ARTICLE: Resale Value - The Silent Killer

[ajmat]

Mileage kya hai ?
EMI kitna ?
Discount milega ?

These probably are the only questions one hears from potential customers. Few ask about the biggest motoring cost – Depreciation! Your mid size car might cost Rs 1,50,000 in annual fuel costs, but could lose more than that in depreciation alone. As we never see the cash flow out, not many bother on this aspect until resale time; when we find that our beloved pride and joy is worth peanuts.

So why do we buy new? - Status, virginal bliss, the smell of a new car, tax reasons…and in some cases - the secondhand car is either overpriced, unavailable or has dodgy credentials.

FACTORS THAT ACCELERATE DEPRECIATION AND KILL RESALE VALUE

Company Reputation : PAL, Sipani, Daewoo etc. were all hit and run artists. Need we say more? The lack of back up and spares, reliable after-sales as well as defaulting on deposits means no one wants that manufacturer’s car. A don’t care attitude to brand management only helps the cause of depreciation. Curiously, an arrogant attitude preserves brand image – witness Honda and Mercedes.

Repositioners & Discounters : This is when the manufacturer decides to introduce new variants to attract people from segments below. The Hyundai Accent, Ford Ikon, Maruti Baleno, Ford Ikon etc start with higher prices, and then flood the market with bargains and specials. Totally destroying value! Someone bought a Mitsubishi Lancer for 9 lakhs in 2003 and got only 5.4 lakhs after barely 2 years. Why? Hindustan Motors had slashed the price of the Lancer, thus destroying the value of existing cars. A Honda City would have fetched at least Rs. 1 lakh more. The Cielo’s values were massacred when they reduced prices by 30%; making it cheaper to default rather than continue with repayments. The excess supply did not help either. Key Culprits – HM, Ford, Opel (not Chevy), Hyundai (Sonata and Elantra) etc.

Overpriced when new : Skoda Superb, Baleno (originally), Mondeo, Pajero, Fusion etc.

High Maintenance Costs : Opels and Fords – after the three year itch – come with the big hit. My boss’s Corsa had repairs of Rs 30,000 coming up just after 40000 km. Similarly another colleague’s 36000 km Ikon EXi had a Rs. 11,000 service – too many leaks/ seals/ dashboard failures. Someone paid Rs. 75,000 to replace the CD player of a Ford Mondeo. Ditto with the Vectra. No one wants to buy a car that has expensive upkeep. Maruti and Hyundai win over here.

Bigger than their Boots : Some cars are too big for the brand value (e.g. Hyundai Sonata, Ford Mondeo). Perception is that the car is a bigger brother of the little one. Nissan were clever in China and launched the big cars first!

Dogs : Cars that should never have existed or just wern't right. Examples are the Ford Escort 1.3, Accent 1.5 diesel, Tata Estates, Mercedes C180 etc.

Low end versions : Stripped-down basic variants rarely do well in the used car market. People want the best (or atleast adequately-loaded versions). Witness the Swift & Esteem Vxi etc.

Driver/ Multiple driver driven – The more drivers, the more the chances of mistreatment.

Overlooked Petrol Sibling : The diesel sisters of these cars are so competent, that the petrol versions are completely overlooked. Examples are the Qualis, Innova, Octavia – competent but totally outshone by their diesel siblings).

Colour Choice : Conservative colours are known to fare better in the used market (white, silver etc.). Shades of bright yellow, pista green and so on have limited acceptability.

Christmas Trees : The fancy rare car you buy is worth nothing later as the market for it is low and maintenance costs are high. There is an immaculate 2002 BMW 740 for sale at Rs 37 lakhs, but a rumoured offer (and the best yet) was made for Rs 15 lakhs. Why? Because people would much rather prefer a new Mercedes E-Class and lesser hassles. Buyers from this segment also want the latest. Ditto old Lexus’s – There was a 1994 one on ebay for 12lakhs – no takers – advertised for Rs 8 lakhs still no takers. S-classes (new at Rs 60 lakhs) are available for Rs 30+ lakhs after 4 years.

FACTORS THAT PRESERVE RESALE VALUE

Taxiable : Cars like the Qualis, Tavera, Esteem, Indica and Accent etc. are always in demand as they are popularly used as taxis. Good demand = higher resale.

Car Size : The less money you pay, the less you lose.

Popularity : If a car didn’t sell when it was new, chances are it won't sell used either. Try selling a Rover Montego or a Ford Escort or an Opel Astra.

Number of owners : One owner per 30,000km is acceptable; anything more is suspect.

Limit the Accessories : These lose value fast. You can never expect a decent rate of return on your accessories.

Manufacturer Pricing Control – Mercedes and Honda buy back a lot of cars and hence can control resale prices. Honda never discounts, restricts supply to actual orders and limits stock carefully. This reflects in strong resale values. However, this is only applicable if you have a good product placement to begin with.

Keepers: Another indicator is how soon newly-released cars appear on the second hand market. You see very few E-Class' for sale. New Honda City’s only now are coming on to the market, but there are already loads of Elantras and Sonatas up for grabs.

Lady driven : Actually makes no difference – they are as human as men.

Service History – A documented service history usually adds upto 5% onto resale value.

