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Learn Why a New Car Loses Value - Ottoman

Learn Why a New Car Loses Value

new myvi

new myvi

It is a question that many shoppers fight with. A good amount of the public will argue that buying a used car in Malaysia is the way to go. The same amount of people will argue that buying a new car is the only way to go. The rest, are not sure.

When a customer comes down to a car showroom, one of the first questions the salesperson ask is:
“Mr/Mrs, have you considered whether you would prefer a new car, or a pre-owned vehicle?”

Very often people will have one or the other as their choice. Then the salesperson will ask further:
“Is there a specific reason you are set on that option?”

Most often the response is the same.
“Pre-owned is better! When you drive off the lot in a new car you loses too much value”

Or they will say:
“A New Car is better! You get way better interest rates, fresh warranty, and no headaches.”

So which is it? New cars or Used cars?

I want to clarify here why new cars do lose value when you buy them. Also, how this can either be an advantage or disadvantage to you. When I ask people why they think new cars lose so much value when they drive off the lot, most people stare back, and have no answer.

new myvi

new myvi

So, here is one of many reasons.

Most new cars come with far better interest rates. Many as low as 0%! If you buy those cars with cash you often get a manufactures discount or a rebate if it has a low interest rate. When manufactures ,like Toyota, have a very low interest rate, they also want to reward the cash buyer.

What does this have to do with losing value.

Say Tommy buys a brand new Toyota Camry with 0% financing over 72 months or he gets a RM2,000 rebate from Toyota.

That is a great deal! How often can you get a free loan these days.

Three months later, he finds that he needs something much bigger for work. He may choose to trade/sell his car privately or to a dealer.

That same three month old Toyota Camry is now for sale. But, it will be considered a used car. In Kuala Lumpur and many other places, you are lucky to get a used care lone with 4.9% interest rate. There is also no more RM2000 rebate from Toyota.

What price can he or a dealer ask so that the car will compete with the other brand new ones?
If he lists the Toyota for RM80,000 he is now almost on par with a brand new one. If I told you could buy a brand new car with 18 km on it or a three month old car with 4500 km for the same price. What would you choose?

Now remember, most dealerships will also have what are called “Demo models”. These are cars that staff have been using. They often sell around month 4-9 and have as many as 10,000 km on them. The dealer will give discounts as much as 15% depending on how long hey have been “demos” for. These “demos” still fall under new car promotions. I have seen a Toyota Camry “demo” have a RM3,000 discount as a demo as well as have 0% or a RM2,000 rebate. That would be an extreme case but they are out there.

Now Tommy is forced to place his used Camry around the RM65,000 mark to compete with these demos.
With in three months, his car has lost close to 25% of its original value.

So why buy new?

It really comes down to a few things. The main questions a person must ask is, how long will I own this vehicle?
If you plan on long term ownership then it really does not matter if your car loses value on day one. Take advantage of the low interest rates or rebates savings. Save some money with the warranty and go find that “demo” if colour is not your main concern.

If your are going to be a short term owner, then buying a new car is not a great choice unless you plan to lease. Many people’s needs will change cars in the next 2-4 years. Kids, or work can make that Toyota Camry seem small.

Short term owners can make the best of their money if they buy a good pre-owned car as they could sell it again with out too much value lost. Most car loans do not penalize you for paying it off early.

Tommy could buy a used Camry, and take his 5% interest rate if he can’t buy with cash. He could then sell it 3 months later and pay off his loan. He would then have only payed three months of interest and almost broken even. The only real loss would be the taxes he payed, “don’t we all”.

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