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Why people struggle to sell used cars at a certain price
Today, 11:09 AM (This post was last modified: Today 11:13 AM by MR_Y.)
Post: #1
Why people struggle to sell used cars at a certain price
Hi,

Excluding your classics and collectable cars, the vast majority of cars being sold on the private used car market (our forum included) struggle to sell at, what can be regarded as, reasonable selling prices. Obviously, excluding those individuals who are deluded enough to sell average condition cars at above average prices.

My theory is that balloon/residual financing on new (or even pre-owned dealership) cars is to blame for this.

Let me explain.

Consider a nice, used (say, 2015-16) F30 320d selling for R341,782 privately. Assuming one has to finance this privately from the bank, at Prime (10.25%) over 60 months (some banks would be unwilling to give a 72 month term for a private sale used car) and 0% balloon (again, due to it being a private sale, the bank would not be willing to offer a balloon/residual deal). The installment for this deal would be R7,304 pm.

Now, if you are willing to go to a dealer and buy a newer (say, 2017-2018) F30 320d with lower mileage and better spec and, importantly, more Motorplan left, you would be looking at R500k (for argument sake). The dealer can offer you a 72 month term, with a 40% balloon (R200k), assuming 10.25% Prime rate, at the same installment as the private deal above - R7,304pm.

Some people (generally older individuals) would gravitate towards the private deal, since there is no balloon to worry about and there is a greater saving in interest paid over the loan term (60m vs 72m).

However, most buyers (especially those who are fanatical about buying car with lots of MP left), would lean towards the dealership deal.

My theory is that it is the dealership deal above that accounts for the main reason why the private used car market is struggling (noting my exclusions/limitations in the 1st paragraph of this post).

People are saying why buy an older R374k car for R7,304pm, when you can get a newer R500k car for R7,304pm.

I would take the R374k car, personally.

Thoughts?

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Today, 11:16 AM
Post: #2
RE: Why people struggle to sell used cars at a certain price
Buying from a dealership is just simpler, if you are financing.

You sign some paperwork and they sort out the rest, unlike private finance which can take AGES.

Personally do not believe in financing cars though.

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Today, 11:25 AM
Post: #3
RE: Why people struggle to sell used cars at a certain price
I think it also has to do with the fact that there is a greater element of risk associated with a private deal. Also, most people dont care about the cost or how the vehicle is financed, as long as they can have a new car an manage the monthly installment. That is why you find in SA guys driving expensive cars but they dont earn that well. More of an emotional than rational decision.
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Kyle
Today, 11:26 AM
Post: #4
RE: Why people struggle to sell used cars at a certain price
People also believe they have better CPA cover when buying from a dealer, so that may also be a large factor.

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Today, 11:37 AM
Post: #5
RE: Why people struggle to sell used cars at a certain price
Personally for me the only reason you would finance a new car with a residual/balloon is you want to use of something you can't afford and the car dealer/finance house/credit provider is enabling you. What the reason for this is I don't understand maybe your neighbor will be impressed.

I should also be mentioned that after 5/6 years of repayments you don't actually own the car, as is the case with the private sale. So at that point you have spent 7304x72 or R525888 this is on a car that cost R500000, at which point you have to give the car back (subject to numerous T&C's).

I have never understood why people "buy" new cars especially in this way. Maybe it is the complete lack of financial/mathematical literacy, or maybe people just want someone else to look after them.
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Today, 11:53 AM
Post: #6
RE: Why people struggle to sell used cars at a certain price
(Today 11:37 AM)Sankekur Wrote:  Personally for me the only reason you would finance a new car with a residual/balloon is you want to use of something you can't afford and the car dealer/finance house/credit provider is enabling you. What the reason for this is I don't understand maybe your neighbor will be impressed.

I should also be mentioned that after 5/6 years of repayments you don't actually own the car, as is the case with the private sale. So at that point you have spent 7304x72 or R525888 this is on a car that cost R500000, at which point you have to give the car back (subject to numerous T&C's).

I have never understood why people "buy" new cars especially in this way. Maybe it is the complete lack of financial/mathematical literacy, or maybe people just want someone else to look after them.
I like your comment there buddy, ‘’for you personally if you cannot afford a car you will opt for balloon’’ Bravo
Every person have a reason why they choose to finance a car and opt for balloon and there is no need to try and understand why they would choose that. Life is too short to worry about why someone will choose a balloon and drive a brand new car every three years, his money, his decision. In my opinion, if you can afford the monthly installments, you can afford the car.

