Discount now, depreciate tomorrow

MOTORSNEWS DEALER DISCOUNTS: IN FEBRUARY, we noted a 2007 Boxster at €70,000; this week there is a 2007 Boxster S for €48,000…

MOTORSNEWS DEALER DISCOUNTS:IN FEBRUARY, we noted a 2007 Boxster at €70,000; this week there is a 2007 Boxster S for €48,000.

We reported a number of weeks ago that sluggish sales had prompted many distributors and dealers to drastically lower the prices of new models. As sales drop by 65 per cent compared to 2008, we have seen major manufacturers such as Toyota drop up to €3,000 off popular models and Ford has also offered a scrappage incentive of €3,000 off its petrol Focus.

The reductions are more dramatic for niche brands and models. Hyundai is offering up to €7,000 off its once high-selling Santa Fe, and Chrysler has reduced the price of its Sebring dramatically.

Launched in February 2008 at €35,595, you can now buy a new 2.0-litre diesel Sebring for €22,995 – making the €24,950 2008 model we spotted this week pretty much redundant. A 2008 2.0-litre petrol model was found on another website for €14,950, meaning the car has dropped 58 per cent of its value in just over a year.

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The Sebring might not have sold in high numbers but the Santa Fe did, and with thousands off the price of the new one, this will affect the residuals of existing cars. A new 2.2-litre CRDi 2wd Auto Santa Fe will cost you €39,995 – exactly the same price being asked by one dealer for a year-old example of the same car, with 19,000km.

So if you bought one in 2008 for close to €44,000 for the 2wd automatic version, not only have you lost the regular amount of depreciation, you are likely to lose the same amount again, since there has been a reduction in the price of a new one.

This – understandably – has made some 2008 customers pretty annoyed. One marketing manager of a major car retailer told The Irish Timesthat "the phone has been ringing since we announced price reductions but it is usually existing customers wanting to know if anything can be done for them".

When Porsche announced significant price reductions on the Boxster and Boxster S, there was a sharp intake of breath from its main rivals, but nothing like the likely reaction of existing Boxster owners. The improved Boxster costs €20,000- €25,000 less than the old due to a price realignment from the Irish retailer. You can now have a Boxster from €54,950. In February, when these prices were announced, we noted that a 2007 Boxster was €70,000; this week there is a 2007 Boxster S model on sale for €48,000.

Last week, used car magazine Parker'ssaid that, in the UK, many new cars are cheaper than used ones. "Price cuts on new cars designed to shift stock, and big discounts from car supermarkets, mean that the price of selected new, pre-registered cars can be the same and, in some cases, even lower than one-year-old used cars with several thousand miles on the clock," Parker'ssaid.

That situation is unlikely to be mirrored here, as the plentiful supply of used cars has served to push down used car values in the state. A quick flick through the classifieds illustrates this, with a fall-off in values of high-performance cars in particular (see panel).

We found a 2008 Ford Focus ST, which was over €35,000 a year ago, for €22,500 , and a large Dublin car supermarket is offering a 2008 Mini Cooper S, which cost over €30,000 less than a year ago, for €22,950.

The official importation of UK BMW and Mini models has served to blur the price differential between used imports and Irish used models. A 2009 BMW 520d SE with a mere 1,500km is €44,950, significantly less than a new model. This will affect the value of models bought in previous years significantly.

According to automotive consultant Leon Wood of Insight Market Research, discounting of new cars will almost inevitably lead to a fall-off in the value of the car come trade-in time.

“When I first started selling cars, many years ago, customers always thought it was wise to ask for a discount on a new car. I couldn’t understand their logic and struggled to get them to understand that, unlike other products, a new car was almost unique in that firstly it would not appreciate in value the longer you owned it and, secondly, the vast majority of buyers would be wanting to part-exchange the vehicle in the future and that the value of that car would have a major impact upon their next purchase.

“Eventually I came up with a solution when I coined the phrase “today’s discount is tomorrows depreciation” in an effort to try to explain to customers that, whenever a new car was discounted, the depreciation was going to be greater when they came to get a valuation, as the true cost of the car was the price paid and not the listed price of the car.”

However, Wood does qualify this by adding that, for those planning to hold on to their car for some time, the current raft of discounts is a good thing.

“Of course it’s true to say that, if someone was to purchase a new car today and planned to keep that car for many years or until the car had no real value, then the bigger the discount the better.”

Relics of prosperity past Now at bargain prices

THE BMW M5 was €145,000 new in 2007; two years later, a 2007 model is €64,995 - it has lost a staggering €80,000, or 55 per cent of its value.

With what has almost become a total halt of car sales in Ireland, it’s difficult for dealers to clear used car stocks, particularly nearly new cars - standard cars with standard engines. High performance and prestige models are becoming increasingly cheaper as dealers try to sell these traditionally fast depreciators. But with few customers inclined to buy high-tax, high-running cost vehicles, prices are dropping significantly.

Volkswagens Golf R32, the flagship Golf with DSG transmission was €52,950 new, but you can have a 2008 model for €35,250 - it has lost a third of its value in one year. The Lexus ISF high-performance with a 5.0-litre V8 engine cost €114,930 when it was launched in April 2008 - we were told that there was a huge demand for the handful of vehicles coming to Ireland. Roll on a year and a dealer in Galway has one on the forecourt with just 5,000km for €79,900 - a €35,030, or 30 per cent, drop in just one year.

How about the Range Rover Sport, a car that was coveted so much by property developers and self-made success stories? In 2007, when Land Rover had its record year for sales in Ireland, you would have paid €85,000 but, two years later, €45,000 will buy you a HSE with 38,000km - and that is before you start to bargain with the seller. A drop of €36,500 or 43 per cent on its new value means anyone driving one is in for a shock at trade-in time.

Or how about a Mercedes-Benz CL500? It will have cost €183,635 before being tailored with pricey options, but some two years later you can have one for €98,500, a 46 per cent drop in value.