Oily Rag – Bargain Buying a Car

 Read more Oily Rag articles by Frank and Muriel Newman 

Up to two-thirds of the luxury cars for sale at a recent auction were repossessions, and the prices were bargains on what one would have paid a year or so ago.

Although oily raggers are more likely to look for economy and safety rather than luxury when buying a car, tough times in the motor vehicle market is good news for the thrifty – given the biggest cost of owning a vehicle is the loss in resale value.

As a general oily rag rule of thumb, if you buy a brand new car you will lose 30% of its value by the end of the first year, 15% in the second year and 5% every year after that.

If you buy a used car that is one year old it will probably lose 25% in the first year of ownership and about 7% every year after that. If you buy a used car that is two years old or older, you can expect to lose about 10% of its cost every year.

A Statistics NZ survey done a couple of years ago shows transport is a household’s third largest expense area, behind housing and food. The average household spends about $135 a week on travel: petrol accounted for about $40 a week, other running costs like repairs and tyres $20 a week, and licensing and insurance also around $20 a week. The biggest single cost was the loss in resale value of the car, and the loss of interest on dead money tied up in a liability.

In practical terms it means buying a brand new car doesn’t make a lot of sense, and the less you pay for a car the better.  Here are some tips from readers:

• One reader writes that they were able to reduce their vehicle costs by replacing (at no additional cost) their two vehicles with one that combined their needs for safety, comfort, and space.

• Another reader described how he got a bargain on a very tidy Subaru. It was advertised for sale on the roadside for $4,000 but he thought it was worth about $3,250. It had been parked up a couple of weeks so he made a “cheeky” offer, $2,000. It was of course rejected but he left his phone number with the seller. He heard nothing, but each day he passed the vehicle on his way to work he knew the phone call was more likely. Sure enough, three weeks after making his offer the seller accepted the $2,000!

• A reader recommends buying a car that is a few years old, with around 80,000 km on the clock. It should give trouble free motoring for at least 100,000 km, or about 7 years use for the average family.

• Another reader has some suggestions about negotiation:

  – Ask the salesperson if they are the one who will make the selling decision and only deal with that person – not a “closer” who comes in later to try to increase   your price.

  – Make an opening offer that is low, but not out of the ball-park.

  – Decide your walk-out price ahead of time.

  – Knowing that you do not have to do the deal is your strongest negotiating tool.

  – Be patient and if a stalemate is reached, leave the door open for the seller to come back with a lower price.

  – Don't be distracted by pitches for things like extended warranties blah blah blah and claims that there are other buyers interested in the vehicle.

The bottom line is the less you pay for a vehicle the less you are going to lose on the resale.

* Frank and Muriel Newman are the authors of Living off the Smell of an Oily Rag in NZ. Readers can submit their oily rag tips on-line at www.oilyrag.co.nz . The book is available from bookstores and online at www.oilyrag.co.nz.