Premium
Why a car’s true value isn’t written on its price tag
If you want a brand new car and can well afford it, then go ahead. Enjoy.
Question: If you have enough cash, is it actually cheaper to buy and run new cars and replace them before they need major repairs and parts and still have a strong resale value, instead of buying used cars that run less efficiently, need more attention, give more trouble, and depreciate in value? MSD
In a word? No. Across the full range of all motoring costs from purchase to resale, new cars are (almost always) more expensive. Often much more - not just by a percentage, but by a multiple!
Yet nothing is ever that simple in motoring, because it has such a huge range of makes, models, drivers, uses, road conditions, mileages, time spans, owner resources…and other variables.
So, in a very general view…
If you want a brand new car and can well afford it, then go ahead. Enjoy.
No one buys a new car to save money. People do so because they want to and they can – for pleasure and/or prestige, socially or professionally, and in expectation of greater reliability and the most advanced technology. That’s a fair expectation, but it is not a guarantee.
Yes, a new car will have a potentially longer lifespan, but for how much of that will the new car buyer remain the owner? It would take decades to gain any overall economic advantage. And for most of that time, you would not be driving a “new” car. It ceases to be “brand new” as soon as it drives out of the showroom!
But if covering the initial price is difficult or the overall economy is crucial, a used car could save you a lot…without any major heartache, headache, or loss of utility or reliability. Choice is a balance between essentials and indulgences.
The economic advantage of buying used cars is especially true in Kenya, where new car prices are among the highest in the world (because our volumes are low in business-margin scales and our taxes are high) and we have access to one of the biggest and best used car lots in the world (Japan, where their national economic policies make used vehicles roadworthy and especially cheap: their 80 million vehicles are almost all made in Japan and pay no import duty when new, they are expected to be maintained in nigh perfect condition, and when they reach eight years old they face such stringent and expensive licensing conditions that local resale values plunge and it is indeed cheaper to buy new.
The result is very, very good for their domestic car manufacturing industry (a pillar of their economy), is good for their motoring reliability, safety, and emissions standards, and generates a large number of eight-year-olds in excellent condition…for export (!) at unbeatably competitive prices.
We buy them. That’s where nearly 90 per cent of our imports come from.
What this does for our national economy is open to debate. What it does for the individual motorist is clear. Used cars are effective and widely affordable. New ones are – in practical terms – an expensive indulgence.
Imported cars at a showroom in Mombasa. Prices of used cars have jumped by up to Sh600,000 in four months.
To simplify the calculation, set aside the motoring costs that are relatively similar, irrespective of age. Things like fuel consumption, oil changes, tyre wear, brake wear, general routine service, and short-life parts like filters. These can vary a lot from car to car and driver to driver usage, but remain similar (per kilometre of use) between cars that are nearly new and those of a similar class that are quite old.
Excluding those items, the really big cost differences are in purchase price, insurance premium, and rate/scale of depreciation. Even in the “middle range” of a good quality family car, the new option will cost about three times the price and therefore lose resale value at more than twice the sum of a used import, and cost two or three times as much to insure.
That alone is a difference of millions over an ownership period of several years – far, far more than the older car is likely to cost to restore and or maintain over the same period.
Worldwide, the difference is even more extreme at the large/prestige/luxury end of the market.
As a widespread rule, new cars – from the moment they leave the showroom - depreciate by about 20 percent of their much higher price in the first year and 10 per cent per year thereafter until their resale value is about 80 percent less than the new price, at which point they become “runners” and their market value depends primarily on condition, not age.
A used car continues to depreciate at the same percentage (of a far lower figure) until the “runner” stage, but if it starts its extended life in good condition, is well maintained and sympathetically used, it makes no significant difference to any of its “values” (price or utility) whether it goes on for another 10, 20 or 30 years.
Second hand cars.
I bought a 20-year-old Prado about a decade ago. It has done well over 300,000 kms (including extensive use in expeditionary conditions, and it is not parked on a silk cushion), and is still worth about the same as I paid for it—depreciation zero. If I bought a car of the same class today, it would cost more than ten times what I paid for mine, and it would cost ten times as much to insure. The money I am not spending on a new one is earning interest in a bank.
In terms of utility, my old car will do exactly the same things as a new one. Other than routine service items (which are the same as for a new car), in ten years and 150,000 kms, I have spent less than shs 20k on replacement parts.
There are some blips in the dashboard electrics, but no indications of any incipient failure of the engine, gearbox, drive train, steering, suspension, or bodywork. Its oil and water etc, never need topping up between services. I do exactly what I would do in a new one with less anxiety and at incomparably lower cost.
I more recently added a 30-year-old Land-Cruiser safari wagon, for 10 per cent of the price of a new one. So far, its story is much the same at +300,000 kms.
As these testimonies add up to a sort of “recommendation” of old cars, I would emphasise that both these vehicles had good provenance and were absolutely sound when I got them; they are well serviced with strict regularity, any minor defect is attended to before it becomes more serious, and the vehicles are used fully (often robustly) but sympathetically. All parts, service, or replacement are OE, not bandit junk.
In sum, a new car is probably more tolerant of neglect and abuse...for a while. The moral for getting optimum cost-saving value from an old one is to research previous ownership and use, fully fix it before you start, and maintain it diligently and thoroughly as the miles and years go on…and on.
As I write this, I wonder whether there might be a “sweet spot” in the evolution of car design – between the simple but crude distant past, and the highly sophisticated but technically complex present. We’ll see where the global battle for production volumes and margins takes us next. After all, the ultimate “driving” force of design, manufacture, and marketing is profit, not perfection.
