Why are used cars having same depreciation as brand new

[TangoElite]

I've analysed this trend over time, to decide whether to buy new or second hand. In my estimate, the current trend of second hand cars having similar depreciation as new cars has only been around for about 2-3 years, and is most likely due to falling COE prices (sellers who bought at high COE) and loan restrictions.

 

Loan restrictions is a bit of a wild card in that it increased the downpayment requirement, hence the lower absolute price of a second hand car became more important to buyers than the depreciation per year considerations. Also, some second hand dealers came up with shadow financing schemes which circumvented the loan restrictions, hence expanding their customer base.

 

Otherwise, if you look at my experience since 2010, you would see that the normal expectation of second hand cars having lower depreciation generally holds:

 

2010: Bought 3Y old car at $4.6k depreciation pa / same car depreciation per year if new was $8k

2014: Bought 7Y old car at $10k pa / new $20k pa

 

When I was shopping in 2016, I checked prices for 8 cars 4 age points - @ new, 2Y, 5Y, 8Y - and realised that depreciation pa was mostly flat. Hence makes perfect sense to buy a new car in this environment.

 

excellent post!!

 

hit the nail on the head.

[Kyrios]

GREED.

[SuPerBoRed]

Willing buyer.. willing sellers.. not happy.. don't buy.

[Silklee]

My simple reasoning is this.One of the reasons why this is the case is because, when you buy a new car, the price you pay includes the profit margin of the dealer. 

When you buy a second hand car, the price you pay already factored in the profit margin of the dealer in the first transaction PLUS the profit margin of the second hand car dealer. So you are paying for 2 parties' profit margin. 

Edited May 31, 2017 by Silklee

[SuPerBoRed]

My simple reasoning is this.One of the reasons why this is the case is because, when you buy a new car, the price you pay includes the profit margin of the dealer. 

When you buy a second hand car, the price you pay already factored in the profit margin of the dealer in the first transaction PLUS the profit margin of the second hand car dealer. So you are paying for 2 parties' profit margin. 

 

If what you are say is correct.. then tru the years..  2nd hand car prices shld be always around same dep/yr with brand new... 

 

As bro@fungyee77 has rightly pointed out...  

 

last time the dep is lower becoz its 2nd hand... and to add on...  last time no need 40% downpayment...  

 

Its the people who dont want to/cannot afford this downpayment, that start snapping up 2nd cars....  

 

demand and supply... 2nd hand dealers KNOW AD cannot circumvent this rule...  and are just taking advantage of the situation.. 

[Sdf4786k]

If what you are say is correct.. then tru the years..  2nd hand car prices shld be always around same dep/yr with brand new... 

 

As bro@fungyee77 has rightly pointed out...  

 

last time the dep is lower becoz its 2nd hand... and to add on...  last time no need 40% downpayment...  

 

Its the people who dont want to/cannot afford this downpayment, that start snapping up 2nd cars....  

 

demand and supply... 2nd hand dealers KNOW AD cannot circumvent this rule...  and are just taking advantage of the situation.. 

 

last time dont have tier tax. But if you looking at the lower end of the cars then of course we looking at low OMV to begin with.

 

Then there are those buyers who cannot afford loan even for second hand cars , so the 2nd hand dealer make it more expensive and then rebate back. But only hear say hor... too many eyes out there 

 

last time conti cars only for people who cannot afford cars. Jap cars yen very high.

 

Conti cars rust and spoil like instant coffee during raining days.

 

at least last time got cheery QQ to buy for whats its worth. Now COE so high, quite pointless.

[Atonchia]

So if my current model no longer in production, new version model depreciation is 1.8 times my current pre-own car.

 

Can I say I have gotten a good deal?

The selling price of current version is 1.5 times of my current version when it was new.

[Squeaky]

last time dont have tier tax. But if you looking at the lower end of the cars then of course we looking at low OMV to begin with.

 

Then there are those buyers who cannot afford loan even for second hand cars , so the 2nd hand dealer make it more expensive and then rebate back. But only hear say hor... too many eyes out there

 

last time conti cars only for people who cannot afford cars. Jap cars yen very high.

 

Conti cars rust and spoil like instant coffee during raining days.

 

at least last time got cheery QQ to buy for whats its worth. Now COE so high, quite pointless.

Interesting comment... but I don't understand!

[Solar]

So if my current model no longer in production, new version model depreciation is 1.8 times my current pre-own car.

 

Can I say I have gotten a good deal?

The selling price of current version is 1.5 times of my current version when it was new.

Like the pre fl w204 C class I sold to dealer.. and recently appeared in the portal.. depreciation is near $15k.

New W205 C is $16900.

Difference is the technologies and the uncertainties of the old car's history..

