking your car is an investment, because it's not. It's a depreciating asset that's made of metal, glass, plastic and rubber, and one that can be costly to maintain. Once you adopt this kind of perspective, you'll be surprised by how free the joys of motoring start feeling. @Email:[e-mail]