Budget Buster: Buying new cars is for suckers

A new car is not a sign of success – the proud owner is usually driving around a rapidly-depreciating bank loan on wheels.

A new car is not a sign of success – the proud owner is usually driving around a rapidly-depreciating bank loan on wheels.

OPINION: New Zealand is the best country in the world at chucking stuff. Besides our proficiency with rugby balls, shot puts and dildos, it turns out we're also great at throwing away big wads of money.

A recent study revealed new cars sold here in New Zealand depreciate faster than anywhere else in the world. According to the research, Kiwi cars with an average 56,000km on the clock have lost a whopping 54 per cent of their original recommended retail price.

This means buying a brand-new car is the equivalent of tossing great fistfuls of cash into a hole in the ground. Let's say you want to buy a new Ford Falcon or similar car for around $50,000. As soon as you drive out of that yard, its value begins to plummet faster than a skydiving elephant. 

You better make the most of showing it off to your mates, because after a few years, your shiny set of wheels is worth just $23,000.

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The Motor Industry Association (which represents the new car industry) takes issue with the figures in the study, and reckons our depreciation rate is probably somewhere between the US and Australia – so only the third to eighth worst in the world. Using the lower end of that range, Australia's 45 per cent, your Falcon would still only hold $27,500 of its value.

It's screamingly obvious to me that buying secondhand is the way to go, especially since we have a great used-car market.

Clearly a lot of people disagree, with 13,824 new vehicles registered in January – the strongest ever start to a new sales year. Business owners who can write off depreciation as an expense no doubt account for some of those. For everyone else, the only advantages of buying new are having repairs or servicing covered by warranty, and the prestige factor.

If you really love the smell of new upholstery, fair enough - everyone has different tastes.

At the very least, consider choosing a vehicle which won't experience quite such a dizzying freefall in value. A comparison of secondhand cars on Trade Me with their 2007 sales prices found that popular makes and models held their value the best. While Ford Falcons had depreciated by 77 per cent, the ever-sought after Subaru Impreza was only down by a third. Smaller hatchbacks were also a good bet, because they were snapped up by young people buying their first car.

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While I can grudgingly see why some people buy new cars, I won't have any truck with finance schemes. You're not just throwing money in a hole, you're dousing it in petrol and setting it on fire too.

Let's look at what happens if the silver-tongued salesman talks you into a finance arrangement to pay off the Falcon over four years. At an eye-watering 15 per cent interest rate, you'll end up paying a total of almost $67,000. By the time you sign off on that final payment, your pride and joy will be worth a measly $27,000. Congratulations! You've just wasted a whopping $40,000, which went straight into the pockets of financiers and car dealers. That's ten grand a year just for the privilege of driving the thing, not including petrol, rego, maintenance, and all the other myriad costs.

Let's finish with an interesting fact about the car-buying habits of rich people. I don't mean the glitzy rich or the wannabes, but the quiet, self-made millionaires who've made good through frugality and hard work.

Studies have found they tend to drive boring but reliable secondhand cars, like Toyota Corollas. They run them into the ground, rather than constantly trading up, and they always pay cash.

It might not be glamorous, but it works.

Got a money question? Email Budget Buster at richard.meadows@thedeepdish.org, or hit him up on Twitter at @MeadowsRichard. You can also find links to previous Budget Busters here.

 - Sunday News


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