Resale Value - The Silent Killer

[ajmat]

Mileage kya hai ?
EMI kithana ?
Discount he ?

Probably the only questions that you here when selling cars. No one ever hears about the biggest motoring cost – Depreciation! Your mid size car might cost Rs 1000000 in fuel costs alone but could lose more that that in depreciation alone. As we never see the cash flow out, we never bother until resale time when we find that our beloved pride and joy is worth peanuts.

Why do we buy new?

Status, virginal bliss, the smell of a new car, tax reasons…and in my case - the secondhand car that I want is overpriced or has dodgy credentials

What drives depreciation ?

Company Reputation – Fiat, Sipani, Daewoo – need we say enough – the lack of back up and spares as well as defaulting on payments means no one wants your car

Pricing and Supply Strategy – Honda never discounts and restricts supply to actual orders (in the City, they have been caught out a bit). Dealer stocks are limited – this reflects in strong resale values. Ditto – Toyota. Only applicable if you have a good product placement to begin with

Discount and Price Maintenance – A colleague bought a Lancer for 9 lakhs in 2003 and got only 5.4 lakhs after barely 2 years - why – HM have reduced the price of the car thus destroying the value of the car. A Honda City would have fetched at least 1 lakh more. Cielo’s values were massacared when they reduced prices by 30% . A story goes around that people with 3-6 month old Cielo’s handed them back to the finance companies and took a hit as it was cheaper. Culprits – HM, Ford, Opel (not Chevy), Hyundai (Sonata and Elantra)

Repositioners – as above but when they decide to introduce new variants to attract people from segments below – Hyundai Accent, Ford Ikon, Maruti Esteem, Baleno. Existing owners get hammered

Overpriced – Skoda Superb, Baleno (originally), Mondeo, Pajero

High Maintenance Costs – Opels and Fords – after the three year itch, comes the big hit. My boss’s Corsa had repairs of Rs 30000 coming up after 400000 km. Similarly another colleagues 36000 km Ikon EXi had a Rs 11000 service – too many leaks/ seals/ dashboard failure. Mondeo and Vectra ditto. Mercedes also but other factors control their prices. Tata Safari

Orphans – unwanted even if they are good cars – Fusion, Mondeo, Vectra, Forester, Superb, Octy 2.0

Dogs – cars that should never have existed – Escort 1.3, Accent 1.4 diesel, Tata Estates. Low end versions - people want the best - witness the Swift, Esteem Vxi, etc

Taxiable – Qualis, Tavera, Esteems, Indica’s , Accents are always in demand as they can become taxi’s so there is demand

Car Size – less money you pay, the less you lose

Ease of selling – try selling a Rover Montego or an Escort or an Astra

No of owners- one owner per 12000km acceptable, anything more is suspect

Accessories – these lose value fast – a low spec car specced up externally never holds its value compared a high end variant.

Control – Mercedes and Honda buy back a lot of cars and hence can control resale prices

Christmas Trees – The fancy rare car you buy is worth nothing later as the market for it is low and maintenance costs are high – My neighbours BMW 740 was for sale at Rs 37lakhs – no takers - why ? People would prefer a new E class for less hassle and people in this segment want latest so your fancy car sinks out of favour in no time. Ditto old Lexus’s – there was a 1994 one on ebay for 12lakhs – no takers. S-classes new at Rs 60 lakhs available for Rs 30+ lakhs after 4 years

Driver/ Owner driven – enough said

Lady driven – makes no difference – they are as human as men

Service History – adds upto 5% onto value

What is the best way to buy?

Buy a one-two year old car and sell at five if you like changing cars

I prefer new, so I stand to lose

True – but minimise by keeping car for as long as possible to amortise deprecation. In terms of extra’s, add things that you can take off or reduce add-ons. Condition is key – I got Rs 20000 above market price for my mothers Santro as it was in good shape. Buy – small or popular

The Fusion has got Rs 1 lakh off – makes a great bargain

Excuse me – parts are expensive, no one exactly wants it even if you know it is a good car. Go for it – if you keep it for 10 years and keep it well

Which cars keep their value

City’s, Corolla’s, Innova’s high end, Swift, Santro, Wagon R, Accord’s, Octy diesels

Used bargains for those in the know

Forester if any around, Vectra, Mondeo – but approach cautiously, Elantra Petrol - unloved, boring but reasonable at the right price.
Highway, high mileage cars (especially if you will be a low user) - these cars will have run at the right temperature and less waer and tear - 10000km on a highway = 3000 in town - only incremental expense are tyres and wheel bearings

Anything else?