If one doesn't mind, then it's a 'good deal'

 

Btw.. the odo I found as advertised was adjusted down by 40k km....

The car was mechanically okay when I handed over though.

Edited June 2, 2017 by Solar

[flashbang]

Actually it is due to downpayment. Last time 100% loan, who want to buy used car? In fact, depreciation was NOT straight line - 1 or 2 year old cars would be selling for less than 70% of a new car price.

 

Now all got downpayment, people cannot afford a 100k brand new car at 10k/yr dep, but can afford a 50k 5 year old car also at 10k/dep. In fact dealer wont even sell you for 50k, they will sell at 60k for 12k/yr dep and people still rushing to buy as 24k downpayment is more affordable than 40k downpayment

[Wt_know]

a $100k brand new car, $40k downpayment very hard meh? ... opps flamesuit on

somehow i dont believe downpayment is the cause for high used car depreciation

Edited June 2, 2017 by Wt_know

[7hm]

I am trying to comprehend. A brand new is the same price as old car by prorating the brand new depreciation value.

 

Many people discourage from buying new by saying you lose 30% value the moment you step out of the showroom.

 

Ive gone through the listings and made comparisons. It's not the case. Used cars sell up to 95% of brand new car value even if 1 year old with over 10k mileage

 

The original buyer of the car lose 30% because they must sell at 70% to the dealer. Maybe less if the car is unpopular and they only get dereg value.

 

The second hand dealer then sell at 95% of the brand new price. Guess who song and not song.

[Shull]

a $100k brand new car, $40k downpayment very hard meh? ... opps flamesuit on

somehow i dont believe downpayment is the cause for high used car depreciation

Why not?

 

50k for a 5yr car (with 15k down payment and max 5yr loan) is easier to stomach than a brand new 100k car (with 30k down payment) and max 7 yr loan.

 

Not to mention monthly installment will be easier to stomach too.

[flashbang]

a $100k brand new car, $40k downpayment very hard meh? ... opps flamesuit on

somehow i dont believe downpayment is the cause for high used car depreciation

 

Recently during lunch overheard a group of 40+ guys in office wear talking at the table next to mine. One guy said he was looking at PI cars because "AD cars 40% downpayment, how to afford?". I guess PI can offer undertable loans with lower downpayment.

 

There are many of these people around who bought big cars during the SJ* period for cheap prices with 10 year 100% loan, now struggling to work out their finances to afford their next car...

[Atonchia]

Like the pre fl w204 C class I sold to dealer.. and recently appeared in the portal.. depreciation is near $15k.

New W205 C is $16900.

Difference is the technologies and the uncertainties of the old car's history..

If one doesn't mind, then it's a 'good deal'

 

Btw.. the odo I found as advertised was adjusted down by 40k km....

The car was mechanically okay when I handed over though.

The depreciation for new and old is only 11% difference, probably better to get new car. Save on major servicing.

 

Just to check, will it be easy to adjust ODO of cars that auto flash message to service the car when the servicing mileage is reached?

[Atonchia]

Actually it is due to downpayment. Last time 100% loan, who want to buy used car? In fact, depreciation was NOT straight line - 1 or 2 year old cars would be selling for less than 70% of a new car price.

 

Now all got downpayment, people cannot afford a 100k brand new car at 10k/yr dep, but can afford a 50k 5 year old car also at 10k/dep. In fact dealer wont even sell you for 50k, they will sell at 60k for 12k/yr dep and people still rushing to buy as 24k downpayment is more affordable than 40k downpayment

Let's say

A 5year old car has the depreciation of $14,500 and when it was 1st launch the dep was $17,000.

 

So can I say the dealer sold it at a fair price?

[flashbang]

Let's say

A 5year old car has the depreciation of $14,500 and when it was 1st launch the dep was $17,000.

 

So can I say the dealer sold it at a fair price?

 

Depends on car condition... if no major problems then good price. Dealer probably took in at dirt cheap from previous owner and ok with selling lower as he make same $ profit due to his low buy price.

[Solar]

The depreciation for new and old is only 11% difference, probably better to get new car. Save on major servicing.

 

Just to check, will it be easy to adjust ODO of cars that auto flash message to service the car when the servicing mileage is reached?

If one can afford the down payment, it certainly is.. but how many can plonk down near 190k for new, vs almost 70k for old? Even the interest can be quite big for new.

 

Odo adjustment.. no idea too. But imo shouldn't be too difficult. Otherwise it'll eat into the margin of the dealer, which was rather low for my case. Less than 10k.

Probably a well guarded trade secret recipe only shared among those inner circle.

 

If I knew, maybe I'll save the dealers trouble and adjust for them first before selling them