Cost study: the car will soon no longer be a valuable asset

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The car will soon no longer be a valuable asset

Cost study: the car will soon no longer be a valuable asset-study

List prices no longer apply: Germany’s car manufacturers and dealers outbid each other with discount offers. The scrapping premium has accelerated the fall in prices

Source: REUTERS

Big discounts are only superficially good business. In truth, they massively increase maintenance costs. A current study shows how the value of the automobile has changed over the past 13 years. The loss in value is alarmingly high. But very few buyers are aware of this.

E.in a new car and going to the junkyard – thanks to the scrapping bonus, these two opposites belong together today. After all, the auto business is booming, but people are slowly losing sight of the true value of a car. They boast a 20, 30 or 40 percent discount if they have just bought a car. But they have to foot the bill afterwards. Because the loss of value is by far the largest item in the maintenance costs for the new car.

A new study by the Institute for the Automotive Industry (IFA) at the Nurtingen-Geislingen University shows that the cost of buying and maintaining a car increased by 34.3 percent between 1995 and 2007, while the general cost of living rose by only 19.8 percent. The new prices of the cars were hardly significant, they only increased by an average of one percent annually.

The drifting apart of car and living costs, which according to IFA boss Willi Dietz accelerated in the first half of 2008, is mainly caused by the running costs and especially by the depreciation. In view of the massive increase in discount campaigns in the car market in 2009, this negative development can hardly be stopped. The Center Automotive Research (CAR) at the University of Duisburg-Essen constantly reports high discounts, especially the so-called open campaigns are increasing: In these cases, the customer does not even have to haggle, the car manufacturers offer them high discounts of their own accord. If you buy a VW Touran today, you save 4,000 euros, just like that. At Fiat there are up to 4150 euros, even manufacturers like Mercedes double the scrapping premium.

“The price structure in the German car market has started to slide due to the scrapping bonus,” says CAR boss Ferdinand Dudenhoffer, one of the most experienced observers in the industry. “On the one hand, the German premium manufacturers in particular, but also the providers of mid-range cars, have to grant high discounts in order not to lose too much ground compared to the small and compact models of the importers. On the other hand, the scrapping premium promotes the purchase of new cars at the expense of the demand for leasing returns. Both effects are driving the residual values, especially of German models, down, whereby their most important advantage to date – the stable resale value – is permanently weakened. "

Two thirds of all new cars in Germany are leased, and when leasing cars are returned, it is increasingly evident that the residual value calculated at the start of the contract – after three years on average around 53 percent of the list price – is illusory and can no longer be achieved on the market, reports the ADAC. For example, the residual value of a BMW 525d fell from 60 to 51 percent in the past two years, and a Mercedes E 220 CDI fell from 59 to 49 percent.

The drop in prices has little to do with the scrappage bonus, says Uwe Rohrig, formerly Daimler’s head of sales for Germany and now head of the ICC consultancy in Berlin. "I almost think we are in a planned economy." In Europe there is 25 percent overcapacity in car production. But that is ignored, and the huge oversupply must then be sold at any price. “That can’t go well.” The companies lose their profits, and in the end the customers lack a feeling for the value of the car. Every car buyer just asks himself whether he got everything out of it in the end. “We have a decline in product value and also a decline in brand value,” says the expert. But the customer is not to be blamed for that. "The customer always wants everything."

But then he also has to bear the consequences. If you buy a car with a 40 percent discount, you cannot redeem the money you paid today by reselling it in three years. “The trend towards declining residual values ​​will continue in the German car market in the coming months,” says Ferdinand Dudenhoffer. Many people are already suppressing this knowledge. It is true that on average every second euro of the maintenance costs of a car is caused by the loss of value, in upper-class models the proportion of the loss in value is almost 67 percent of the costs. However, according to the IFA study, the development of residual value does not have the greatest influence on purchasing behavior.

The top priority when making a purchase decision is the gasoline and diesel prices with 74 percent, the loss of value only follows in fourth place with 63 percent. This misjudgment is all the more surprising because the decline in value has accelerated noticeably since the turn of the millennium, not least as a result of increasingly generous discounts. For example, the residual value of a two-year-old vehicle fell from 70 percent of the new price in 2000 to below 64 percent.

Nine years ago, the proceeds from the old car contributed 22.9 percent to the financing of the new car – this percentage dropped to 18.0 percent by 2007. Due to falling real incomes, the share of savings in new car purchases fell from 55 to 47.7 percent during this period, which is why higher loans were taken out. Their share in the financing of a new car grew from 17 to 31 percent, from 2005 to 2007 alone the average interest rate on a car loan rose from 1040 to 1437 euros. Increasing discounts not only increase the loss in value, but also the turnover of the banks.

Uwe Rohrig sees a way out of the price crisis in so-called flat rate models. The private customer does not know today whether he got a good price or not. “But does he have to know?” Asks Rohrig. "If I offer him an all-round carefree package, then he will be satisfied."

In the future, manufacturers and dealers should not only offer the car, but also maintenance and repairs, winter tires, whatever – the main thing is that everything is packed into a monthly installment. In this model, one could even think about forms of car sharing in order to give people an idea of ​​the value of the car again. “In summer the customer can drive a convertible, in winter an all-wheel drive vehicle. These are scenarios that you have to work through. "

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