ARTICLE: YOUR 5 year old car : Keep, Upgrade or Swap?

[asr245]

Great thread GTO! surely makes me rethink about my plan to upgrade from my 2 yr old wagonR to the awaited GP or I20.

Buttt a higher segment car is also about more comfort and safety. e.g. if my wagonR had ABS & airbags I might not have been so keen on replacing it.

[hrag]

My 65 month old Indica has 90260 km on the clock today. I will upgrade only if it makes sense financially - e.g. get a tax benefit by opting for a company lease. I have always been a salaried employee - don't know how the non-salaried folks see things (e.g. depreciation etc.). My previous upgrade from a 42 month / 42000 km Omni was for an A/C.

A car is not just a utility, it is a liability as well.

But then, we sometimes harbour this desire for a dream vehicle and when we think we can afford that, all these stupid numbers are discarded.

[iceman7]

Steps i follow for using a car;

Step 1: Keep using car till any problem arises
Step 2: Fix problem and continue using
Step 3: Repeat step 1 & 2
Step 4: Irreparable problem arises or repair costs just not worth
Step 5: Buy new/used car
Step 6: Repeat step 1-2-3

cheers:

But seriously, many points to ponder over GTO's numbers.

I think i am happy in the used car market.

[greenhorn]

Some things , you just cant put in terms of numbers..... Getting married, having kids. I'm sure I can come up with the numbers to prove that getting a new girlfriend is a bad Idea, But I'm sure that not a single single man would care

[Lalvaz]

Originally Posted by GTO

Shocked? Yup, me & Ajmat were too. Remember, the cost of a new car is not only the EMI. Its also depreciation, taxes, higher insurance premiums, loan interest costs etc. etc. Even if you are a business owner and can avail of depreciation benefits, the numbers still don’t justify an upgrade to a higher sedan. You can also consider upgrading sensibly. Plenty of used (and excellent) Accords, Mondeos & RS' in the 6 - 7.5 lakh price band.

This is all the more reason to maintain your car well. Not only will it last a longer period, but it will fetch you a better resale too. Now you know why I am known to use my cars till they drop apart.

Like Sherlock Holmes would say, "Thats elementary Watson!" Nevertheless, thank you for taking the effort of doing the math and quantifying the costs of a new car.

Quick question though, what if someone sells his used sedan, say a Ford Icon petrol and switches to a used diesel Skoda, would that make sense from the perspectives of Economy, Status, Mileage, Resale and Safety?

Another twist, what if one uses his own funds rather than borrowed funds for the same transaction? I ask this cos you have based your calculations on loans which are currently 14% +, which is far higher than what one can earn on deposits.

Please do the math and let me know if it makes any sense, cos I'm not too far from the 5 year milestone.

[karanraheja]

Excellent thread GTO. Most of us would nt have ever calculated all these nos.
I dont think this thread is here to confuse people upgrading their cars but just two give them some thoughts before upgrading.

[PAVAN KADAM]

whoa,, what an amount of Maths involved.

Thats too much for a person like me who loves to hate maths.

Practically saying it would make sense as well not.

Over a period of 5 yrs you start to have an emotional attachment with your existing car, and you start feeling bad if it has to go.

More over the amount of Interest you've paid on the loan taken and the high insurance premium you've paid on the initial years, the cars actual value skyrockets.

And if you sell the car you dont even get half the price. This way does it make sense.

You only save a piddley amount because of free servicing in the initial years.

EXAMPLE

My M-800

Financed Amount- 1,50,000/-
Tenure - 36 months
Down payment-75000/-
Total amount paid - 1,85,000/- with interest and processing fee
Insurance paid over 5 yrs- 40,000/-
General maintainence over 5 yrs- 50,000/-

Total cost over 5 yrs - 3,50,000/-

I try and sell the car now i get only-- 75,000/-

Inspite of the car being maintained like mad.

In my case does'nt make sense.

[vasudeva]

As noted, upgrade to a newer car makes no economic sense, if the car to be replaced has got only 50-60K and is in good condition. For example, for my old Corsa, loan has been repaid off, car is only 37K old, and so far is low cost maintenance. It fetches me only 1-1.2lakhs. If I upgrade, I have to pay 8 lakhs @12%. By comparison, Corsa depreciates at what say Rs. 2K per month.

Car upgrade is usually driven by other considerations. But why should it be so. If you look at similar aspirational products, utility products such as refrigerators are not replaced for a decade or more. But, people upgrade a TV say every 5 years or so.

Again: I have seen through the tricks of car marketers and will not upgrade my Corsa before 2011-12.

[quicksilver]

Originally Posted by GTO

Shocked? Yup, me & Ajmat were too. Remember, the cost of a new car is not only the EMI. Its also depreciation, taxes, higher insurance premiums, loan interest costs etc. etc. Even if you are a business owner and can avail of depreciation benefits, the numbers still don’t justify an upgrade to a higher sedan. You can also consider upgrading sensibly. Plenty of used (and excellent) Accords, Mondeos & RS' in the 6 - 7.5 lakh price band.

That's well said GTO. Can you add another option for people who still retain the old/used car and buy an additional/new one? There are many people out there that just go and buy a new car once the EMI on the current one is over (god save us from those EMIs), while still holding on to the old one for sentimental reasons.

Another point in favour of the old cars is the value that appreciates after a while... no, I am not talking about classics here, but the inflation related value. I know few people who bought M800's and sold it after 10-15 years for a price that was higher than the purchase rate. Not sure if this applies to a B or C segment car though.

[DKG]

Originally Posted by vasudeva

utility products such as refrigerators are not replaced for a decade or more. But, people upgrade a TV say every 5 years or so.

