Saturday 1 October 2016

Why our cars cost more or less: The key factors that shape used-car values

Published 01/06/2016 | 02:30

The value of second-hand cars is a hot-topic in the trade.
The value of second-hand cars is a hot-topic in the trade.

Aidan Timmons and Motoring Editor Eddie Cunningham team up to help readers make the right choice with their next car. Aidan visits dealers all over the country to produce a monthly guidebook on the values of used cars. He is co-editor of Motor Trade Publishers, who supply a car-valuing service to the motor trade, insurance companies and finance houses. Eddie is author of former best-seller 'Clever Car Buying'.

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Every week I turn to the back page of 'Independent Motors' because I find the queries interesting and informative. But I have a question. How and who determines the values of secondhand cars or is it very much a random thing of supply and demand?

I think Eddie's piece last week on the cars that sold most and quickest was helpful to anyone with those cars, or anyone thinking of buying one. But could you explain the process of how cars are valued and what makes some better at holding their value than others please?

Eddie: Thank you for that. I have been planning on doing something about secondhand prices for some time and several other readers have asked questions along similar lines to yours.

So what better place to start than with Aidan, who visits dealers all over the country to produce a monthly guidebook on the values of used cars.

He is co-editor of Motor Trade Publishers, who supply a car-valuing service called 'The Car Sales Guide' to the motor trade, insurance companies and finance houses.

Over to you Aidan.

Aidan: Thanks Eddie. This is as hot a topic in the motor trade as it is among our readers. I won't go into the minutiae of car prices because it is a turgid topic but there are some basic factors that impact on residual values.

First-off, it is worth mentioning that every car is taken on its own individual merit. There is no established or prescribed used car value by which all dealers must abide. The savvy reader alludes to one of the most important elements to values; supply and demand.

This basic economic principle plays a pivotal role in establishing the prices of all products and not just cars.

Think of how oil prices rise and fall and the subsequent effect on fuel costs. Or even how rent prices continue to creep up in response to the lack of new developments.

When the market for new cars crashed in 2009 and struggled for a number of years thereafter, the initial effect on used car values was a sharp fall.

Supply massively outstrippped demand and what was available was deemed undesirable because of the change in our motor tax system, which favoured lower CO2 emitting vehicles.

Our market switched from selling 75pc petrol cars pre-2008 to 75pc diesel cars in the years following the new tax system.

However, it took some time for manufacturers to design cars to these new environmental standards.

And so, off the back of many poor years of new car sales (in fairness the economy was rubbish, too), and therefore poor supply of used cars being traded back into the market, residual values rebounded.

One of the more obvious influences on value is the specification of the car.

It used to be the case that buyers chose a standard trim level and then added optional extras.

Now, though, manufacturers are really in tune with what buyers want as standard equipment and so specification levels are all well equipped.

Still, different packs and trim levels will hold some of their new price premium and this obviously translates into different residual values for used cars.

Then we have things like the car's age. That one is straightforward and I don't think anybody needs me to explain it any further.

Another factor that impacts on residual values is mileage, or more appropriately, the relationship between a car's mileage and its age. I don't want to get too technical but higher mileage is less of an issue on an older car than a younger car and so re-evaluating prices accordingly for mileage is not a one-size fits all calculation.

In fact, I see from the questions that we receive every week from readers that very few people provide the mileage of the used cars that they are considering to purchase.

And I know from talking to friends that price differences can look confusing when mileage is not factored into the equation.

Some other considerations such as seasonality (4WDs can be more popular during a poor winter), and the advent of a new model replacing an existing car can influence values, but again there is no prescribed amount and nothing is definite.

That is why I travel around the country, taking the market's temperature and gathering as much data as I can get my hands on. Our valuation product turns 50 next year and even still, every day is a learning day.

The reader also asks what makes some cars better at holding their value than others.

Quite simply it is a mix of the aforementioned; supply, demand, age, mileage, and desirability in a particular specification. But condition is critical, too. When you buy a used car from a reputable dealer you expect something that is in tip-top shape.

So, if you trade a car into a dealer as a part exchange for a new/newer car and it has some small damage or scrapes, or a worn and grubby interior and a patchy service record this will obviously affect the value.

The dealer needs to spend more money on fixing it and bringing it to a retailable standard than they would for a car that is in better condition.

Think about it in reverse; would you pay the same price for a car with higher mileage and in tatty condition as you would for a low mileage minter? I know I wouldn't.

Some cars can be slow sellers in the new-car market, but perform brilliantly on the used market.

This alone can be for a variety of reasons, but it's not something worth getting hung up over.

Some models get better equipment or a different engine and these can positively influence the residual values of those models.

If I could offer just one piece of advice from my experience of working with residual values, it would be for customers to place a greater emphasis on the cost to change their cars and less on the amount that they think that it is worth.

Do that, and you will make your lives a lot easier than if you try to study residual values.

At the end of the day, the sum coming out of your pocket is the only relevant figure.

You can also rest assured that by focusing on the amount you need to spend in order to upgrade (and comparing like with like models) that you will choose the best deal and not the one that values your car higher than others.

Eddie: One area that you can't put a price on is the dealer. I've often said that a good dealer, who will take care of things properly when they go wrong, is worth his or her weight in gold.

I'll be blunt. You might feel you have saved a couple of hundred euro on a car and think you have a great deal by doing your business somewhere else.

And you very well might. I know lots of people who have travelled hundreds of kilometres to get a better deal and lived to tell the tale.

I have also plenty of instances where people have been badly let down and, in some cases, had to get their local dealer to sort them out.

It is an old motto but I often repeat it: 'Buy the dealer as much as the car.'

A couple of hundred euro is a lot of money, for sure, but it can pale into insignificance if the dealer hasn't the ability or inclination to look after you properly when something goes wrong. And things do go wrong. That is the nature of cars - and people.

NOTE: Next week we have a 162-registration plate supplement. We will be back with specific advice to readers' queries the week after.

I must apologise to those whose queries I'd promised to answer this week but there was such a volume of queries about how car values are assessed and reached that I thought it better to deal with it this week.

Do keep your queries coming. We do our best to get to as many as we can.

JUST TO SAY

We love getting your enquiries but can't reply to them all in as full a manner as we'd like due to time and space restraints. We try to deal with as many as possible via email. You can help us help you if you make sure to include the following critical elements in your query:

* Total budget.

* Annual mileage.

* Size of car required (number of seats).

* Present car (make, model, year and mileage).

ecunningham@independent.ie

Indo Motoring

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