Used Automobile Dealers Facing Tough Market Amid New Car Competition

Years ago, it appeared that purchasing a used automobile was a prudent and practical thing to do because it was much more affordable compared to acquiring a brand new vehicle. Fast forward to 2013, industry experts concur that used car dealerships are having a difficult time in this market as potential car owners are shifting towards new rather than used.

Speaking with The Nation in September, Somchai Trakulpirom, general manager of Master Certified Used Cars, noted that the used car industry needs to make adjustments in its business model and provide better offers than what is presently being offered by their counterparts.

The difficult market, for instance, is suggesting that consumers are buying because of the attractive promotions that are being listed, such as zero down payment, low interest, inexpensive bi-weekly or monthly payments and other special promotions – stronger offers are even expected as dealerships attempt to clear out their inventories.

Most of these heightened promotions have been running since the summer and have been fueled because of the federal government’s first-car-buy initiative launched last year. Dealers are looking to build upon its new car sales growth it has been experiencing for quite a while now.

In addition, with the rise of smaller, smart cars, they’re maintaining a price that is just as affordable as a superior, used vehicle model: the Chevrolet Spark LS is $12,995, Smart ForTwo Pure is $13,240 and the Nissan Versa S Sedan is $12,780.

Anuchart Deeprasert of the Thai Hire Purchase Association reported that finance lenders have found a 20 percent reduction in used car loans – other estimates suggest as much as 30 percent. However, the organization did say that it expects used car purchases to return to normal growth sometime next year.

Furthermore, used vehicles, according to Trakulpirom, consist of a depreciation rate of between 10 and 25 percent. This means bad debts equates to fewer loans and financial institutions are becoming fastidious in approving loans due to the large number of high rate of bad debts.

“For example, the first-car-buyer scheme, which at first looked attractive because of the increased production volume and cash flow, has been responsible for stealing future demand,” Trakulpirom told the news media outlet. “Some buyers made purchases under the scheme to make a direct profit, while some buyers who would not be able to afford a vehicle in normal conditions are now facing difficulties in paying the monthly installments, and are allowing the vehicles to be repossessed by the finance companies, resulting in a large number of bad debts.”

He added: “If finance companies have a large number of repossessed vehicles, they will be more careful with loan approvals and deny more applications. Demand for used cars is now controlled by financing requirements.”

Last month, forecasters and analysts predicted softer prices and an enhanced used vehicle selection in 2014. This is due in part to the sheer number of eight- to 12-year-old cars that currently need to be replaced. Although most concur that prices of used vehicles will not plummet, it is believed that smaller and mid-sized cars will experience the highest price drop because of competition in that market base.

Nevertheless, with the Motor Expo 2013 gearing up, auto manufacturers and dealers may unite and increase its promotions, such as a low-down-payment offer for civil servants and state-enterprise officers as well as even a grace period.

The sales of 98,000 vehicles per month are surely an incentive for both manufacturer and dealer to persist in running these campaigns to draw in more consumers throughout 2014.

How to Win the Financial Battle Vs Your Automobile

Think in the Long Term (for Models)

Buy the car you want – but only after it is at least two years old, and three would be better. By doing this, you automatically save hundreds of thousands of dollars over your lifetime.

When I was 23, I wanted to buy a nice four-door sedan, and I was drawn to the Cadillac STS. The new model had a base price of more $50,000, and with any kind of little extras the sticker was almost $55,000. I was doing very well at a young age, but I wasn’t doing that well to blow 50 grand on a new car.

I was thumbing through my local paper (yes, this was before the Internet changed everything) and saw an ad for a 2½ year old Cadillac STS for $19,500. The car had less than 40,000 miles on it and came with an extended warranty to 90,000 miles. It was gorgeous, shiny and just serviced.

It was an attractive price since the first owner was eating the depreciation.

According to the average car will lose 11 percent of its value the second you roll it off the lot and an additional 15 percent to 20 percent the first year you own it. The second-year depreciation (loss) is another 15 percent, for a loss of at least 45 percent over the first two years.

