The crisis that has been affecting Europe since 2008 does not only have downsides. Since European governments have tackled public deficits, a panel of austerity measures has been implemented by member states to try to generate more tax revenue to replenish state coffers.
A difficult equation if there ever was one: increasing tax pressure on citizens while trying to maintain their purchasing power. To date, it’s a rather lost bet if we refer to the trend of internal consumption in Europe. The European citizen is affected in their purchasing power and withdraws into themselves. As a result, consumption is down. Among the many sectors of the economy affected, the automobile market is suffering terribly.
But is it bad news for your wallet? Not necessarily…
The Collapse of New Car Sales
In Belgium, 70% of transactions involving automobiles concern used vehicles. Just over 12 million vehicles were sold within the EEA in 2012, which corresponds to a global drop of 8.2% compared to 2011. All the figures in this report.
The countries most affected by this regression are: France (-13.9%), Spain (-13.4%), and Italy (-19.9%). Germany limits the drop to -2.9% and surprisingly the United Kingdom gains +3.7%.
Among manufacturers, it’s a bloodbath: PSA Peugeot (-12.9%), Renault (-18.9%), Fiat (-15.8%), GM and Opel (-15.6%) particularly suffered in 2012.
Other brands stand out: Audi progresses by 3.7%, BMW (-0.1%), Mercedes (-0.9%). Hyundai (+9.4%) and Kia soar to (+14.6%).
It’s the Right Time to Buy Your New Vehicle…
Why buy a new vehicle rather than a used one? Facing austerity, citizens buy more used vehicles. As mentioned, 70% of transactions involve used vehicles! And if that wasn’t the right calculation…
Here are some keys that could lead you to make a good deal:
- Many vehicle brands have very large stocks of unsold vehicles…
- These brands therefore offer discounts on new vehicles that can reach nearly …40% of the sale price. Examples in this report.
- The warranty on a new vehicle can go up to 5 years. You have no warranty on a used vehicle bought from an individual…
- You can resell your vehicle after 4 or 5 years and receive a sufficient value to pay your residual value, and this is even more true since 70% of other consumers will be looking for a used vehicle…
- Your new car financing is much more attractive than an installment loan for a used vehicle…
Buying a New Vehicle with Residual Value
You can buy your vehicle with a purchase option of the residual value; in this case, you only finance 60% of the price of your vehicle and after 5 years different choices are open to you:
- Either you buy the residual value by paying cash the remaining 40% balance due;
- Or you resell your used vehicle and thus repay the remaining balance due.
If you opt for a vehicle change every 5 years, it will be advised to buy your vehicle with a residual value. On the other hand, if you wish to keep your vehicle longer, a global car financing is more interesting;
What are we talking about? It should be noted that the APR for new vehicle financing is around 4% while that for a used vehicle is about 10%
An Example is Worth More Than All the Speeches…
- Consider a new luxury vehicle: value 35,000 € (not counting the discount you could negotiate…). 5-year warranty. You finance in residual value 60/40. You therefore finance at purchase 60% of 35,000 € = 21,000 €. After 5 years: you will have a balance of 14,000 € to pay.
Loan of 21,000 € over 5 years at an APR of 4.99% resulting in a monthly payment of 395.14 and a total cost of 23,708 €.
After 5 years, you resell your vehicle for 13,000 €. Your vehicle will have cost you 24,708 € instead of 39,000 € (if you had borrowed 35,000 € over 5 years).
- Assume you get a 30% discount at purchase. Vehicle price: 35,000 € – 30% discount or 10,500 €. Purchase price 24,950 €. You finance 60% of the vehicle or: 14,970 €. Remaining balance after 5 years of 9,980 €.
Loan of 14,970 € over 5 years at an APR of 4.99% resulting in a monthly payment of 281.68 € and a total cost of 16,900 €.
After 5 years, you resell this same vehicle for 13,000 €. Your vehicle will cost you 13,880 € (i.e., 16,900 € + 9,980 € – 13,000 €).
In conclusion: You pay your vehicle the same price as a used buyer 5 years after the acquisition date (not counting the financing of this used vehicle on 13,000 € at 9.95% over 5 years, i.e., total cost 15,885 €). Your advantage in this case is 2,885 €…
Sometimes it’s worth taking your information and your calculator.