Resale Value - The Silent Killer

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

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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.