Which is the better buy? New or used?
This is one of the most common questions I get asked. From a pure ego point of view, undoubtedly new beats used, but from a Rands and Cents point of view, used is king.
How can I say that? Well…lets start by looking at the Auto Dealers Digest and you will see that there is no book value for cars of the current year. They start with 2007(at time of writing in December 2008)
Lets take an arbitary example. A 2008 Audi A4 2.0 TDi sells new for R 298000. The book retail value of a 2007 model is listed as R 229000, whilst trade value is R 199300. That is a drop of R 98000 in one year. In that specific case, if you had put your ego in your pocket you could have been at least R 69,000 better off - and probably more in the current market. I have been very conservative in this example. The reality could be a lot worse.
Or try this as a test. Go and buy a new car and drive it straight home and return to the selling dealer a week later saying you have made a mistake and would like to sell the car back to them. I guarantee you will be dumbstruck at what you will be offered. In the example case of our Audi, you might be offered R 200,000. What this tells me is that a new car loses on average 30% of its value the day you drive it out the showroom. Remember that the selling dealer has to now sell a USED car and even though the mileage might be negligible, it is still technically a used car, so he has to make his selling price low enough to entice a buyer to rather buy used, than new and think about insurance later on.
You pay a large premium for the privilege of driving in a brand new car. That's fine if you have the money, but if you really want to save money, then buy used. Obviously there are another set of rules for buying used, but I have covered those elsewhere on this site.
There are rare occurrences when supply is low and demand is high, when buying new might actually be financially superior, but they happen far and few between. In 2006 when the new level Mercedes C Class was launched, is a good example, when one could fetch a higher price a few months later for what you actually paid new. Its also known simply as inflation.
Where new cars have the upper hand over used is the finance packages they are able to offer. You will often hear ads where a new car is offered at prime minus 7% and even more in some cases. How do they do that? It's fairly easy. The manufacturer offers an incentive via one of the major banks and those interest rates are then subsidized by the manufacturer as an incentive to attract customers to buy the product, whilst the finance company enjoys the benefit of high volume and exclusivity.
When buying new you have no idea how popular your chosen car will be in two or 3 years time when you want to resell. So that becomes quite a big gamble. If you are buying used, try to buy the first year of the newer range. In other words, don't buy a run-out model, or the last year a particular model is made.
In short, providing you go about things the right way, buying used will almost always be better than new. In most cases today, new car warranties are valid for several years and more than 100,000 kms. These are mostly transferable, making a used purchase very attractive.
Even the very cheap Chinese cars that are available today, do not necessarily represent good value for money, despite the low price tag. The test comes when you need to resell it and you find it is worth between 20 to 50% less than book value.
I am going to list the different manufacturers' ability to hold resale value in the current market, from best to worst: This is only my subjective opinion based on what I experience on a daily basis.
1. Volkswagen (excludng Passat)
2. Toyota (excluding Camry)
5. Mercedes Benz (C Class only)
6. Opel (Corsa/Astra in particular
8. BMW (excluding 5 and 7 series)
40. Asia Wing
Marques like Porsche, Maserati, Jaguar, Aston Martin, etc. are not included as they fall beyond the scope of this talk. I have also omitted some of the minor makes like Proton.