Eric Tipan / AutoIndustriya.com, Manufacturer Press | May 01, 2018 06:20
How to get your money's worth when buying a car
With rising excise taxes for vehicles coupled with that annual urge to shed the old for an ultra-fresh 2018 look, there are many out there right now facing the dilemma: should I buy a brand-new or a second hand?
With today’s ultra-low, all-in downpayment and installment plans for brand new automobiles, most people with a steady 9-to-5 can afford it. But, for some, why pay for a tiny but brand-new hatchback when you can have a much larger, second-hand three-row SUV for the same price, or even less?
We at AutoIndustriya decided to do some of the work for you and talk to some key people in the auto industry to come up with an answer or, at the very least, give you an idea of what options are out there and what you’re getting into when it comes to brand new or second hand cars.
If thoroughly inspected and found to be up to spec, a secondhand unit offers fantastic value for money because, minus depreciation and factoring in wear-and-tear, you’ll clearly have the option of getting more – space, power, amenities, etc. – for a lot less money.
Let’s say you’re eyeing a brand-new Php 1.058 million, top-of-the-line Vios. For this amount, you can actually upgrade to a mid-size SUV like the 2015 Fortuner G with manual transmission or a save some Php 50k and get a five-year old Fortuner G with an automatic transmission.
Even subcompact prices can get you to upmarket level if you have the patience to Google. Take the Mirage GLX base model at Php 570K. At that budget, you’ll be able to take home a 2005 Pajero and still have Php 40k to spare.
Still unconvinced? Here’s our final pitch.
Instead of getting the Php 791K Brio, you can be seen inside a five-year old CR-V A/T for Php 41K less.
Well, if you’re still on the fence, read on as we detail the pros and cons of either choice.
Condition and Maintenance
This goes without saying, brand-new wins when it comes to vehicle condition.
According to Jay Martin (Service Manager, Hyundai Commonwealth) who has worked in the service department of various local dealerships for some 20 years, buying ‘brand new’ is the better option when it comes to peace of mind.
With a brand new unit, you’ll know every bit of the vehicle’s history because you’ll be the one to make it. There's no need to wonder if it’s hiding a ‘dark’ past like being a flood-damaged unit or having been involved in a major accident. More importantly, adds Jay Martin, brand new cars come with warranties whereas second-hand cars do not.
“With a brand new vehicle, you get a fresh warranty, be it 3 or 5 years depending on the manufacturer,” says Mr. Martin.
Warranty is a big component of driving with peace of mind that if, within the warranty period, a major component breaks down due to what automotive dealers call ‘material fault’, it will be replaced free-of-charge. Material fault means it broke down without any outside influence. Warranties generally do not cover consumable parts like brake pads, air cleaner, oil filter, etc.
Some vehicle components have a shorter warranty than others. These are all detailed in the warranty booklet that comes with the brand new unit. It would be wise to browse through it before throwing a fit at the dealership because they didn’t replace the headlamps that went foggy after you took the vehicle through a flooded street, way beyond its wading depth.
Ease of purchase and acquisition
Buying a brand new car is easier and faster now than ever before. It probably isn't chronicled by the Guinness Book of World Records but there are clients that walked into showrooms, received bank approvals within the day, and drove the car home before the sun set.
The reason for the seemingly quick process of acquiring a car comes down to the streamlining of the process. All you need are two valid IDs, a certificate of employment, bank certificate and a copy of your Income Tax Return (ITR), says Ronald Baleros, Sales Supervisor of Honda Marikina.
“A minimum income of Php 60,000-70,000 would be enough to secure a bank approval for a subcompact model like a City or a Jazz,” said Baleros.
Second-hand car dealers also have their tie ups with the major banks, but it is the dealers that generally have better and more attractive deals in store as banks prefer financing a brand new car rather than a used one.
Don’t worry if your salary does not reflect that amount, and no, I don’t mean have the HR tweak that to reflect VP level compensation. Just get yourself a co-maker. Could be wife, parent or even a friend.