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Today, 12:04 PM
Post: #7
RE: Why people struggle to sell used cars at a certain price
The word "affordability", in this context, can be interpreted in many different ways...

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Kyle
Today, 01:09 PM
Post: #8
RE: Why people struggle to sell used cars at a certain price
(Today 11:53 AM)lebofa Wrote:  
(Today 11:37 AM)Sankekur Wrote:  Personally for me the only reason you would finance a new car with a residual/balloon is you want to use of something you can't afford and the car dealer/finance house/credit provider is enabling you. What the reason for this is I don't understand maybe your neighbor will be impressed.

I should also be mentioned that after 5/6 years of repayments you don't actually own the car, as is the case with the private sale. So at that point you have spent 7304x72 or R525888 this is on a car that cost R500000, at which point you have to give the car back (subject to numerous T&C's).

I have never understood why people "buy" new cars especially in this way. Maybe it is the complete lack of financial/mathematical literacy, or maybe people just want someone else to look after them.
I like your comment there buddy, ‘’for you personally if you cannot afford a car you will opt for balloon’’ Bravo
Every person have a reason why they choose to finance a car and opt for balloon and there is no need to try and understand why they would choose that. Life is too short to worry about why someone will choose a balloon and drive a brand new car every three years, his money, his decision. In my opinion, if you can afford the monthly installments, you can afford the car.

Affording an instalment and affording the item you are purchasing are two different things.

All you have to do is look on some of the Facebook groups, people desperately asking for help with cheap spares, whether they can remove their turbos because their current one is blown (and obviously can't afford a proper repair), "what's the cheapest tyre I can fit?"..

This all comes from thinking you can afford the car because your finance was somehow approved.

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TurboLlew
Today, 01:09 PM
Post: #9
RE: Why people struggle to sell used cars at a certain price
Balloon payments can be easier to manage the monthly payments, or if you do not plan on keeping the vehicle for too long and depending on the purchase price - it may be worth while as you do not pay interest on the balloon portion.

I read about some guy always financing his vehicles with a balloon payment, although something about the saved money being invested and he always make more money back. I cannot find the article, I think he had the balloon portion upfront and decided to invest that instead and not put it towards the car.

A private deal can be a bit of a mission, although it really isn't that bad. I am in the process of selling my A4 privately - they needed some documents from me and then I needed to take the car to Dekra for the inspection (I do not pay for the tests).
Now waiting for the agreements to be drawn up, signed and then I should get my money.

Buying from a dealer is much quicker, although unlikely you'd get the same deal at a dealer that you would privately.
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Today, 01:43 PM (This post was last modified: Today 01:52 PM by Thami4u.)
Post: #10
RE: Why people struggle to sell used cars at a certain price
(Today 11:37 AM)Sankekur Wrote:  Personally for me the only reason you would finance a new car with a residual/balloon is you want to use of something you can't afford and the car dealer/finance house/credit provider is enabling you. What the reason for this is I don't understand maybe your neighbor will be impressed.

I should also be mentioned that after 5/6 years of repayments you don't actually own the car, as is the case with the private sale. So at that point you have spent 7304x72 or R525888 this is on a car that cost R500000, at which point you have to give the car back (subject to numerous T&C's).

I have never understood why people "buy" new cars especially in this way. Maybe it is the complete lack of financial/mathematical literacy, or maybe people just want someone else to look after them.

Do not be over-critical on something that you clearly do not understand. There's nothing wrong with the balloon payment finance arrangement if you know what you are doing or if you know the mechanics behind it.
Some of you here finance cars using your access bonds...someone else may think that going this route means you cannot afford the car but if you know exactly what you are doing it can work for you.

(Today 11:09 AM)MR_Y Wrote:  Hi,

Excluding your classics and collectable cars, the vast majority of cars being sold on the private used car market (our forum included) struggle to sell at, what can be regarded as, reasonable selling prices. Obviously, excluding those individuals who are deluded enough to sell average condition cars at above average prices.

My theory is that balloon/residual financing on new (or even pre-owned dealership) cars is to blame for this.

