Commentary: Amid low COE prices, here’s why you should hold off buying a used car

Commentary: Amid low COE prices, here’s why you should hold off buying a used car

Used cars are a popular options because of their affordability but beware of the hidden expenses beneath that glitzy, almost-new looking bonnet, says car expert Galvin Khong.

Cars in Singapore
File photo of traffic in Singapore. (Photo: Hester Tan)

SINGAPORE: When buying a car, many individuals think about getting a used car because it is cheaper than a spanking new one.

At our car dealership company, we have seen a rising interest in used cars as the number of enquiries surged over the years. Every month, we get hundreds of calls from enthusiasts looking for used car options. On the other hand, we get approximately 50 enquiries about new cars every month.

Used cars are a popular option because of their affordability. The price difference is substantial. A very new car can be bought for as low as S$80,000 given prevailing record low COE prices. However, depending on how many years you want on your car, you can get a used car for as low as S$10,000.

Used cars give people more options because there are various models that you can buy at different price points that feed different needs. For example, if you want to drive a Toyota Altis because it’s a fuel-efficient option, but find a brand new one too expensive, you can always find a used model in the market, which will cost much less, depending on its age and condition.

Despite this, we advise people to buy new cars if they can afford it, because a used car may incur hidden expenses along the way.

THE UNKNOWN HISTORY OF A USED CAR

The problem with used cars is that you will never really fully know the true history of a used car before you buy it. 

Every owner uses their car differently, and as such the mechanical components of the car go through different rates of wear and tear. 

For example, some owners might just use the car as a daily commute to work, clocking less than 50km a day, whereas some other owners have to drive around the whole day as part of their job as an outdoor salesperson, doing as much as 100 to 200km a day. 

There are also limitations to a mechanic’s inspection. It is impossible to inspect certain parts such as the engine and transmission interiors for any signs of wear and tear, or worse still, cracks and damaged parts, without having to tear them apart.

Why you shouldn't buy a used car right now
(Photo: Unsplash/chuttersnap)

Consumers might think that the Lemon Law that protects consumers against defective goods including used cars, but there are some difficulties in enforcing this. 

For a start, certain mechanical faults may not be covered under lemon laws. Wear and tear issues are also not covered under lemon law. Even the definition of “wear and tear” itself is subject to debate.

The Lemon Law is also not valid if you were informed about of these faults before the purchase. So it’s no surprise that car dealers try to cover themselves as much as possible, by getting customers to sign checklists that state that the car is in good condition during the purchase.

As such, when an issue crops up after the purchase, from small issues like light bulb failures, to the more serious engine, transmission, suspension noises, and even air-conditioning failures, the dealer will not entertain claims as customers had confirmed that goods were in order when the deal was made.  

Customers are signing up for a big risk when they purchase a used car, problems that don’t present if they bought a new car covered by warranties instead. 

For example, an engine oil leak might require a top engine overhaul, which might cost you hundreds of dollars in repairs. Also, problems like air conditioner compressor failures, radiator coolant leaks and alternator failures are all common in used cars,. All costs hundreds of dollars each to rectify, and there is a high probability of these problems occurring.

Car maintenance can also be an ongoing process. Once an issue has been fixed, another issue may emerge in another part of the car. Used car owners have to live with the nagging feeling that they could have chosen another way instead of having to pay maintenance fees as and when such issues emerge.

CYCLICAL NATURE OF COE IS A BOON

This is the best time to buy a new car because the current Certificate of Entitlement (COE) is at a record low in over eight years. 

The transacted COE price for Category A cars of 1,600cc and below was at S$25,000 in end-November, compared to the peak of S$92,100 in January 2013. 

Cars with 1,600 cc and above in Category B fetched S$31,101, compared to the peak of S$96,210. That means saving almost S$60,000 alone in COE if you were to buy the same make and model today compared to just six years ago.

Individuals who buy new cars during this period will also benefit from the cyclical nature of COE. If customers buy a new car now, in the next ten years when it's time to buy another new car, COE will very likely be low too, since the supply of COEs is dependent on the number of cars deregistered each month assuming demand holds constant. 

stock car showroom
A car inside a showroom in Singapore. (File photo: Francine Lim)

In fact, the reason for the current low COE is the relatively high supply of COEs now. 10 years ago, in 2008, there was an ample supply of COEs, and Category A COE prices came crashing down to S$2 in November 2008 amidst weak consumer sentiment during the Global Financial Crisis.   

These COEs from a decade ago must be deregistered and pumped back into the supply of COEs, and are more or less a direct cause for the low prices we are seeing now.

AFFORDABLE NEW CARS IN THE MARKET

A brand new Honda Fit Hybrid for example, is about S$74,800 with COE. This means that the depreciation is only about S$7,000 a year. A used 2010 Honda Fit petrol, for example, is selling at S$8,000 depreciation a year.

Due to the low COE prices, many new cars are relatively more affordable now, compared to a few years ago and are not that different in price from the average used car after you factor in the costs of maintaining an older one.

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At the end of the day, when buying a car, it’s important to keep in mind their functionality and consider if you really need a car given your budgetary constraints first and foremost.

If you’ve done your calculations and conclude that you still want to own a car, investing in a durable mode of transport for the next ten years by buying a new car is definitely a better long-term option over buying a used car in today’s market.

Paying more for a new car will give you a greater peace of mind, and save you significant maintenance fees in the future.

Galvin Khong is Group Director at Vin's Automotive Group, which offers vehicle rental, leasing and financing services, in addition to the sales of used and new cars. 

Source: CNA/nr(sl)

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