Car depreciation rates worsening

[6CylinderMerc]

Just to (hopefully) settle the discussion, the process for buying / owning a new car in Singapore is prohibitive to the following extent -

• Before purchasing a new car you have to bid online or through your ATM for a Certificate of Entitlement as part of the Vehicle Quota Scheme. The prices for these vary but last December saw the price of a COE for cars above 1600cc at $13,114 (approx £4,700. Interestingly this was one of the lowest figures ever obtained, usually about 20% higher so I guess the discouragement factor must be working). There are a limited number of COE's available & if you bid successfully it is valid for 10 years (that's where the 10 year bit comes from) before you have to re-apply.
• COE bidding takes place between the 1st - 7th of each month.
• Company cars pay double.
• If successful, the vehicle must usually be registered within 6 months & a 50% deposit of the COE is payable immediately.
• All motor vehicles imported are subject to customs duty of 41%.
• All cars registered new are subject to $1000 (£357) Registration Fee - company vehicles pay 5 times that amount.
• All cars purchased new or used are subject to an Additional Registration Fee which is 150% of the cars open market value.
• Road Tax is also payable on all vehicles. This increases if the car is more than 10 years old - another reason to get them out of the country.

Add all the above up & you can see why it's so expensive to get one on the road. The true, total cost of an ordinary Audi 1.8 is around $180,000 (£65,000).
Once you have done all the above, then you also have to pay Electronic Road Pricing. All vehicles have an electronic unit inside to monitor this.

Given the above, if it were me I'd take the bus.....

 

[glojo]

Just to (hopefully) settle the discussion, the process for buying / owning a new car in Singapore is prohibitive to the following extent -

Thank you very much indeed for taking the time to post a most informative post. I hope you don't think I was being critical of Singapore? It is a beautiful country with some excellent values. It's tax system is its own affair and I merely used this beautiful country to highlight the differences in new vehicle prices.

Regards
John

 

[janner]

So the person who registered my E320 coupe brand new in Singapore must have really wanted one!

 

[glojo]

So the person who registered my E320 coupe brand new in Singapore must have really wanted one!

I bet it never had any chewing gum on the seat!

Regards
John

 

[6CylinderMerc]

Thank you very much indeed for taking the time to post a most informative post. I hope you don't think I was being critical of Singapore? It is a beautiful country with some excellent values. It's tax system is its own affair and I merely used this beautiful country to highlight the differences in new vehicle prices.

Regards
John

No prob John. I didn't think you were being critical of Sing but I do think that it isn't like for like to compare the cost of car ownership to the UK. The tax system is the very reason that there's not gridlock - well, not much anyway . To be honest, on an island that small & given the alternative means of transport, owning a car there is more of a hassle than a blessing...

So the person who registered my E320 coupe brand new in Singapore must have really wanted one!

That's a given. In spite of the taxes, a lot of the Mercs there in are registered to hotels to use for concierge services, etc. Another little known titbit is that depending on the model, some Mercedes in past years registered in Singapore were actually assembled in Asia. They got around the import taxes to a degree that way. I remember when growing up over there that there were loads of Mercs on the roads, mostly white to reflect the heat.
Used to be a Merc lovers paradise :bannana: :bannana: old fintails, loads of 220 & 280S & the model that had twin vertical headlights, one above the other (I forget what it was called)

I bet it never had any chewing gum on the seat!

Regards
John

 

[Rory]

[*]Before purchasing a new car you have to bid online or through your ATM for a Certificate of Entitlement as part of the Vehicle Quota Scheme. The prices for these vary but last December saw the price of a COE for cars above 1600cc at $13,114 (approx £4,700. Interestingly this was one of the lowest figures ever obtained, usually about 20% higher so I guess the discouragement factor must be working).

I thought a COE was a lot more than that - then I looked back at the historical prices and it has been up towards $60K in the past.

Any idea why it's fallen to much lower levels now?

 

[6CylinderMerc]

I'm guessing but I can only imagine that as it is a bidding system based on supply & demand, the demand isn't there like it used to be?

You basically bid & all successful bidders pay the lowest price (a bit like multi item auctions on ebay). If there's not many people bidding, then the price is deflated...

Why aren't they bidding? Probably because it's too expensive. A case of anti congestion charges actually working instead of merely generating revenue.

 

[C240Sport97]

remember that tax rates in Singapore are much much lower ..

starts at 3.5% and ends at 20% (for income in excess of £100,000 or thereabouts)

Add all the above up & you can see why it's so expensive to get one on the road. The true, total cost of an ordinary Audi 1.8 is around $180,000 (£65,000).

Once you have done all the above, then you also have to pay Electronic Road Pricing. All vehicles have an electronic unit inside to monitor this.