Let me explain.

Consider a nice, used (say, 2015-16) F30 320d selling for R341,782 privately. Assuming one has to finance this privately from the bank, at Prime (10.25%) over 60 months (some banks would be unwilling to give a 72 month term for a private sale used car) and 0% balloon (again, due to it being a private sale, the bank would not be willing to offer a balloon/residual deal). The installment for this deal would be R7,304 pm.

Now, if you are willing to go to a dealer and buy a newer (say, 2017-2018) F30 320d with lower mileage and better spec and, importantly, more Motorplan left, you would be looking at R500k (for argument sake). The dealer can offer you a 72 month term, with a 40% balloon (R200k), assuming 10.25% Prime rate, at the same installment as the private deal above - R7,304pm.

Some people (generally older individuals) would gravitate towards the private deal, since there is no balloon to worry about and there is a greater saving in interest paid over the loan term (60m vs 72m).

However, most buyers (especially those who are fanatical about buying car with lots of MP left), would lean towards the dealership deal.

My theory is that it is the dealership deal above that accounts for the main reason why the private used car market is struggling (noting my exclusions/limitations in the 1st paragraph of this post).

People are saying why buy an older R374k car for R7,304pm, when you can get a newer R500k car for R7,304pm.

I would take the R374k car, personally.

Thoughts?
If the private sale is attractive there's no doubt I'll go for it. The motor industry and the whole value chain in its entirety is very shady. Going through the dealership will surely get you the car quicker by saving you a week or so at a premium. Doing all the necessary checks before buying is all that I need.

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Today, 01:57 PM
Post: #11
RE: Why people struggle to sell used cars at a certain price
Some people have been scammed huge amounts of money so they rather pay a bit more but have the goods than a lot less and nothing to show.

there is also recourse with a dealer (in most instances) than private sale where it can get very messy!

Finance deals: Dealers are sleek and fast
Cash deals: Private makes more sense as there is a huge upside on discount

Of late though, especially on this forum, some prices have been obscene and being a fanatic, I understand why. .i.e. I spent R53k on my 330ci recently, add the purchase price, etc. Should I wish to sell, my car will be seen to "high" in asking price. These benchmarks become a guide for those that don't maintain their cars and want to ask the same. Good news, the invisible hand of the free market always wins (demand/supply).

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Today, 01:59 PM
Post: #12
RE: Why people struggle to sell used cars at a certain price
IMO theres nothing wrong with a balloon. I myself have made a decision that I will change one of my cars every 3 years because I like cars. I understand and accept that at the end of the term I'll still have that balloon payment but I also know I'll trade it in before then...

My other car has no balloon and is almost paid off.

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Today, 02:16 PM (This post was last modified: Today 02:45 PM by TurboLlew.)
Post: #13
RE: Why people struggle to sell used cars at a certain price
another residual and affordability thread omg waiting

The end game is here. Also on facebook go and look at all those morons who rented cars on GFV and are butthurt that VW is hitting them HARD with penalties for being out of mileage and condition guidelines.

I was out shopping this past week and it has gotten worse. It was easy to justify at maybe 300K for cashflow... however it seems that whereas perhaps 50% (hypothetically) could buy the car 'cleanly' but were using GFV or residual correctly and 50% doing it the wrong way, now the percentage is skewed towards simply having to do it to have any hope of buying the car. Guys are not even trying to sell you a straight up deal anymore. This is in the climate of a greatly diminished buyer pool as well...

@Lebofa dude you have to recognize at some point that you are not being personally attacked every time residual is brought up and that generally speaking it is NOT used correctly or else the market would not be the way it is. It seems that you are in the minority (and probably at this point, the vast minority) that are using this correctly and really understand what they are doing.

I can understand there are a ton of guys earning 500-750K... stretching for an M or x40 or something like that... but I am dying to see how many people are earning R1M+ a year in order to rent a 700K 320i which they then load R300K onto from their previous failed financing excursion... especially given what a house costs, school/university, levies, security etc etc...

People behave like this is virtual money that they are losing... talking about a loss of 200K or loading 100K onto another car like they are Warren Buffet. They haven't felt it until now where it isn't an extra 300 bucks a month difference in instalment to be rid of the old car and in a new car... its an extra 3K and your hope of owning the car is zero. You will never be in a position to buy the car because in 3 years it will have depreciated beyond the GFV so you have to give it back for it to be economically viable for you. You will then have to purchase a vehicle at whatever the going rate is... at this rate R1M for a 320i... welcome to the horror of the real world.