EVASION STRATEGIES

There are opportunities in these risks…read on -

I like something different now and then! : Buy a 1-2 year old car and sell at five if you like changing cars. Let someone else take the massive initial depreciation hit.

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 – a well maintained Santro will fetch 20,000 more than a regular example. Buy small or popular.

The Fusion has got Rs 1 lakh off and makes a great bargain. Correct? : Excuse me! The parts are expensive and no one exactly wants it even if you know it is a good car. Go for it as long as you keep it for 10 years.

Some examples of cars that keep their value? : Citys, Corollas, Innovas, high end Swift, Santro, Wagon R, Accord’s, Octy diesels etc.

Any used bargains for those in the know? :- Well maintained highway driven, high mileage cars (especially if you will be a low user). These cars will have run at the right temperature and less wear and tear i.e. 10,000km on a highway = 3,000km in town. The only incremental expenses are tyres and wheel bearings.

About places of origin? : - Place of origin is important. Less desirable are the coastal areas which mean potential discount for corrosion. Delhi cars = brutality. Mumbai = values are diluted/ dissolved. More desirable = Bangalore (but that advantage is eroding) and other peripheral metro areas. Mysore, Chandigarh. Coimbatore - highly desirable. Hyderabad is also good value as it has a dry climate and decent roads.

[kutlee]

What an article! Nice reading to start a day! Thanks Ajmat.
What about electric vehichles? Anything put on second hand market?
Also deos LPG kit add value? or is it just a waste?
Save on insurance if planning to sell coming year.

[msdivy]

Good article Ajmat !
I feel one more factor - color of the car - affects resale value. I guess white has best resale value.

[suman]

Originally Posted by ajmat

About places of origin? : - Place of origin is important. Less desirable are the coastal areas which mean potential discount for corrosion.

Agree with this bit and I would think Mumbai also falls into this category?

Originally Posted by ajmat

Delhi cars = brutality.
More desirable = Bangalore (but that advantage is eroding)

Didn't really get the logic behind this. I would think resale value at a particular palce is also influenced by the on-road prices prevailing for new models. If a place like Delhi has the lowest on-road price versus a Bangalore which (AFAIK) has one of the highest, then I would think that (all other things being equal) the resale prices would be that much lower or higher anyway.

[esteem_lover]

Ownership of the car is another most important criteria in deciding the resale value. Even if the car is in ship shape, if it is a 2nd or 3rd or nth owner the book value of the car is very bad.

And the RC : If the RC is a duplicate, lesser resale value. If the car is transferred from another state, lower reale value.

[squarecut]

Quite an eye opening article, I must say. We may be living in a world of inflation, but try telling that to a car owner who wants to sell it off.

[theMAG]

The Bigger than Boots point is the main reason why our market will always be drien by VFM cars. Good writeup.

[narayan]

Dogs : Cars that should never have existed or just wern't right. Examples are the Ford Escort 1.3, Accent 1.5 diesel, Tata Estates, Mercedes C180 etc.


how come accent 1.5 diesel in that list? i thot it did amazingly well on the sales charts and commands good resale value ? were u referring to the 1.5 petrol ??

[Hellraiser]

excellent article ,i agree with most of the points.

i guess some more cars can be included in the good resale value list
accent viva diesel
zen
the good old 800/alto

[narayan]

adding on to the points that affect resale value ive also noticed things like " company owned " " doctor driven " , "parsi owned " factors improving resale value all though i dont know whether it really is the case

[cartech]

Great article!!
My personal experience: my Corsa 1.4 GLS, 2003 april, artic breeze with single owner, 30K milage with six speaker Blaupinkt MP3 player is fetching 1.5L in exchange(for new car) deal with Maruti Truevalue! My OTR price in Apr 2003 was 5.88L. (2003 Zen will fetch 1.85L) I have learnt my lesson an will go for Swift ZXi.

[ajmat]

Originally Posted by esteem_lover

Ownership of the car is another most important criteria in deciding the resale value. Even if the car is in ship shape, if it is a 2nd or 3rd or nth owner the book value of the car is very bad.

And the RC : If the RC is a duplicate, lesser resale value. If the car is transferred from another state, lower reale value.

Have touched upon this - did not know about the other two points - thanks

[quote=narayan;382832
how come accent 1.5 diesel in that list? i thot it did amazingly well on the sales charts and commands good resale value ? were u referring to the 1.5 petrol ??[/QUOTE]

I meant the first Accent diesl - the one with the TUD5 - actually it is a 1.4

Originally Posted by narayan

adding on to the points that affect resale value ive also noticed things like " company owned " " doctor driven " , "parsi owned " factors improving resale value all though i dont know whether it really is the case

Company owned can also mean many drivers, lots of abuse, tight budgets. Use your own judgement

[vid6639]

Another car with very poor resale value the Mitsubishi Lancer and the Lancer Cedia.

All because of HM marketing and the Cedia is also suffering. both good cars but both have poor sales.

people dont buy the new Cedia only because of low resale.

[shuvd]

Having the same problem with my Elantra CRDi. Nice car, great engine, good milage but, no image and hence very few takers
On top of that, Hyundai have steadily decreased the price of the Elantra.

[headers]

Hi..a good and detailed write up ajmat, guess the color of the car also makes a difference in resale..silver being the most popular, followed by black and white..

metallic colors which tend to fade / faded / repainted ones also fetch a lower value than the market..generally !