Ways To Save (2) - Your Vehicle

Here in Singapore, it is too common to see car owners changing for a new car every 3 years. Take a blink and the next car you see passing you by is no older than 3 years. Is new car really cheaper than your existing 3 years old car? Here's what my views are.

Car Sales Exec's Take

1) "Oh, COE price has fallen. Your car's COE is $25,000 while the current COE price is only $15,000. Why pay the extra $1,000 each year to the government"? What they hide from you is, 'yes another con job, you change car and i'll be $1-2k richer. What $1k savings than paying the government? You will end up paying import tax (abt 170%), shipping charges, company's profits, etc'. You think they really care if you pay more? If it makes more sense to change new car, is your SE changing car every 1 year?

2) Your car is 3 years old, you need to export your car before the export value drops. There is no resale value for used cars. (Who says you need to export or sell your used car? You can drive it on).

3) You will save on your monthly installment. You are currently paying $700. If you buy this new car, you end up paying $500 a month. What they failed to share with you is, you have paid 3 years of installment, with 4 years to go (total $33,600) while a new car will mean you are into a new 7yrs debt ($42,000).

Reasons to Change Car

It's human to justify their reasons and here's 2 common ones that I like:

1) My car is old. What they failed to say is, my friends are changing cars, I want to be seen with a new car too. Why not spend a little to do up the car to give it a new feel, eg New coat of paint $1.5k), sun-roof ($1.5k), leather seat ($800)? Do some modifications to the engine to give you better performance and fuel consumption, eg, changing to lighten belt pulley, lighten flywheel, etc.

2) My car is giving problems. New car comes with 3 years warranty. Is replacing old/worn out parts more costly than the 'warranty'? Set aside $2-3k to replace worn out parts and the car will serve you well for the next few years again.

Potential Loss

If you drive on your existing 3yrs old car (current paper value $30k. 10yrs paper value $8k), you will only need to suffer a depreciation of $3143/yr for the next 7yrs. If you change to a new car (new car price, $52k while 10yrs paper value $8k) now, you will suffer a depreciation of $4,400/yr for the next 10yrs. That's more than $100/mth for 10yrs.

If the new car is scrapped/exported after 3yrs, assuming the paper value at $30k, you will have lost $22,000 over this period of 3yrs (or $7,333/yr). This is almost $350/mth for the next 3 years.

If the potential losses are so much more than the savings, why not stick to the same car?

Trade down vehicle
Alternatively, you could have opt for a older car. Cars are built to last at least 20 years (conservative figure) under normal usage. My first car was 26yrs old when i bought it. Older cars can be reliable too.

Besides lower depreciation (usually less than $3,000/year for a 1.6l car), you also save on insurance, lower installment (or even, fully paid up car), etc.

Conclusion

I still cannot understand the need to change car with the simple excuse of old car. If one is well off, it doesn't matter how often he changes car as he can jolly well afford it. However, >80% of the car owners doesn't fall into this category.

With the lower COE value (pre 2000 COE price was as high as $60k, while COE in 2003 was >$30k), a lot of car owners are tempted to change car and forgotten to calculate true mathematics, but choose to calculate the new car's depreciation.

Think twice, think three times. If you are stuck whether to change car or not, you are definitely better off with your current ride. I suggest you consider keeping the car and invest your money wisely.