 

[6CylinderMerc]

remember that tax rates in Singapore are much much lower ..

starts at 3.5% and ends at 20% (for income in excess of £100,000 or thereabouts)

True, but that only applies to Income Tax. Directors dividends, consultation fees & all other income is taxed at a flat rate of 20%. Added to which non residents pay a flat rate of 15% or residents rate (whichever is greater) & are classed as residents if they have spent 6 months or more in Singapore, even if not working or they have established a permanent home there. Given the amount of foreigners working or living there that's a lot of tax collected. The complete tax system & not just the income element narrows the gap somewhat.

65 grand is still a shedpile for an A4 1.8 even if you don't pay any tax at all

 

[glojo]

No prob John. I didn't think you were being critical of Sing but I do think that it isn't like for like to compare the cost of car ownership to the UK. The tax system is the very reason that there's not gridlock - well, not much anyway . To be honest, on an island that small & given the alternative means of transport, owning a car there is more of a hassle than a blessing...

Totally agree and I never intended a like for like comparison

I could have used Norway, solely for the prices of new cars, but I have a weakness for Singapore (I can't stand the cold)

I was last in Singapore in the early 70's, rumour has it the place has changed?

 

[6CylinderMerc]

I was last in Singapore in the early 70's, rumour has it the place has changed?

Like you wouldn't believe! If it wasn't for signs like Orchard Road I would never have known that was where I was.
Remember in the 70's it used to be Singapore City & Singapore Island was fairly rural with little kampongs (local villages) dotted about?

Well, they're all gone. It's basically one big city now. Still my favourite city though & well worth a visit.

 

[Rory]

Oh dear. To get a 50% residual on a Mondeo PCP -just as you can get one on a Mercedes- you would need to find a dealer who will sell you a brand new one (just as the Mercedes I quoted is brand new and not pre-reg etc) for 60% of the new price.

Then and only then Rory would a 30% residual after 3 years like most Fords have give the buyer a 50% residual as a percent of the price actually paid. So find me a dealer giving 40% off Mondeos on a PCP deal, at a competitive APR like the Mercedes, brand new, not pre-reg and then I will agree you are correct.

You don't need to find a Mondeo with 40% discount though.

Your theory is right (of course) but in practice it doesn't work like that, as financial matter are settled in pound notes, not percentages.

So take a "prestige German" car with its 50% residual. Let's say it's a £15K A Class - at 3yrs it's worth £7.5K.

Now take a 15K Mondeo, You get 20% off (and that's possible even now, on the new Mondeo) that makes the price £12K. It drops to 30% of its list price, ie £4.5K. Hey guess what? - that's the same number of pound notes as your 50% depreciation A Class. And really you're better off, as you saved £3K up front.


Sure the A Class PCP deal you pointed out looks good - but what you didn't mention (and this is why I always stress to ignore % and look at £) is that deal requires a customer deposit of £1499. On a PCP deal that deposit is totally lost - all it's doing is making the monthly payments look lower becuase you've effectively paid several of them in advance. And with the discounting, guess where A Class residuals are heading? They're already at low 40's vs list.

 

[hawk20]

Sure the A Class PCP deal you pointed out looks good - but what you didn't mention (and this is why I always stress to ignore % and look at £) is that deal requires a customer deposit of £1499. On a PCP deal that deposit is totally lost - all it's doing is making the monthly payments look lower becuase you've effectively paid several of them in advance. And with the discounting, guess where A Class residuals are heading? They're already at low 40's vs list.

Percentage residuals are the best guide IMO but it will be easier on both of us just to agree to disagree. I don''t know where to begin. You use false analogies e.g you compare a car that costs £12k with a car that costs £15k. You worry about the deposit on the A class, which is entirely irrelevant to the question of residuals.

Of course the deposit is part of the costs as are the monthly payments. So is the road tax. And delivery. And carpets. BUT all that is correctly dealt with by the APR calculation.

In any case, the argument was about residuals; not costs. And on residuals MB are offering today a guaranteed residual or final value of 48% and that is -as I correctly stated earlier- before you get a discount from the dealer. So I have got a GFV of over 50% with which I am delighted.

And if A class residuals improve even further due to their quality, roominess and excellent mpg figures, then I will get a part ex figure in 3 years time above the GFV.

Far from residuals falling on A's, my brother has just been offered above Glass's Guide in part exchange, (exactly 50% of the new list price), for his 3 year old A160cdi. You cannot expect more than that IMO.

 

[Rory]

You use false analogies e.g you compare a car that costs £12k with a car that costs £15k.

Nope, both the cars list at £15K.

You worry about the deposit on the A class, which is entirely irrelevant to the question of residuals.

You detailed the A150 PCP deal but didn't mention the deposit.

And on residuals MB are offering today a guaranteed residual or final value of 48%.

Not on the A Class deal you quoted.

