Friday, February 14, 2014

The Hidden Value of Old Economy Cars

(Photo taken in Rome where congestion is sometimes just as bad as Manila.)
Unless you are part of the percentage that buys a car and sells it after 3 or 4 years, you'll never have problems similar to those who drive a car older than 5 years old. Depending on the brand, people usually experience problems when their car reaches 5 years. Some minor, some major but one thing is for sure -- the moment ANY car steps out of the dealership, the value depreciates. This is why an automobile purchase is never considered an asset but a liability in the books but if it will ease your everyday living or help you in your business, you can somewhat consider it as an asset in your life.

10 years of age but still shiny
I own one 10 year old car. I don't call the car him or her nor does it have a name. We have our ups and downs but in the end, I have a hard time deciding to sell it and it usually ends up as, "nope, I won't sell it just yet". Each of us has our own reasons but here are 3 reasons that most of us can relate to why it's hard to sell our decade old economy car.

#1 The Value
Depending on the car you buy, the value differs but one thing is constant -- Depreciation. And here's the bad news, the more expensive the car, the lower the resale value in terms of percentage. Take for instance a Honda Civic 1997 Lxi. As of writing date, it's now at it's 16th year. If I remember it right, that car costs less than Php 500,000 that time. Right now, with a 200,000kms mileage, you can sell it at an average of Php 120,000. Looking at Sulit classifieds, a 10-year old Chevrolet Optra bought in 2004 can be sold at 190,000 with the same average mileage of 12,500kms per year or 125,000kms in total on it.

My old Honda Civic
Given both numbers, the Civic depreciated by around 23,000 a year while the Optra depreciated by around 36,000 a year. This means that the longer you have the car, the smaller the depreciation. But wait, let me get to my second point before you react...

#2 Maintenance
Having an old car means having to maintain it. The older the car, the higher the maintenance cost. This is why you need to choose wisely when buying a brand new car because in the end, you'll probably all be priced the same and it will all boil down to how hard it is to maintain the car. The harder it is to maintain, the higher the depreciation. A perfect example for this is a Volvo S80 2012 edition. Volvo is well-known for being very safe and I'd love to have a Volvo given the chance. What's stopping me from even dreaming to have one? The maintenance cost. Right now, you can buy a second hand 2008 top of the line Volvo S80 with 50,000kms on it for less than 1,000,000 pesos. Looking for a cheaper one? For 250,000 you can get an issue-free, flood-free, accident-free year 2000 Volvo S80. Volvo S80 is the flagship model of Volvo.

Click to enlarge image
Depreciation? For the 2008 S80, it's about 520,000 a year and for the 2000 model, it's around 230,000 a year. Ouch! One huge factor why this particular Volvo has low resale value is because of the transmission problem it has. Not sure if this has been remedied already but to fix it? Get ready to shell out 300,000 pesos or more. Luxury cars are more expensive to maintain and this is the reason for the very low resale value. Here's a good example. A nice BMW 3-series e46 model year 2000 with 110,000kms can set you back just 400,000 pesos while a Honda Civic SiR year 2000 model can cost you 340,000 pesos! I'm guessing that the price of the Civic SiR that time isn't that close that you can already buy a BMW e46.

This makes you appreciate your old economy car more. If you choose the right car, your car would be valued at par with luxury cars in the long run and you get the 'money well spent' feeling. But of course, you'd have to be willing to do without those luxurious extras. This is why they are considered luxury cars. If you buy a pre-owned one, make sure you can afford to maintain it. But if you're spending more to maintain it than buying a new car, you're grown up enough to know what to do. This is why your choice of car brand is important.

#3 Problems
By your 10th year, you'll probably know your car too well. You've probably experienced a lot of problems already and because of this you're both fortunate and unfortunate. Unfortunate because of all the problems but if you've dealt with them well, you're fortunate enough to know how to fix the problem the next time it happens again. You'll also find good alternatives and remedies to familiar problems and it won't cost you as much. You also probably have a trusty mechanic where it will be like bringing your kid to that same doctor because he knows everything about your kid. But, buying an economy car doesn't mean it's less troublesome to maintain. In fact, I know of a certain brand that produced a lot of lemon economy cars and I'm not referring to China made cars.

Check out the video footage my Thinkware FXD700 recorded. This is how some valet boys treat your car:

Is this close enough? Blue car was blocking my driveway.
Other positives? Valet parking won't be a problem. You'll have lesser worries having a valet parking attendant park your car if you drive a 10 year old car versus if you drive a 10-month old car. Parking location is never an issue. You won't worry that the other car might open the door too wide and scratch yours or parking it on an alley  worrying that it might attract car thieves. You'll also have less problem looking for spare parts and have pretty much tons of choices from original brand new to brand new but from another brand or if you're low on budget, surplus. But I do not recommend surplus parts.

Photo taken at Toyota Commonwealth
You might think that this list will include 'sentimental value' as a reason. Nah.. In fact, I'm known in our family to throw anything that I find no use for already regardless of the sentimental value. and nope, I'm simply not that attached to material things. So next time, to get more value out of a car, make sure you do some forward thinking rather than think about what's in it for me now. If you have money to spend without thinking, well, enjoy! :)

What's the most reliable car brand for you?

PS. I know I'm born optimistic and I might just appreciate everything but in case you have reasons as well to add, let me know in the comments or maybe you don't agree, feel free to comment as well. (and I'm talking about cars that are 10 to 20 years old. I can't speak for cars older than that.)

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