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Money Management
April 18, 2024
Everyone would like to get the same exact amount they paid for their car or even much more if they decide to sell their car. At the very least, everyone would want to get as closest as possible to the amount they purchased their car at.
Your next door car expert, friends and even people who have never owned cars themselves will always advise you to factor in the resale value at the time of purchase.
While it makes absolute sense to want to preserve as much as possible the value of the money you’ve spent on the car, how big of a factor should it be when deciding on a vehicle to purchase?
A motor vehicle is a depreciating asset - in Kenya, it is estimated a vehicle loses 10-15% of its value every year up to its 5-year mark. So the moment you decide to become a motor vehicle owner, you should expect your vehicle to lose value.
If this is the case then, should how much the car will fetch in the event you decide to sell it determine what car you choose to buy or are other factors such as your personal preferences, how much you can afford and the purpose the vehicle is supposed to serve be more important?
This article dissects this often highly-debated topic. Let’s dive in.
This can be defined as the amount of money a car (bought by an individual or company) is expected to sell for at some point in the future.
According to experts, the rule of thumb to keep in mind is that a car with a good resale value retains at least 40% - 50% of its original price after a period of 5 years.
When trying to sell your car, there are little things that potential clients will look at to determine how much they would be willing to offer.
These things are what weigh heavily when it comes to determining a car’s resale value, and knowing them in advance could help one who is keen on fetching a good price later to choose an appropriate vehicle.
As odd and cheesy as it may sound, the color of a car plays a key role in its eventual value. The industry has proven over time that basic colors work best in the resale market.
These are white, silver and black. It can prove difficult to find buyers willing to pay for brightly colored cars and one could therefore be forced to resell at a lower price in such instances.
Sticking to the basic colors is considered a safe bet in the Kenyan market.
That odometer number that everyone is obsessed with when buying a car also comes into play when looking to resell a car.
This is the number that the potential client will pay close attention to as it paints a picture of the potential wear and tear of the car.
A car with a high mileage will resell at a lower price compared to one that has lower mileage. Buyers are always looking and willing to pay more for cars that haven’t been around the world a couple of times.
There are certain brands that are prefered in the Kenyan market, and as the old saying goes monkey see, monkey do. There is an almost instinctive tendency for consumers to gravitate towards a few brands and models because of familiarity - their friend, family or colleague have driven it and there is a good testimonial.
The make of a car refers to the brand such as Toyota or Mazda while the model refers to the specific vehicle model such as Toyota Corolla or Mazda Demio.
Some models have gained a big reputation of reliability and fuel efficiency over the years and as such are very much sought after even when they are used and with high mileage as opposed to other models which even when they are newer and with less mileage will sell for less.
It is possible for one make e.g. Toyota, to have models that have a good reputation and other models that have a very bad reputation.
Also, make and models that are popular in the Kenyan market will also have easily available spare parts which are typically found to be more affordable than those of make and models that are less common.
As such, the make and model of the vehicle you choose regardless of the condition of that vehicle will affect the resale value ocne you put it up for sale in the market - even when the vehicle is in mint condition.
According to BeForward, a leading Japanese motor vehicle importer, these are some of the most popular vehicle models in Kenya in 2022.
Note that the above list is purely for illustrative purposes and not a recommendation.
It goes without saying that nobody is willing to pay a premium price for a car that is not well maintained.
This is one of those factors that are within the car owner’s control. Ensuring that the interior is in mint condition and that the car never misses regular servicing helps preserve the condition of the car.
Interior condition can be maintained by simply having the car cleaned regularly and avoiding non-car activities inside the car such as eating, smoking etc.
Driving carefully also ensures the car is free of dents and scratches that could drive the resale value even lower. If looking to resell, conducting minor or major repairs to the exterior and interior of the car could help drive the price upwards.
This is something to consider as you are making your purchase decision if you are keen on getting a high resale value.
If you buy a car and then go ahead to modify it, ensure that the modifications add value to the car. For example adding leather seats, state of the art infotainment systems, tyres, etc add value.
On the other hand some add-ons such as neon lights underneath the car, bright paint jobs etc. could push away potential clients.
When evaluating a potential motor vehicle purchase, it is important to pay attention to any modifications that may negatively influence the resale value in the event you were to put it up for sale.
The best way to maintain the value of any car is to care for it everyday. Regular servicing and regular washing and waxing are the fundamentals.
Do not ignore any lights on the dashboard, nor a faulty headlight. Create a good rapport with a trusted service center and have the car checked regularly to ensure that it’s in mint condition.
Given the popular emphasis on the importance of considering resale value before purchasing a vehicle, when does it actually make sense to prioritise it over other factors?
You buy a car looking to have it for the next decade only for circumstances to change e.g. Covid-19 strikes, you lose your job, can no longer service the car loan and could be forced to sell.
In such an instance, having a car with a good resale value could give you the cash injection you need to get yourself out of the trenches.
With an understanding that emergencies may arise and necessitate the sale of your precious motor vehicle, it would make sense to particularly pick a make and model of a car that can fetch a high enough amount in the event you have to sell.
Car buyers put in a lot of research when it comes to making a purchase and the cars that make it to the top of the list in terms of resale value are more often than not the best in terms of reliability and running costs.
These cars usually have affordable spare parts that are easily and readily available in the Kenyan market. This consideration can really help you narrow down on the make and model you’d want to append your money on.
To them, the car’s resale value is of utmost importance as it is where their profit margins lie. They buy then hold for a while before reselling at a profit.
Over the last few years such individuals have made a killing in the market as the price of second hand cars has sky-rocketed due to global shipping and production challenges.
It goes without saying that cars with high resale value also sell quickly, and as an entrepreneur, one would prefer such a car as it wouldn’t take long to convert it into cash.
Ideally, they’d want a car whose value wouldn’t be as low as half the amount they’ll have paid by the end of the loan. This means one would actually be paying hundreds of thousands of shillings for depreciation.
Ideally, one would want to take a loan on a car that maintains its value.
As seen so far, a car’s resale value is a major factor to consider prior to buying a car. However, there are instances where this factor takes a lesser role.
These instances are detailed below. The resale value is not of utmost importance if;
Some luxury European brands, for example, can be really hard to resell and thus buying one usually means one is not really looking at the resale value as a huge factor.
If taking a loan using the car’s log book is not even on the table, then the car’s resale value may not be the biggest factor you will consider when making the purchase.
This is because they buy the car with the intention of using it for a decade or more. After 10 years, any car’s resale value is usually inconsequential as the car has seen its best days by then.
Granted, some do it in order to sell them off but most derive their satisfaction from the restoration project. Either way, when they go into the scrapyards to find these unique pieces of machinery, the resale value counts for nothing at that point.
You typically will also be getting these vehicles for a great bargain.
You would typically have a wide array of investments that could raise any cash you’d need in case of any emergency; you have good insurance coverage too such that taking a logbook loan would be almost an impossibility.
It has been said that once you shake your car dealer’s hand and drive off the car yard in your car, it loses up to 20% off its value.
This could explain why a car’s resale value is one of those factors that are high up on the list of most buyers. Despite the fact that one is usually going for comfort, add-ons and price when buying a car, having some knowledge on the resale value could come in handy down the line.
Even for those that have no intention of selling, knowledge on the car’s resale value should be considered part of due diligence prior to making the purchase. It may not be necessary, but it would still be the smart thing to do.
However, how much importance you assign to this factor is purely based on your financial needs and the very reason why you have decided to purchase a car.
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