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Money Jul 20, 2013

Here’s why resale value is the most important criteria for car purchase

By Bindisha Sarang

Dear Readers, here's an advice: If you'replanning to buy a car, think beyond the luring advertisements, the make, the model, the utility and even your budget.

Of course, these are important parameters to consider. But there is another which is equally important in a market rich with choice -- the resale value of the car.

In India, nearly 80 percent cars are bought on loan. So, the amount your car will fetch in the second had car market is very important. It's this amount which will partially fund the purchase of your new car then. If you get a good resale price, your loan for the new car will fall accordingly.

Reuters

Reuters

This can be illustrated with an example. If your car, which you bought in 2006 for 5 lakh, has a 60 percent resale value, you get Rs 3 lakh when you sell it. But if the resale value is 30 percent, you just get Rs 1.5 lakh. Now, if you need a loan for Rs 5 lakh for the new car, in the first case, you will need to take only a Rs 2 lakh loan. In the second case, you will need to avail of a Rs 3.5 lakh loan. And remember, if you avail a higher loan amount, the total cost of our new car also increases.

Resale value includes the value that the market gives a car taking all the other criteria into account. But how does the market decide the resale value of a car?

"Of course, the condition of the car, the distance it has run, the registration date, whether the car has met with any accidents in the past or not, all these things do come into the picture when estimating the resale value. But keeping all things equal, the make and model play an important role in getting a good resale price," saidMohammed Noorain, a second-hand car dealer, Aman Motors, New Delhi.

In short, the image of the car plays a very important role. Dealers say that American and German cars are considered to guzzle fuel. The Japanese cars are known for their technology and Indian cars for their mileage.

For cars with lower maintenance cost, you get a better resale vale. Here too the Indian and Japanese cars have an upper hand compared with the American and German cars, according to the dealers.

Another parameter is the after-sale service which the car company provides. Cars from companies with service centres all over the country, even remote interiors, get a better resale value. Spare part availability is also an important aspect.

Firstpost did a dipstick survey pan India byspeaking to second-hand car dealers in Mumbai, Chennai, Kolkata and Delhi to get a sense of the trend in resale values of various cars. What's interesting is that almost all of our participants echoed similar answers.

Voice on the street

"Asian cars have better resale value than American and German cars," saidVikrath Ramdhia, CEO, Hot Wheels Auto in Mumbai.Niklesh Sadarangani, Shreenathji Motors, Mumbai, and dealers such as Royal Motors and Bhandari motors in Kolkata, Chennai Motors in Chennai and Aman Motors and Choudhary Motors in Delhi all held the same view.

However, not all Asian cars get a good resale value said the dealers. On German/European cars, a Chennai dealer said, "But, customers who want to buy these cars, will specifically come looking for these cars. We cannot convert them to buy any other make, not even Indian make. "

A 20-30 percent depreciation in three years is a good resale price. A 35 percent is still fine, but it is the maximum. Anything more than that is a bad resale value.

These are our survey results. You should do your own research to find out the resale value of the car which you intend to buy. But, if you don't have the bandwidth to do so, there are a number of calculators online which will give you a ball park figure. For instance this one from Carwale, check here.

This story is intended to help you take an informed decision regarding you car purchased. Which car to buy is completely your call.

by Bindisha Sarang

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