Depreciation is usually calculated off of the base price, not the extras. This could be the sport package that raises the price $10,000 but only gives you $2,000 back after the first year or two. So it’s quite possible to find beautiful cars with manufacturer warranties still in place and pay 35 percent to 50 percent less than the first owner did when purchased new.

I drove that car for four years, had very few out-of-pocket repairs, and sold it for $3,500.

So what kind of deal could you get today? When I was young, one of the dream cars was a Ferrari Testarossa, and its price was around $200,000. You can buy one now for around $50,000, and most don’t have that many miles on them because they’re babied by the owners.

Think in the Short Term (for Loans)

If you finance your auto purchase, you can save a lot of money by keeping the term to no more than 36 months. This builds equity in the car faster and saves on interest.

This might be difficult because the monthly payment is higher than if you finance over six years, and it’s higher than a monthly lease. If you finance $25,000 at 5 percent interest for three years, your monthly payment will be $749.27, and your total payout will be $26,974. If you extend that loan out to six years, your monthly payment drops to $402.62, but your total payout rises to $28,989. That’s $2,015 more out of your pocket to own the car.

Assuming you buy the car with a small down payment, by financing it for six years, your loan pay-down is going at a much slower pace than the depreciation on the vehicle, creating an “underwater” situation on the car almost from the get-go. During the three-year program, you’re paying down the car faster than it’s depreciating, giving you options if you have to sell the vehicle.

If you truly can’t afford that three-year payment, take out a five-year option and send a little extra every month toward the principal to pay it off sooner.

Leasing a newer model looks attractive because the monthly payment is less, but you might not want to do that. I’ll explain why next post, when I offer several other ways to save loads of money when purchasing an automobile.

Believe it or not you might be better off buying your own car rather than funding your 401k or IRA!

Some Laws To Protect Your Automobile

People tend to face numerous issues with respect to their automobiles. Some of the most common problems that people face are –

• Buying a defective car and getting refused a refund, fixing and replacement by the manufacturer.

• After completing a final loan contract, you are asked to sign a new contract with higher down payment.

• You are trapped with deceptive advertisements and you have been sold a more expensive car.

• Dealer conceals optional add-ons and undervalues the trade-in during fixing of the deals.

• Your car is repossessed without your consent by the creditor.

Know Your Rights

There are different laws that save the consumers from auto fraud. Here is a list of various laws and their scheme of protection.

Magnuson-Moss Warranty Act

This law is utilised when a contractor, warrantor or supplier denies complying with a service contract, written warranty or implied warranty.

State Repossession Laws

These laws state that –

• Your car cannot be removed from a locked garage by the car repossession company without your consent.

• You can put your car up in auction or you can pay the full money in order to buy back the car.

• On paying repossession costs or reinstating your loan, you can get your car back in some states.

• Your car must not be sold below market value.

• You should be informed whether the creditor will put the car up for auction or not.

State Lemon Laws

Those cars are dealt by lemon laws that have been repaired many times for the same defect. Different states have different lemon laws.

• Your car should be replaced or refunded by the manufacturer for a substantial defect after four tries.

• Your car should be refunded or replaced for a safety defect after two tries.

Truth in Lending Act (TILA)

According to TILA, interest rates and other information regarding the loan should be disclosed by the lenders before processing a loan. You can get the best auto financing rate with the help of TILA.

Unfair, Deceptive, or Abusive Acts or Practices (UDAP)

You are protected by UDAP from deceptive, unfair and false acts including the false advertisements.

Contacting an Attorney

You should know about the following, if you want to contact an attorney.

Repair Record

Keep record of the timing of the car when it is out for service and keep track of the repair attempts. Every time you repair the car, do not forget to submit a dated and written list of problems to your dealer.

Notice Required

Before entitling to a replacement or refund, you must go through the notice requirement of your state.

Your Refund or Replacement

Ask the manufacturer for a replacement or refund only after confirming that your car is qualified as a lemon. You may have to go through arbitration if a valid arbitration program is incorporated into your written warranty, in order to get your replacement or refund.