Far from residuals falling on A's, my brother has just been offered above Glass's Guide in part exchange, (exactly 50% of the new list price), for his 3 year old A160cdi. You cannot expect more than that IMO.

P/X isn't the same as residual. The p/x value will look fabulous if the dealer discounts the new car and MB subsidise the deal too.

 

[hawk20]

I think, Rory, you have forgotten what you were disagreeing with. If you go back to postings in the 40's it will be clearer.

The reason you are getting false answers is that you are discounting one car and not the other.

Secondly you are bringing in extraneous factors like deposits, part ex's etc which have absolutely nothing to do with your disagreeing with the original posting and my support of it.

My brother's part ex deal has nothing to do with it either. I was merely letting you know that there is no sign of A class residuals dropping here. And my dealer gives a part ex price based on what the car is worth in the trade and then haggles the discount separately.

I'm off out now. Wedding Anniversary.

 

[Rory]

I think, Rory, you have forgotten what you were disagreeing with. If you go back to postings in the 40's it will be clearer.

The reason you are getting false answers is that you are discounting one car and not the other.

Secondly you are bringing in extraneous factors like deposits, part ex's etc which have absolutely nothing to do with your disagreeing with the original posting and my support of it.

I'm disagreeing with your original contribution to this thread:

Family cars lose their value quickest, while prestige brands such as BMW suffer the least price depreciation, a report claims.
The Alliance & Leicester report said family cars lost nearly two-thirds of their value after three years.
But compact executive cars and 4X4s had lost only a fraction of their value after one and three years.
The report suggests that buyers looking to keep total costs down pay a little extra for cars with high resale value.
"Careful buyers can make sure their investment continues to hold its worth over the years - factoring in depreciation is key to saving money in the long run," Andy Bayes, head of personal loans at Alliance & Leicester, said.
German car brands dominate the list of cars suffering the smallest loss in value.
The BMW 3 series and the Volkswagen Polo are both worth around 70% of their new price after three years.
The Mercedes C-Class is worth 86% of it is initial purchase price after one year according to the report.
http://news.bbc.co.uk/1/hi/business/3413395.stm

The notion that, for example, someone could have bought a new C Class for for £30K a year ago and now could sell it back to an MB dealer for 86% is just ridiculous. Someone with your background and experience would know that the dealer margin and bonus on a new car would be worth at least that.

I know you do like to quote stuff to support your (Mercedes) position, but here's a NewsFlash: Not everything you read on the Internet is true.

There are some winners and losers in the depreciation stakes (our Jazz has done very well - bought at more or less list, by the way) but once you get to the real purchase price of cars today then the depreciation rates end up being broadly similar, with only a few exceptions.

 

[Ratz]

Just for comparison BMW dealer front end margins are 10% (not on the Mini) and back end bonuses are on total cars sold, and amount to around £250k per quarter for a dealer(if they hit target) with approx. £50m turnover. These figures are about 2 years out of date, but give a ball park picture.

Up until recently my dad could get a 1-Series with 14%+ discount, which tells a story .

 

[6CylinderMerc]

Most, if not all franchised dealers work on a flat 10% margin as a result of an unofficial "Gentlemans agreement" shortly after the Special Car Tax (remember that one? You paid 5 % tax on the price of your car after VAT so in effect you paid tax on tax ) was abolished. Prior to that the standard margins varied but were generally around 17 - 20% plus bonuses. Most dealers gave the majority of that away in either straight discount or over allowing (artificially inflating) part exchange values. Then the manufacturers, armed with the knowledge that dealers were giving most of their margin away anyway, reduced their margins to current levels & instantly brought down the list prices of their cars overnight. The bonuses are usually paid quarterly & retrospectively, unless you're selling Fiats, Citroens, etc where the manufacturer will literally throw money at the dealer to enhance the discounts available. That's why they're so worthless 2nd hand. Ford & Vauxhall are just as bad to a degree.​

Not long after the Special Car Tax was abolished, someone dreamed up the idea of a PCP as a method to offer attractive monthly payments aimed primarily at those people who never actually finish HP as they change their car before it's finished & start a new agreement. A major driving factor for the manufacturers in adopting this type of finance deal was the simple fact that after three years they knew that the customer had to do something at the end of a PCP, unlike on HP where they could put off re-purchasing. On a PCP this is simply not an option unless you paid off the GMFV.​