Thing is, with the dealers I've been to, they have all complained about a very slow market so people are obviously seeing the situation for what it is and holding back. We have guys in F30s from the other thread holding onto the cars way past plan. The people buying are either doing GFV or cash deals. This isn't the US with super cheap financing. More dealers will close soon by the looks of things.

Also I have to add that private sellers can be extremely painful to deal with, wasting your time, refusing to budge and expecting every rand and cent spent on normal maintenance to be recovered (I care if you've done bearings or VANOS or clutch for instance, but don't expect anyone to care about belts, filters, plugs, labour (!) etc no matter how many thousands they cost).

Rofl

This is apart from those who post ads saying they are being offered a claimed trade value close to retail... they want this from the buyer or the car is 'going to be traded monday'. If it's on a forum normally banter is followed by a variation on a condescending "thanks its sold". 2 weeks later the car is for sale again at below the far too good to be true trade value... I don't even bother calling anymore. All these guys are stuck upside down on deals... caught between their initial mistake and their next one, without the vision to escape either.

Rofl

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Today, 02:33 PM
Post: #14
RE: Why people struggle to sell used cars at a certain price
(Today 02:16 PM)TurboLlew Wrote:  This is apart from those who post ads saying they are being offered a claimed trade value close to retail... they want this from the seller or the car is 'going to be traded monday'. If it's on a forum normally banter is followed by a variation on a condescending "thanks its sold". 2 weeks later the car is for sale again at below the far too good to be true trade value... I don't even bother calling anymore. All these guys are stuck upside down on deals... caught between their initial mistake and their next one, without the vision to escape either.

Yeah trade on your Conquest coz you're looking at getting a brand new 320D Rofl

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Today, 02:53 PM
Post: #15
RE: Why people struggle to sell used cars at a certain price
(Today 11:16 AM)Kyle Wrote:  Buying from a dealership is just simpler, if you are financing.

You sign some paperwork and they sort out the rest, unlike private finance which can take AGES.

Personally do not believe in financing cars though.

I HATE Financing cars too..
If i dont have the cash to buy it, i wont do it...

BUT, I need to do finance now since the wife is driving...

And she Refuses to drive an E46 Fencelookdunno anymore lol
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Today, 02:58 PM
Post: #16
RE: Why people struggle to sell used cars at a certain price
A GFV (rental plan) has its place for a specific customer set, it has a defined set of rules that must not be broken else you suffer the penalties, However should you stay within the lines then it can be a very tax rewarding option to purchase.

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Today, 03:03 PM
Post: #17
RE: Why people struggle to sell used cars at a certain price
(Today 11:37 AM)Sankekur Wrote:  Personally for me the only reason you would finance a new car with a residual/balloon is you want to use of something you can't afford and the car dealer/finance house/credit provider is enabling you. What the reason for this is I don't understand maybe your neighbor will be impressed.

I should also be mentioned that after 5/6 years of repayments you don't actually own the car, as is the case with the private sale. So at that point you have spent 7304x72 or R525888 this is on a car that cost R500000, at which point you have to give the car back (subject to numerous T&C's).

I have never understood why people "buy" new cars especially in this way. Maybe it is the complete lack of financial/mathematical literacy, or maybe people just want someone else to look after them.

i get what you're saying...a few friends of mine are not really into cars but only buy new cars because they want the factory warranty etc. no other reason really. If there is an issue they want it covered at the dealership ..under warranty. It works for them...at a high cost.

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Today, 03:06 PM
Post: #18
RE: Why people struggle to sell used cars at a certain price
Of course the other problem with financing a car is that you're always at the mercy of the finance institution...

No matter what clever plan you've come up with to "make it work for you", God forbid, if things go south and you need to get rid of the cars completely (without 'loading' onto another deal) you will need to settle the outstanding amount, and we all know how that goes... Especially risky with balloon payments.

I own both my cars, given they are nothing fancy... But I am at peace knowing I could sell them for R5 if I wanted to, and I wouldn't have to answer to anyone. Thumbs

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