Why Used SUVs and Sedans Lose Resale Value Differently

Depreciation and resale value are factors that affect both new and used car buyers. It is inevitable and each car in India undergoes depreciation. Depreciation and resale value depends on many factors like body type, engine and gearbox, variant, brand and running costs. Body type is one of the biggest factors affecting depreciation. 

You can broadly classify the body types of cars sold in India in three categories. These are Hatchbacks, Sedans and SUVs. Of these entry-level hatchbacks hold the most resale value and have a steady rate of depreciation. However sedans and SUVs depreciate differently, a factor driven by market trends, demands, practicality and even social stature. Let’s check out why sedans and SUVs lose value differently.

Sedans vs SUVs: The Depreciation Trend

Regardless of body type, used cars suffer the most depreciation in the first year of ownership. From information gathered from Cars24 sales data and CARS24 Gears of Growth report, we have a detailed outlook of how different body types not only suffer different rates of depreciation, but also have a unique depreciation pattern. Here’s a closer look:

On average, both SUVs and sedans retain 75% of their resale value in the first year of ownership. Sedans depreciate the most in the first five years of ownership and thereafter show a stable rate of depreciation. 

SUVs on the other hand hold their resale value well in the first five years with the least amount of depreciation in the first three years. From the fifth year onwards, SUVs exhibit a higher rate of depreciation. Interestingly, in the ninth year of ownership, a sedan holds 38% of its resale value while an SUV holds 39% of its resale value. Both exhibit similar rates of depreciation in the ninth year. 

Factors Defining Sedan and SUV Depreciation

It’s clear that SUVs have a better rate of depreciation in the early years than sedans. There are a lot of reasons for this preferential shift. Here are some popular ones:

Market Demand: Buyers Love SUVs!

A decade ago, sedans were preferred for their luxury and social status while SUVs were bought for their utility and practicality. As the years passed, customer preferences began shifting to SUVs thanks to their size, high seating position, space and perceived safety. Manufacturers too started catering to the demand, offering SUVs with more creature comfort and technology, further fuelling demand. 

As demand for SUVs rose, the popularity of sedans declined. Manufacturers started offering smaller SUVs at the price of sedans. Buyers lined up given that SUVs in India have a higher social standing than a sedan. The rising demand for SUVs had caused carmakers to cater to the demand by scaling down sedan production and even trimming them from their lineup. 

Practicality: More Space equals better value

SUVs generally offer more cabin space than sedans due to their body shape.. This applies to boot space as well. SUVs also have higher ground clearance and bigger wheels. Some SUVs also come with All Wheel Drive and Four Wheel Drive drivetrains. These features make SUVs more adept at handling our country’s bad roads and speed breakers than sedans. 

Sedans traditionally are generally more fuel efficient, offer a comfortable ride and are better to drive than SUVs. However, their highlights are overlooked for the versatility offered by an SUV, especially in the case of large families. 

Fuel prices: Diesel equals affordability

Fuel prices have, for long, played a crucial role in depreciation. Both SUVs and sedans in India have seen a shift toward petrol powertrains in recent years, though many older diesel variants still exist in the used market. For a long time, petrol prices have been higher than diesel. This made diesel running costs a lot more affordable than petrol powered cars, despite SUVs returning lower mileage than sedans. 

In recent times though, diesel SUVs have lost the affordability edge. The gap between diesel and petrol prices has significantly reduced making running costs similar or, in some cases, in favour of sedans. As this price gap shrank, more buyers started preferring petrol SUVs. 

Buying into The Lifestyle Dream

Carmakers sell the SUV dream well. The idea of having an SUV to pack your bags and drive your family to Leh and Ladakh. While most buyers drive their SUVs primarily in the city, the idea of having a vehicle which can take you anywhere has customers buying into the dream. 

While sedans are more suited for most of your daily driving needs, their low ground clearance holds them back and is a major factor for buyers skipping them for SUVs. 

Sedans and SUVs with the Best Depreciation

Some sedans and SUVs depreciate well, matching those of hatchbacks. Here's a list of the sedans and SUVs with the best resale:

Rate of Depreciation: Sedans

Midsize sedans hold their resale value better than sub compact sedans. The Honda City is the 3rd best selling sedan in India. The Japanese sedan is known for its bulletproof reliability and powerful petrol and diesel engines which explains its low rate of depreciation.

It is followed by the Maruti Suzuki Ciaz which is loved for its low running and maintenance costs and frugal engines. The Honda Amaze has the least depreciation among sub-compact sedans. It is preferred for its build quality, reliability and fantastic ride quality. 

Rate of Depreciation: SUVs

The Tata Punch created a new segment, making the SUV body style more affordable and accessible to even the hatchback buying masses. Its styling, cabin space and high ground clearance make it popular among the masses. 

The Hyundai Venue depreciates slower and has better resale value thanks to its positives like good build quality, refined engines and space. When launched, the Kia Seltos was an instant bestseller. Its styling and feature packed, premium cabin help its popularity in the new and used car segment. 

Conclusion

While every car undergoes depreciation, sedans and SUVs undergo different rates of depreciation for various reasons. SUVs are trending thanks to their space, practicality and social appeal which make buyers prefer them over sedans. SUVs depreciate slower over the first five years of ownership. 

Sedans, meanwhile, lose most of their resale value in the first five years of ownership but undergoes a slower average rate of depreciation than SUVs. New and used car buyers are increasingly preferring SUVs over sedans which means the demand for sedans will keep growing, a demand that will spill into used SUVs as well.