In legalese, a co-maker is someone who lends his/her credit by joining in the principal debtor’s obligation, so as to render himself directly and primarily responsible with the principal debtor. In other words, you’re telling the bank that’ll you’ll pay the car loan if the borrower doesn’t, but you don’t get to take home the vehicle.
Back to the City or a Jazz – for a low downpayment of between Php 30,000 to 50,000 and a bank approval, a buyer can delete the Uber app in their phone and easily drive home a brand new car the same day. The hitch is the amortization; buyers generally choose five years, according to Baleros, and it is at a budget-busting Php 16,000 to 20,000 per month.
About 80-percent of vehicle purchases have been installment basis, adds Baleros.
Don’t bother haggling for freebies like slip-free mats, tint or chattel mortgage. One-price policies by most automakers and their dealer associations in the country have patched this loophole up. They lowered the downpayment so you can use the money you saved for all that extra stuff.
This is what makes buying second-hand a good choice simply because someone else -the first owner- has absorbed the brunt of the depreciation. The very second your brand new vehicle rolls out of the dealership, its Peso value immediately goes down.
Unlike real property, every second of every day the vehicle is with you, it’s worth less and less. Buying pre-owned vehicles factors in depreciation, which lowers the value of the vehicle, making it more appealing for prospective buyers.
A car sales officer from Park n’ Sell, a popular used car vendor, who wishes to remain anonymous shared some eye-opening detailed points via an example below:
Park n’ Sell
2015 Vios 1.3 E A/T with about 18,000 kilometers on the odometer retails for only Php 480,000 all-in.
A buyer may choose between a 30% (Php 144,000) or 20% (Php 96,000) all-in downpayment.
If you put in a downpayment of 30%, you’ll only need to loan out Php 336,000; at 20% downpayment, the balance is Php 384,000.
Payment with the interest factored in can be spread out through 36 to 48 months.
2017 Vios 1.3 E A/T retails for Php 800,000.
At 20% downpayment (Php 160,000), a buyer will still have to loan out Php 640,000.
Notice that loan amount is almost double that of the two-year old unit that should still be covered by manufacturer warranty.
My source adds that banks, over the last two years, have had a high rate of ‘past due’ units that will most likely be repossessed due to a default in payment.
Don’t worry about insurance because, old or new, there are companies out there that will cover your vehicle so long as it's not too old.
You can insure all or nothing including the sum of your vehicle’s parts but never individually, which means you can’t insure just your turbocharged V8 or the pearl, silky-white paint job.
The price of your policy will depend on the value of your car, which is determined by an insurance company rep who will thoroughly inspect your vehicle. The rep looks up the book value, computes for depreciation and wear & tear before coming up with the ‘fair market value’ of your vehicle.
With the fair market value determined and based on the tariff rate dictated by the Insurance Commission, your premium will then be computed.
Certain insurance companies don’t accept vehicles that are 10 years or older. That’s because the cost of any repair for your vehicle may be more than its book value. Let’s say your 19-year old car is only worth Php 150,000, its premium will just be around Php 8,000. If you get into an accident and 75% of the vehicle is damaged, which in insurance parlance is Total Loss or Total Wreck - the repair cost of your ’98 model will be more than its premium.
Newer models though, can be repaired and reconditioned for resale and still make financial sense for the insurance company.
The Bottom Line
In the end, your financial capability and preference will really dictate the kind of vehicle purchase you should make.
Buying brand-new will tie you up with a monthly amortization that can stretch to five years depending on your downpayment. If you’ve got a stable job, security of tenure and a computation that shows –factoring in inflation and cost of living – you can keep your head above water comfortably for the next three to five years, go for it and save that lump sum of cash for something else.
Averse to the premium price, installment-mode payments, and would rather own the vehicle outright? Used cars could be the way for you. There is a bit of a risk not fully knowing of the vehicle’s history, but you can have an expert with you to inspect the vehicle fully; that's just the way it goes.
Don't go all Harvey Dent and simply flip a coin though, study your options and make the best decision for you.At the end of the day and no matter what we all say, only you can really answer the question: will it be brand-new or second-hand?