New SX4 VXi vs. 2005 Honda City GXi ?? - SX4 NPV is higher!!

[complexroots]

I am considering to buy a Segment C car from Pune. Considering a choice between New SX4 VXi (On road 715,000) vs. 2005 Honda City GXi (On road 525,000). Would be great if I could get Team BHP's advice.

Financially SX4 seems to be a better deal

Was doing the maths and interestingly figured that SX4 financially makes more sense. This is how
1. SX4: Ex-showroom 641,507 (Pune), Loan To Value (LTV) 90%, interest rate 11.25% PA for 5 years term, 3rd year extended warranty, gives me downpayment of 138,121, EMI of 12,625. Assuming salvage value of 200,000 at the end of 5 years, the NPVof the deal is coming to 343,823.(discount rate 10%).

2. Honda City: Transfer cost 525,000, LTV 70%, interest rate 19% PA for 5 years, gives me downpayment of 180,250 and EMI of 9,533. Assuming salvage value of 100,000 at the end of 5 years, the NPV of the deal is coming to 227,327. (Discount rate 10%).

Sensitivity Analysis shows that the loss in NPV is mainly due to lower LTV for Honda City. @90% LTV, the NPV goes to 298,102.

one could argue that Honda city deal is of lower value and should give you lower NPV anyway but if I change the LTV to 90% and interest rate to 11.25 in Honda City case, the NPV is going to 315,541, close to that of SX4. This shows that a significant impact is coming from 'financing' parameters.

Fuel Economy, Maintenanance, Insurance: Honda City advantages might be outnumbered by old car disadvantages
Most likley, Old Honda City's fuel economy advantage over SX4 would be lower than its maintenance disadvantage over SX4. Difference in the insurance could be neglected for the time being.

X and Y factors - No clear winner between the two car experiences
Would also need to consider factors such as physical depreciation and risk of uncertain quality in the old car, the brand new car factor (smell and feel as someone called it), machine to machine comparison, etc.

Honda City is a better engine, less noisy car. SX4 is a well-featured, macho car with a decent engine. Taken all together probably there is no clear winner between the two car experiences.

So what do you think, what should I do?

-
Complexroots

[Eddy]

Welcome to the forum complexroots.

A very nice financial analysis I must say. But the topic of NHC vs SX4 has been discussed to death on this forum and there has still not been a clear winner. So it boils down to a personal choice. Search for a while and you will get comprehensive reviews and comparisons here.

In your case, I would have gone for a new car primarily for the peace of mind and the "smell and feel".

[phamilyman]

Are you a financial consultant? Sounds so.

With due respect, you're lost in the numbers without a care for:
a. Whether they make sense!
b. Whether they're relevant for the decision.
c. Whether you earn enough to make a 30k after five years ka NPV irrelevant (its a 10-12k investment as of today - can you afford that?).
d. Car's maintainability: a 3 year old city is a 3 year old car, with its attendant doubts like u mention - NPV doesnt factor that!
e. Cars are an emotional decision. Else office cab + hired taxi for short jaunts imnsho can work out a significantly better NPV presuming your hurdle rate is decent. That would be, if you're such an analytical person as demonstrated above, and would have some idea where to invest.

So all said, just forget all tihs and buy the car that gets a smile on your face!

PS: If you're soo financial, buy a Logan - segment C, brand new, and surely if you assume that you SAVE because of lower loan, that opportunity itself can raise your NPV

[hondadude]

Originally Posted by complexroots

1. SX4: Assuming salvage value of 200,000 at the end of 5 years, the NPVof the deal is coming to 343,823.(discount rate 10%).

2. Honda City: Assuming salvage value of 100,000 at the end of 5 years, the NPV of the deal is coming to 227,327. (Discount rate 10%).

Please elaborate on how you assumed the salvage values of SX4 and Honda City.

[complexroots]

Thanks for the replies.

It is indeed an emotional decision. A car is much more than the cash-flow and assembly of mechanical components. NPV is just one tangible factor for comparing such dissimilar alternatives.

My emphasis was on the fact that financing factors can tilt the scales considerably. After reading through many threads on BHP regarding buying an old car vs. a new car, I was almost convinced that I should buy an old car. Not anymore. Probably I should put a generic thread in another sub-forum explaining my point of view on impact of financing factors.

Logan deal (or Alto deal) would have lower NPV which probably indicates that you would derive lower overall value in owning these cars as compared to SX4. Then the question comes what maximum value one can afford. I can afford SX4 but not CIVIC.

hondadude, I assumed these values rather arbitrarily. 2003 City was quoted at slightly less than 30% of its "on-road" price. Just took a number of 100000 for 3+5 years old City. These numbers do not make a significant difference in the NPV values and the gap remains wide enough.

[snaronikar]

I would always prefer to buy a new car compared to old car. Moreover, it is Maruti you get the best A** available in India and spares are also cheaper. Of course, the FE is less than the City, but you will be satisfied owning a newer vehicle which will be hassle free from niggling troubles which a second hand car may give in future.

Just for thought: Why don't you try Dzire ZXi / ZDi which has all the safety features available in India?

[karanraheja]

@Complex Roots - Go for the SX4.

[ram_hyundai]

hey dude,why dint you think of nationalised banks in case of both the vehicles and you will find that the 2005 honda is more reasonable.The interest rates for both used and new cars are same for the nationalised banks.
What do you think?
ram

[hrman]

Originally Posted by ram_hyundai

hey dude,why dint you think of nationalised banks in case of both the vehicles and you will find that the 2005 honda is more reasonable.The interest rates for both used and new cars are same for the nationalised banks.
What do you think?
ram

Nationalised banks definitely charge 4-5% higher on a used car finance. Also financing is done for max of 3 years on a used car. I can cite SBI as an example.

[ram_hyundai]

At least in kerela we get used car finance at the same rate of the new ones from SBT.Sure the tenure is less but the amount lost in interest is less.
ram

[Chris Bangle]

Originally Posted by karanraheja

@Complex Roots - Go for the SX4.

just look at these pics, if u are someone who loves a great drive, the decision would in instantaneous and unambiguous.

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[GTO]

This shows that a significant impact is coming from 'financing' parameters.

We've always insisted that, taking a loan on a 2 - 3 year old used car (and one that retains its value well) will work out more expensive than buying a brand new car. Friendly mod - Ajmat - was thinking of a used Vtec some years back. When he did the math, a new Vtec worked out cheaper.

I am a sucker for gems in the used car market but will agree that brand new is brand new. The Sx4 would be the pick from your comparo.

[bblost]

Originally Posted by GTO

We've always insisted that, taking a loan on a 2 - 3 year old used car (and one that retains its value well) will work out more expensive than buying a brand new car. Friendly mod - Ajmat - was thinking of a used Vtec some years back. When he did the math, a new Vtec worked out cheaper.

That depends a lot on the loan options available.

The rate of interest for a new car and the rate of interest for a personal loan is within .5% of each other.
The lower rate of interest for a personal loan is offered based on
1. Credit Card History.
2. Old personal loan track record.
3. The deal clincher is where you work.

The roi being offered to my organization in Sept 08 was about 14.5%.
Got the value from an email in the employee forum. This when negotiated would go down to about 13%. OR in the case of banks like Std Chartered the last emi is waived off.

[Path_Finder]

Interesting maths! But it is not just financially, even experience wise it has to be SX4. And features wise too. Net Sx4 is a no-brainer choice.