Come to think of it I have a Sanyo fridge and a Panasonic TV that is 18 years old!! They refuse to die and still do a great job.

The best quip I heard was from the son of a friend who came home once with the boy. As he observed he quietly says to his Dad " Papa have you noticed everything in this house is so old" !! He freaked out when I told him the sofa set was more than a 100 years old.

We had a good laugh.

[PAVAN KADAM]

Originally Posted by DKG

Come to think of it I have a Sanyo fridge and a Panasonic TV that is 18 years old!! They refuse to die and still do a great job.

The best quip I heard was from the son of a friend who came home once with the boy. As he observed he quietly says to his Dad " Papa have you noticed everything in this house is so old" !! He freaked out when I told him the sofa set was more than a 100 years old.

We had a good laugh.

Not to forget your cars too are'nt they pretty oooolld.

[DKG]

Originally Posted by PAVAN KADAM

Not to forget your cars too are'nt they pretty oooolld.

Actually Pavan when those cars were built they came with lifetime warranties. They really were meant to last forever! And they seem to be holding up well. Believe me if it weren't for the higher cost of petrol and their size, we actually till the seventies used them as daily drivers, I'd still use them today.

The Japs I think introduced what is known as planned obsolescence whereby an automobile is designed to fall apart after 10 odd years so the consumer comes back to buy a new car. So going by that you actually can use modern cars for upto 10 odd years and they'll manage quite well before serious deterioration sets in.

As for the oldies I have, looking at them you will swear they will live another 100 years. They definitely will outlast me!

[suman]

Originally Posted by GTO

Retain the existing car


• Rs. 20,000 : Averaged maintenance cost per year. Thus, you would spend a total of a lac over the next 5 years on a timing belt replacement, suspension overhaul, new brake pads and other required items.

Isn't this grossly understated for a car that is 5 years old & going on to 10 including cost of service? I'm assuming that you'd be doing a fair bit of running in the car as well?

[GTO]

Originally Posted by asr245

Great thread GTO! surely makes me rethink about my plan to upgrade from my 2 yr old wagonR to the awaited GP or I20.

Selling a two year old Wagon R? You will take a huge depreciation hit, considering that any car loses its value fastest in the first three years. However, for hrag who has posted right after you, it probably makes sense as a diesel Indica @ 90,000 kms is on the verge of losing its reliability. Atleast most Indica's do a little after a lakh kms. At the end of the day, it is obviously dependent on the car. I don't suppose my Tata Indigo is going to give me reliable service for 2.0 lakh kms. And maybe it makes sense to upgrade for the Alto owner who suddenly see's his work taking him on the highway way too often. For safety alone, he could upgrade to an ABS / Airbag equipped hatch.

There will be exceptions to the rule. But my analysis covers 80%+ of typical circumstances.

Originally Posted by hrag

A car is not just a utility, it is a liability as well.

Amen to that

But then, we sometimes harbour this desire for a dream vehicle and when we think we can afford that, all these stupid numbers are discarded.

Thats precisely why we petrolheads are such suckers! Hell, I'd rather spend money on a new set of alloy wheels rather than clothes for myself.

Originally Posted by greenhorn

Some things , you just cant put in terms of numbers..... Getting married, having kids.

Now now, don't even get me into the calculation of costs related to upgrading a girlfriend / wife / kid every 5 years

Originally Posted by Lalvaz

Quick question though, what if someone sells his used sedan, say a Ford Icon petrol and switches to a used diesel Skoda,

Definitely makes more sense (relatively). Say if I were to sell my 5 year old C-segmenter today for 4.5 lakhs and buy another (better) used car for 6.5 lakhs, someone else has taken the depreciation hit on my upgrade. Plus, you are switching from petrol to diesel which could offset part of the upgrade money (Note : With a Skoda? Who are we kidding!)

Another twist, what if one uses his own funds rather than borrowed funds for the same transaction?

There is still the opportunity cost, isn't there? The 5 lakh rupees (hypothetically) of your own funds could be invested, instead of being locked into a depreciating liability. Point is, don't upgrade for the heck of it. The modern cars of this era last far longer than the point at which most are sold. If you do upgrade, be aware of the financial implications.

Originally Posted by vasudeva

As noted, upgrade to a newer car makes no economic sense, if the car to be replaced has got only 50-60K and is in good condition. For example, for my old Corsa, loan has been repaid off, car is only 37K old, and so far is low cost maintenance.

Classic example again! Why sell your Corsa for 20% of how much it originally cost you when she has 75% of its useable life left?

Isn't this grossly understated for a car that is 5 years old & going on to 10 including cost of service? I'm assuming that you'd be doing a fair bit of running in the car as well?

Not so much, Suman. I have considered most C-segment sedans before arriving at this figure. Of course, there would always be exceptions to this rule. But a typical Maruti, Honda or Hyundai won't cost you too much for than a lac in upkeep over 5 years. From the 5th year onward. If you must, throw in another 50 grand for the rough users / high-runners. You still save a substantial amount compared to an upgrade.

That's well said GTO. Can you add another option for people who still retain the old/used car and buy an additional/new one? There are many people out there that just go and buy a new car once the EMI on the current one is over (god save us from those EMIs), while still holding on to the old one for sentimental reasons.

Another one of my favorite topics : We actually have a detailed article (ARTICLE: The real cost of car ownership) on the cost of owning a new car.

[vasudeva]

Originally Posted by GTO

Classic example again! Why sell your Corsa for 20% of how much it originally cost you when she has 75% of its useable life left?

To be honest, more than the economic reason and financial tightness now, it is my wife who drives the 5-year old Corsa now. Why upgrade for her!!!