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New Car Depreciation
No doubt you have heard that
new cars depreciate the moment you drive them out of
the show room. So some people say, “never
buy a new car” you loose too much money!
But, the same principle applies
to a used car!!!! Whilst the loss is not exactly
the same the loss is certainly very similar........
First question to ask your self is why
do all cars (new and used) drop in value if you drive them
out of the show room?
The answer is as follows.
Just like Banks pay you, say 5% interest
for your money, Banks will lend it to some one else at
between lets say 7% (Home Loans) and 15% (Credit Cards). Car
dealers do the same, they pay less for the cars they sell,
than what they retail cars for. There is nothing
special about that. Normally businesses buy in bulk
or at wholesale pricing and sell individual items at retail
pricing. And therein lies the answer.
When a Car Dealer sells a car, regardless
of whether the car is new or old, lets say for $20,000
it would not be unreasonable to assume that it included
a profit margin of between 10% and 20% (most businesses
operate on much higher margins). Let us assume
the margin was $3000 (out of that a dealer will have to
pay all overheads including Insurance holding costs, staff
etc). If in fact this was the case, the car owed
the dealer $17,000.
So, if you try to return it to the dealer
who sold the car to you and it was in exactly the same
condition, but of course it would not be, because it has
now been used, additional distance has been traveled in
it, the amount of registration has been reduced, the car
will need to be re-cleaned etc. etc. The dealer would
offer you less than $17,000 for it, perhaps $16,000. If
it was a new car that you had purchased, the offer would
perhaps be less than $15,000. Remember that the next
buyer would want an incentive to buy the now used car from
the dealer and the dealer needs an incentive wanting to
outlay the money in the first place.
Here is an interesting scenario. Some
people will tell you that the BMW, Mercedes or Porsche
have the highest retained values of all cars, (they depreciate
the least) some people quote you a certain percentage (a
depreciation between 19 and 20% for the first 12 month
is a common figure that is used). If that is one
reason why one should buy a new BMW or Porsche, than I
would say don’t rush into it. Your Bank Manager
will not credit your Bank account with percentages.
Let me explain. Yes in percentage
terms they do retain their value, but about the all important
dollar terms?
The loss of 20% in the first 12 month
of ownership on a $100,000 Prestige car is $20,000. Whichever
way you look at it, it means you shiny new BMW or Mercedes
Benz lost a whopping big $54 every day you owned it!
Compare that, to a very ordinary Hyundai
costing let us say $15,000 and dropping 36% in the first
year. That would amount to $5,400 or just under $15
per day. A $35,000 Commodore or Falcon would probably
loose about 40% ($14,000) or $38 per day. You may
want to feel sorry for that BMW or Mercedes Benz driver,
his loss a far greater than yours! It pays to look
beyond the obvious and first quoted figure.
For further information contact www.carsolutions.com.au or
write to info@carsolutions.com.au
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