Continuing our popular series – Used Car Advice – we want to hit an issue in 2014 which is impacting on several car buyers: Paul sent us an email:
Hi there! I know ye guys can give advice on buying cars. Can you help us! We are currently driving a Ford Mondeo and while it’s still pretty cheap to run (it’s 2010 model) and there’s plenty of space in the back for our two kids (ages 7 and 11) we’re hoping to buy something smaller and release some equity. Can you give us some help here
This raises a really important issue. All vehicles, aside from a tiny proportion, will depreciate in value over the course of their lifetime. This means that every year you drive it you will depreciate its value more and more. Some factors can hurry up the depreciation process: your annual mileage is high, the car was involved in a significant impact, you have no service history records, there are a large number of owner changes on the car, the car was previously a taxi/hackney – factors like those can impact further on the value of the vehicle. However, aside from that, certain brands, and certain models in particular, can depreciate more than other equivalent models.
Ultimately, it’s the market that decides the value of the vehicle based on the usual factors of supply and demand. Depreciation of a vehicle is a live issue which impacts on the cost of ownership and cannot under any circumstances be ignored when you are calculating the cost of ownership of a particular vehicle. In fact, day-to-day running costs can pale in comparison compared to annualised depreciation, especially in the case of premium marque models.
Paul’s Ford Mondeo
A popular model of Ford Mondeo in 2010 was the Econetic which was presented as a tax and fuel efficient model. Obviously the value of the vehicle depends on how much Paul realises in the sales process and values can differ markedly depending on whether he sells his car privately or trades-in his car against his next purchase. However, broadly speaking, we will assume Paul will realise a sale price of around €14,500. If Paul does decide to sell privately he shouldn’t have any trouble: the Mondeo has received good reviews from a variety of sources, it’s fuel efficient, looks very respectable and is a good seller in Ireland.
From time-to-time we get asked about the idea of downsizing. Effectively, this involves selling a vehicle to buy a smaller vehicle, while, at the same time releasing some equity in your current vehicle. People might downsize for a variety of reasons including releasing equity to invest in a business, or to help raise a deposit for a mortgage on a house. In theory the idea is pretty sound but it’s important to go about it the correct way.
Firstly, manufacturers are releasing more and more smaller vehicle’s into the market, as there is an appreciation, at least in Europe, for cars that are easier to park in urban areas and which behave well in the city environment. It’s likely this trend will continue – so downsizing is pretty much in vogue at the moment.
Secondly, you need to distinguish between downsizing and “going down the years”. In Paul’s case he could sell his current car and buy an older Mondeo – maybe acquire a 2008 registered model – which still avails of the cheaper taxation regime for lower emissions and he can probably hope to pocket some cash from that. If this is his idea then he’d be wise to keep all his options open: talk to a couple of different Ford Dealers to establish the best price for him, or, look to sell the vehicle himself privately, then use part of the proceeds to buy a used vehicle for cash (which should get him a discount). These would be the two obvious choices if he intends to stay within the same brand. So, Paul could probably acquire a 2008 Ford Mondeo, for cash, for around €10,000 – freeing up around €4,500 in equity.
Downsizing would mean selling his current car and buying a smaller model, maybe another Ford, or maybe another marque altogether. So, in the case of Ford he might consider a Ford Focus, perhaps, (although residual values are high for the Focus meaning he may not release much equity without going down considerably in years) or a good all-rounder for a smaller family like a Kia Cee’d which comes with a 7 year warranty from the date the vehicle is first registered. So, if Paul opts for, say, a 2009 Kia Cee’d he could hope to buy one for around €10,500 – going down only one year in the process – and freeing up around €4,000 in equity. Another option would be to go further down in years. In an earlier blog in this series we recommended a 2005 Ford Fiesta to Helga – who also has 2 kids. Paul could hope to step into an 05 Fiesta today for around €4,500 – freeing up around €10,000 in equity.
Ultimately, Paul can make a sum of money on either of these types of transactions, downsizing, or going down the years, but, beware of the overall cost. If he is “going down in years” then his new car may require higher servicing costs – cars generally need more parts as they age. Also, the further down the years the buyer goes, the more precarious the market gets, as it can be more difficult to find a trustworthy, well-maintained “high-miler”. If he drops below registration year 2008 he may find he is paying more motor tax for less car – another potential issue for him.
Our advice to Paul is to be careful, consider all your options, and sit down with a calculator and work it out. Ultimately, you need to be happy that you are making money longer term, as well as short term. And, of course, make sure the car you buy suits your needs as a family.
Warning: All used cars require careful consideration before purchase. Get a Cartell.ie check to find out the history of the vehicle. This blog is a general guide only and Cartell.ie is not recommending the purchase of any particular vehicle – just giving some general advice!