Here's the clever bit - the GMFV was (and probably still is) set slightly high deliberately in order that it puts people off paying it & owning the car outright at the end of their agreement, thereby buying another new car. This had a triple edge effect of reducing APR's & lowering monthly payments. Manufacturers then cottoned on to this idea, enticed customers & got severely burnt with overly inflated GFMV's at first before it levelled out slightly. They offer low APR's, low deposits, enhanced GMFV's, etc, all backed at the risk of the manufacturer so the dealer is fairly well protected. At the beginning, the public were fairly ignorant of the whole thing & came in with say £5k worth of part exchange, enjoyed low monthly payments for 3 years, found their GMFV was too high & handed the car back & left with nothing, obviously fuming. Or they only had a minimal amount left over after the GMFV was paid & saw nearly all of their 5 grand gone. ​

Nowadays manufacturers still offer incentivised deals to get people on to PCP's, whether it's a manufacturer financed low APR (which you the customer would never even know) or high GMFV's to lower the payments. The truth is that there is a certain element of guesswork goes into setting the GMFV's.​

I know all this because I was in the motor trade in a franchised dealership before these schemes came out & had extensive training in selling them. They are good if you have a low deposit & you don't mind being on never ending finance. If you have a largish deposit & like to own a car outright then they are not for you. Of course the manufacturers won't tell you this, they want to guarantee that you'll buy a new one in three years time. ​

Personally, having sold plenty of these schemes, I wouldn't touch them with a bargepole. - I guess that statement makes me a bad person ​

 

[Ratz]

MB recently had an offer on the A-Class which supports what you say about GFV's. Go to any standard leasing company and the model in question had a GFV of £5800'ish on a 3 yr PCP, MB for the same period & deposit(if I am remembering correctly) had a GFV of £8200 .

My dad works on his own selling all different cars with a million+1 financing packages, it's really turned into quite an art. I have a Maths degree and struggle working out what the 'best deals' are - although to be fair having a maths degree is no guarantee of numeracy.

 

[st4]

Most, if not all franchised dealers work on a flat 10% margin as a result of an unofficial "Gentlemans agreement" shortly after the Special Car Tax (remember that one? You paid 5 % tax on the price of your car after VAT so in effect you paid tax on tax ) was abolished. Prior to that the standard margins varied but were generally around 17 - 20% plus bonuses. Most dealers gave the majority of that away in either straight discount or over allowing (artificially inflating) part exchange values. Then the manufacturers, armed with the knowledge that dealers were giving most of their margin away anyway, reduced their margins to current levels & instantly brought down the list prices of their cars overnight. The bonuses are usually paid quarterly & retrospectively, unless you're selling Fiats, Citroens, etc where the manufacturer will literally throw money at the dealer to enhance the discounts available. That's why they're so worthless 2nd hand. Ford & Vauxhall are just as bad to a degree.​

Not long after the Special Car Tax was abolished, someone dreamed up the idea of a PCP as a method to offer attractive monthly payments aimed primarily at those people who never actually finish HP as they change their car before it's finished & start a new agreement. A major driving factor for the manufacturers in adopting this type of finance deal was the simple fact that after three years they knew that the customer had to do something at the end of a PCP, unlike on HP where they could put off re-purchasing. On a PCP this is simply not an option unless you paid off the GMFV.​

Here's the clever bit - the GMFV was (and probably still is) set slightly high deliberately in order that it puts people off paying it & owning the car outright at the end of their agreement, thereby buying another new car. This had a triple edge effect of reducing APR's & lowering monthly payments. Manufacturers then cottoned on to this idea, enticed customers & got severely burnt with overly inflated GFMV's at first before it levelled out slightly. They offer low APR's, low deposits, enhanced GMFV's, etc, all backed at the risk of the manufacturer so the dealer is fairly well protected. At the beginning, the public were fairly ignorant of the whole thing & came in with say £5k worth of part exchange, enjoyed low monthly payments for 3 years, found their GMFV was too high & handed the car back & left with nothing, obviously fuming. Or they only had a minimal amount left over after the GMFV was paid & saw nearly all of their 5 grand gone. ​

Nowadays manufacturers still offer incentivised deals to get people on to PCP's, whether it's a manufacturer financed low APR (which you the customer would never even know) or high GMFV's to lower the payments. The truth is that there is a certain element of guesswork goes into setting the GMFV's.​

I know all this because I was in the motor trade in a franchised dealership before these schemes came out & had extensive training in selling them. They are good if you have a low deposit & you don't mind being on never ending finance. If you have a largish deposit & like to own a car outright then they are not for you. Of course the manufacturers won't tell you this, they want to guarantee that you'll buy a new one in three years time. ​

Personally, having sold plenty of these schemes, I wouldn't touch them with a bargepole. - I guess that statement makes me a bad person ​

Thanks for such an informative post. Start to correct me if I am wrong, but would you say PCP has enabled people to drive a better car than they could otherwise afford?

DO you think PCP has then caused car prices to artificially rise (above inflation rate) and residuals to fall, as the balloon payments are meant to resemble a gauranteed future value. In other words, finance companies now set the 2nd hand values as opposed to the market forces (to put it crudely).