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Buying a Car – Should I buy new or used?

12th October, 2020

New Cars

Our May 2020 newsletter told the story of the worst new car market since the global financial crisis.

We suggested that this year might be the time to buy, such is the desperation of new car dealers to make sales.

The story hasn’t changed much since then, at least for new cars. According to the Federal Chamber of Automotive Industries, new car sales in September 2020 were down by 21.8% compared to the same month in 2019.

In fact, September 2020 was the 30th month in a row of year-on-year decline. This is the longest continuous drop since 2008 and the weakest September result in 18 years.

Year-to-date, new car sales are down by 20.5% compared to the first nine months of 2019, with 644,891 vehicles reported sold so far in 2020.  Of course, within the figures, some brands have fared better than others with some popular SUVs, Utes and 4WDs showing better sales results than conventional sedans. Nevertheless, overall new car sales levels are extremely poor, suggesting that there’s still time to do a good deal before the market turns post-pandemic.

But remember, before you act, do your research, take your time, don’t be pressured, don’t be afraid to walk away, be bold about asking for the best deal and try to seal the deal as close as possible to month end when sales figures are about to be finalised.

And don’t overlook the considerable benefits of buying a new car in 2021 with 2020 compliance and build plates. In most cases, the older these “new” cars become, the harder they are to sell. Consequently, they will often attract an additional discount just to move the stock.

Used Cars

The story of doom and gloom for dealers is quite the opposite for used cars.

According to Car Advice, so called ‘pre-loved’ cars are increasingly hot property in Australia, with a surge in prices since April 2020 as buyers avoid public transport and new car dealers experience supply line (stock) shortages.

According to data from Moody’s Analytics, July 2020 used car prices broke records for a second successive month, recording a 16.2% rise on pre-pandemic prices and a massive 30.8% increase on prices experienced during the April 2020 slump.

In addition, domestic air travel had declined by over 90% by May 2020 because many interstate travellers decided to take a drive for their family holidays and business trips. As a result, demand for used cars has outweighed supply, making late model, low kms vehicles, harder to find. This has pushed up wholesale prices right across the board.

Valuers and auctioneers are reporting that the most in demand used vehicles are SUVs and Utes, especially those that have travelled less than 60,000 kms with low fuel consumption figures, a good service history and some new car warranty left for the buyer. In summary, the highest demand is for the likes of Toyota, Mazda, VW, Hyundai, Kia and Subaru, all of which have reputations for reliability and reasonable maintenance costs. 

The same phenomenon has been observed in the classic car market. For example, Grays Auctions recently reported the on-line auction sale of a 1973 Ford Falcon XA GT at a remarkable price of $300,909. Shannons Auctions have reported similar results, noting a “you only live once” attitude of buyers during the pandemic.

The obvious question is: how long will this last? Logic says that the used car market frenzy will ease over the next few months as more sellers come to the market to take advantage of higher prices. The trend may also moderate should the recession take hold with the gradual withdrawal of government support.

So it seems there is a case to be for waiting until the market turns.

However, if you must buy now, at least take your time, do lots of research, buy the best quality vehicle rather than the cheapest one and set a target price beyond which you’ll walk away.

That’s not dissimilar to buying real estate at auction. Just like houses, there are plenty of cars out there and another one will always come along, sooner than you expect.

Before you hand over your money, here are six tips:

  • Have a pre-purchase mechanical and body inspection. This must be not-negotiable and it must be independent. If the seller won’t agree to that, walk away;
  • Check the car’s clear title and accident history through your state or territory motor registry website. Otherwise you might be buying a car that has an outstanding financial encumbrance (loan or debt) on it or it might have been financially written off by an insurer after an accident. The former can lead to the car being repossessed from the new owner. The latter, called a “repairable write-off”, may not be able to be insured by you, the new owner; 
  • Make sure the car has a strong and documented maintenance history from new in Australia. If the car was imported from overseas later in its life, pay special attention to its history and country of origin. Most overseas imports sell at substantial discounts, reflecting the substantial risks inherent in buying such a car (covered-up rust, ‘dodgy’ repairs, stolen, non-genuine parts and engines);
  • Buying a poor-quality used car at a cheaper price will usually end up costing more in repairs, maintenance and frustration. So be prepared to pay more for peace of mind;
  • Late model used cars purchased from dealers often come with a short statutory warranty period (usually three months). Buyers of used cars through dealers, whether a statutory warranty applies or not, will often be convinced to buy a used car warranty through an insurance company on which the dealer is paid a commission. In addition, these policies are often “thrown in” by dealers as a sales technique to sweeten the deal and to ensure that you don’t receive a discount on the list price. Typically, these warranty policies are best described as ‘junk insurance’. That’s because they are often written in such a way that claims are difficult to make and/or very limited in value. You can read more about your consumer rights and warranties at www.accc.gov.au; and
  • Purchase comprehensive car insurance before you drive away. There are many stories of newly purchased cars being damaged or written off within five minutes of purchase by a newly minted enthusiastic owner who is unfamiliar with the location of the brake pedal in their latest acquisition.

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