Mar 04

Don’t get a used car. New cars can be cheaper than used!

Reading Time: 6 mins

Do you need, or more likely, want to change that hunk of metal on your driveway for a new sparkly one? Credit crunch car buying is no longer the straightforward matter it used to be. New car dealers are begging you to take their knock-down price models, but second-hand models seem to be going up in price.

Confused already? We are, so we asked our resident car expert Hamish Gordon to explain, just what kind of car should we be buying right now?…

How it used to be

Row of cars for sale

Historically, when a motorist decided that he or she needed a new set of wheels, the sensible and, by far, the cheaper option was to buy a used car that was about three years old. Then with the dawn of credit and the myriad of superb finance deals made available to everyone across the board, we were all tempted into trading in our used cars and buy sparkly new ones.

The government even encouraged this by releasing two new number plates in the year as opposed to the traditional annual offering and therefore increasing the “keeping up with the Jones’s” element of having to have the latest and newest car.

This prospect combined with interest free credit,  small deposits and low monthly payments (even though there would be a huge balloon at the back end) allowed the government, the motor manufacturers and the finance industry to make it far easier and far more tempting for us to get our hands on a new vehicle.

From the market side, this time last year, car dealers were seeing 70% of buyers turning up on their forecourts already armed to the teeth with either cash or finance agreements in place, ready to negotiate a deal. The remaining 30% were looking for point of sale finance from the dealers themselves which helped to drive down the vehicle’s purchase price but dealers’ margins were shored up by the finance commissions received in return.

The market today

Today the dealers are seeing a complete reversal of this trend, with 70% of buyers looking for the dealer to secure a financial offering for them and only 30% have cash in their hands or something else already in place.

We have all seen the result of the easy credit deals that have been enjoyed for the last ten years or so with the dreaded credit crunch hitting us squarely between the eyes in the summer of last year. The opportunities for finding finance have diminished rapidly. The problem, it seems, is not that we buyers are not worthy of getting approval for credit, but that the financial institutions simply do not have the money in their coffers to lend to us.

No money for old rope

Old Rope

Bruce Blackburn, CEO of the car finance specialists Servius Plc told me that in the last month they have had over a thousand applications for credit, all of which would normally be looked upon as premium grade business but the underwriters have been unable to endorse them as they simply do not have the money to lend out.

The downfall of institutions such as Freddie Mac and Fannie Mae in the US has meant that our own financial organisations cannot sell on that debt to secure funding to release monies for new deals – it is that simple. At the moment, if you have cash, you certainly are King!

Negotiate, negotiate, negotiate!

Man making a deal with a car salesman

But the manufacturers are trying to fight back. Some, like Saab, are offering to pay the VAT on any new car sold and others are resorting to huge discount deals for the cash buyer.

For instance, I have heard of five individuals who had recently decided that they all wanted to buy a new car and were virtually of the same mind in choice of car, a Range Rover Sport. So one of them decided that it would be a good idea to club together and see what sort of deal they could get if the five of them approached Land Rover direct and waved a bulk order for five cars at them.

This was exactly the right thing to do. As we keep seeing in the media, many of the car manufacturers are either laying off staff, reducing production outputs or cutting costs in other ways because they simply have more stock on their books than they can sell. The approach was made to Land Rover direct and they managed to negotiate a whopping 50% discount off the new price of 5 Range Rover Sports! Not a bad deal in anybody’s book.

Recently at a car launch I was approached by a friend who is also a car dealer and he enquired whether I would like to trade my Golf Gti in for a brand new Aston Martin Vantage Volante. Once I had picked myself off the floor and stopped laughing I asked him what the deal was. In essence he was offering a fully-loaded new car that would normally retail at about £103,000, with delivery mileage on it, to me for “just” £49,000. So there are deals out there to be had!

Smaller does not necessarily mean cheaper

Porsche sports car

Admittedly, both of the cars in the examples above are prestigious gas-guzzlers but that does not mean that you cannot get a deal at the other end of the spectrum. There are plenty of manufacturers of smaller and more fuel-efficient cars, such as Honda and Vauxhall, who are very keen to sell you a new car. But the deals on luxury cars at the moment are extremely inviting and from a long term prospective if you can afford one, it may make sense to go for a car that will retain a higher value for longer.

And what about used cars?

buying a used car site on a laptop

The car market has always been vulnerable to changes in discretionary spending and the current fall in consumer confidence is damaging demand. After all, buying a car, in size of financial commitment, is second only to that of buying a house and just look at what the property market is going through at the moment.

This has, unsurprisingly, reflected on the used car market. Traders have reported an upsurge in used car sales, with specific interest being paid to the small economical market – no surprises there then! Some traders are even reporting values of some of these cars rising by as much as 10 or 15 per cent.

So what do you do?

Young woman with new car

My advice to you is not to ignore the option of buying new if you are dead set on changing your car. The franchise dealers and the manufacturers are now desperate to sell cars and if you have the money in place it may well be worth your while to go and take a look at buying new.

New cars also have the added benefit of peace of mind with the warranties and guarantees currently on offer. So, before you take a look at the used car market or even brave the auctions, go and haggle with the new car dealers, be cheeky, and you never know what you might get away with!

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Anyone else interested in buying range rovers in bulk? Lets club together? I am up for a new one half price!

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