The place of origin is important - Less desirable - Coastal areas means potential discount for corrosion. Delhi cars = brutality. Mumbai = values are..um diluted.
Desirable = Bangalore but that advantage is eroding, peripheral metro areas, Mysore, Chandigarh. Coimbatore - highly desirable, Hyderabad is also good value - dry climate, decent roads

[lamborghini]

Nice write up Ajmat.
If you notice, it is always the drivers cars that loose out (Mondeo, Palio, Forester).
BTW we too prefer new cars and of our lot we have the Merc, corolla, OHAccord (our only second hand car and we will sell it for half the money we got it for - First Honda accord sold by Honda. Check out the first Accord vs Sonata in ACI and that is our accord) which should keep their resale value while the Palio and the lancer will not.
So in order to fix that, after 5 years, instead of seling the lancer off, we will put her to company use.
In or office, we have 2 ikons done 130Kkm and 85Kkm (2000, 2001 year resp.) and it makes much more sense to put 30K and use them for 2 - 3 years more then sell them for 1.5 - 1.7L.

[zenx]

really ?
I have a City1.3Exi bought in March 2001
* got a discount!
* spares/repairs are expensive
* I spent 8L and now it might not get even 4
I too have become a believer in a buying a year or 2 old car and keeping it as long as you're happy with it - typically 3-5 yrs.
Also to be considered are the costs of overhauls or major parts replacements. The Marutis and Tatas score high on that - you can *afford* to redo them!

[cnu]

Nicely written Ajmat. Just to add, I think the number of face-lifts a car gets after you buy a car also impacts its resale.

[Shan2nu]

Depreciation not only depends on the vehicle but also, on who it belongs to.

All our previous cars have held good value (comparitively). I hear people say that a 2001 Vtec is worth, not more than 5.5 lakhs (maybe even less) but we still keep getting offers for 6.5 lakhs.

I have no idea why it is so. I've got a feeling it's got something to do with the car being owned by a doctor. Maybe they feel a doctors car can't possibly be in a bad shape.

A 2nd hand Enzo maynot hold good value today but, just try comparing that to the one owned by the "Pope". Same car, same specs but the diff in resale value will shock you.

Shan2nu

[shuvc]

2000 VTec advertised at 3.55L @Kolkata !
Maybe there's no point buying one in Kolkata as you really don't have too many stretches to rev to the redline ..

[Jaggu]

Nice write up!

Depreciation holds good for anything and obviously in a business set up you are entitled to tax benefits and write off.

Every year a certain percentage of the value goes down, to have an idea check out how insurers calculate the % per year varying for first 4 years and comes to a residual value.

Thumb rule for a car, every single km run will bring in approx 1.5 Rs in maintenance above your regular petrol bill, always keep this in mind, so a 5 year car with 20,000 km will be better than 2 year car with 50,000 km, this is irrespective of manufacturer.

Well maintained (loving owner) cars obviously have an advantage that when it goes to market for sale, the genuine buyer (and there are, you need to be patient) will offer a better price, same holds true for the cars with regular service history.

Accidents are always a concern, if you had a meeting with your house gate also, you will have tough time convincing otherwise, and if it’s a major one, less said the better it is.

Brand yes it sure makes an impact and most often it’s a market created halo and also some smart business sense, Honda buy back ol cars do some good refurbishing and try keeping them off general second hand market to keep the second hand value perception high. Hard fact, after all this (defering to Ajmats view) Honda sell cheap in the market after they cross 3-4 years of age.

Accessories as said is best to add minimal and removed and put to use in that second car or sell separate (if you have the patience).

Ideally buy a car use it for 4-5 years and sell at approx 50-60%+ value if its moderate amount of kms logged or better make it the second car if that option is possible.

