The Truth About Depreciating Assets

My grandparents once told me that owning a boat is like sailing out into open water and throwing your money to the fish. Over the years, they’ve spent an unimaginable amount of time and money maintaining, mooring, insuring and occasionally sailing their boat. Now, the time has come to sell it and I asked them if it was all worth the hassle. They answered, unequivocally, yes. 

Turns out their depreciating asset gave them something that couldn’t be measured in dollars and cents.

You've probably heard someone in your life say "as soon as you drive a new car out of the dealership, it loses 40% of its value." 

Cars are a classic example of depreciating assets. In the end, we almost always sell them for less than we buy them for. Not to mention the money we pour into them for servicing, petrol and general upkeep. And if you find yourself in possession of a lemon – like I did at 17 with a 1998 Volkswagen Passat – they can feel like a total money pit. 

But the pandemic had quite an unexpected ripple effect on Australia's car sales. The value of used cars (or, at least, the perceived value) shot up dramatically. In the case of the Suzuki Jimny, second-hand models were selling at a higher price than brand new ones. In June, the waitlist for the spunky new SUV blew out to more than 12 months, so people who managed to snag one early were cashing in. 

This spike in value of used cars can be attributed to a few factors. Supply chain issues meant new cars could not be developed as quickly; logistics issues meant cars could not be imported to Australia as often; lockdowns meant people had excess cash sitting in the bank; and border closures led to an increase in intra-state travel, i.e. road trips. The increased demand and reduced supply sent prices skyrocketing. 

Another sector that has boomed since the beginning of the pandemic is the campervan, motorhome and RV industry. These rigs have always been deemed as fairly dismal financial investments. 

“How could someone spend so much money on an asset that loses so much of its value after the first few years?”

If your primary objective is to make money off your assets, that is a totally valid question. But, if you value meaningful experiences over money (and love a good road trip), there’s a pretty good argument for investing in a caravan. Especially since the average price has increased between 10-20% in the last two years alone. 

In a similar vein, boat and jetski sales are also on the rise as Australians look for more localised travel and recreation experiences.

In a synchronised backflip with the automotive industry, other sectors are shaking off their reputation of depreciation.

The pandemic has left economists scratching their heads for a bunch of reasons, but the rise of the depreciating asset is one of the most perplexing. 

If you ask us, it isn’t all that complicated – buyers are more willing to cough up coin on things that give them enjoyment, meaning and the ability to create memories with their loved ones. You know, the stuff that really matters at the end of the day.