And if out there for a bargain and a budget, keep eye out for 1 year old car, with a desi wanna be NRI and give a thorough job at pampering to get the sweat smell off! And save couple of lakhs.

Big cars obviously are meant for guys with big pocket, so as a buyer they will not bother to go for a second hand with the kind of social reasons they believe in, so as sellers are hard to sell and wont mind selling at 30-40 % cost after 5 years. Good if you can buy them provided you are ready to afford the bigger tag attached to anything “up market”.

Maruti as a manufacturer holds value due to people confidence and popularity, rest all depends on case to case.

Financing options that we have now have turned the game in a very different way, both in new car and used car market.

At the end of the day IT EXISTS, and upto you how you can play it to your advantage.

Very honestly the very thought of depreciated market value holds back people like me at looking at a new car, so its actually playing to advantage of my bank balance lol!

[srasania]

nice write Ajmat.
I wanna know - does Registration Area (Mumbai-Tardeo/Andheri,Thane,etc) affect resale value??
Because recently,when I went to meet a few 2nd hand car dealers to sell my Esteem,they also asked where the car was registered..

sr

[Jaggu]

Obviosly OCTROI and even cities do matter, in a smaller state like Kerala a car from a City like cochin and a town like allapuzha the value differs.

Inidan racism

As i said every km changes value, same holds true to the distance of the car in physical location from buyer and if it travels state borders, you are doomed!! who ever said we are not regionally biased.

[Steeroid]

Originally Posted by Jaggu

Obviosly OCTROI and even cities do matter, in a smaller state like Kerala a car from a City like cochin and a town like allapuzha the value differs.

Inidan racism

Jaggu

1. there's no octroi in Kerala, so that shouldnt affect the value of cars from the city.

2. It is a matter of fact that a car from a rural or a semi-urban location in Kerala will fetch a better price than one from Cochin. Reasons are - clutch wear from stop and go traffic in cities, dents and scratches from the city drive, poor maintenance on account of lack of time, and greater exposure to salty air from the sea.

Given a choice, a person going for a second hand vehicle will go for a non-urban car because its also likely to be well looked after.

[v_s_natarajan]

Originally Posted by ajmat

[b]


Orphans – unwanted even if they are good cars – Fusion, Mondeo, Vectra, Forester, Superb, Octy 2.0

I liked the Orphan part of Fusion.

[MalluDude]

Hold on Steer!!! I beg to differ. I had this experience while trying to sell off my 1985 Amby. It got a low price just because it was from Idukki district(hilly area) and the cars here apparently have this "reputation" of being constantly revved hard at low gears to climb steep slopes and thus resulting in a weary engine. However hard I tried to convince the prospective buyers to judge the car from its drive, no luck!! And you know what, if I had changed the registration to an Ernakulam district one(Cochin is in this district), it would've worked wonders!!! Infact atleast three vehicle brokers told me this.

[ajmat]

Thanks for the feedback guys

Att: Lambo - great observation -you should become a fleet operator

Att: zenx - the 1.3 City was an exception - Honda needed to push these hard - don't understand the expesive part

att:cnu: good point - minor HM/ford style facelifts do not affect things unlike the Lancer/ Santro/Xing, new Zen/old Zen

att: Jaggu - welcome back from hibernation - you are right re: Honda depreciation later on - all depends on when the car will deterorate

Have used my superpowers to add on to my original post

[Steeroid]

Originally Posted by MalluDude

Hold on Steer!!! I beg to differ. I had this experience while trying to sell off my 1985 Amby. It got a low price just because it was from Idukki district(hilly area) and the cars here apparently have this "reputation" of being constantly revved hard at low gears to climb steep slopes and thus resulting in a weary engine. However hard I tried to convince the prospective buyers to judge the car from its drive, no luck!! And you know what, if I had changed the registration to an Ernakulam district one(Cochin is in this district), it would've worked wonders!!! Infact atleast three vehicle brokers told me this.

Dude

There are two exceptions here:

1. its an amby

2. its been used in Idukki. I was speaking about semi-urban areas, not semi-rural hills.

[Deeps]

Steer, wht about the bad state of roads in rural/emi-urban areas (am talking mainly in north india from experience)? Surely this leads to a lot of wear and tear on pretty much every part of the car.