5 Facts About Overtrading Your Car In Singapore


23 Nov 2015
 

In September 2015, the Straits Times reported that the motor industry has found ways to get around car loan curbs - a development that is keeping vehicle demand and certificate of entitlement prices buoyant. As covered in my previous article, Scheme or Scam, these ways may include balloon schemes, invoice inflation and overtrades. 

Now, I’m not a very financially savvy person, and in truth I’ve only bought one car in my life – which compared to most people, doesn’t count for much. Which is why when I had the opportunity to talk to someone from within the automotive industry, I jumped at the chance.

As mentioned previously, Steven Lim is a car broker – a middleman who links buyers with sellers of cars. We met up a few weeks ago, and over coffee, discussed the hidden costs of buying and selling cars.

With his extensive knowledge of the local car industry, I was finally able to answer a burning question: How can dealers afford to give us an overtrade?

Steven told me that to properly understand the hidden costs of overtrade, you have come to terms with these 5 facts:

 

#1.       Your used car isn’t really worth that much

“Number one thing is if your car is worth 30k, nobody in the market will pay you 50k for it,” said Steven.

He explained, “What I’m trying to say is, if your car is worth 30k, you go to 20 dealers, they’ll offer you different prices. But they should all be hovering around the 30k range. They may offer 31 or 32, maybe because they have a ready buyer. So when they take over at 32, they can get rid of the car in no time, in a week or two and make some profit – that’s why they can buy higher, because they have the demand there already.”

So why do some dealers offer you up to 20 thousand dollars more when you trade in your car – also called an overtrade?

“It’s a so-called “gimmick” of the new car agents, to entice you to lock in with them to buy a car.”

“They tell you, for your old car, I can give you 20k overtrade. And how did that 20k come about? As I said nobody in their right mind will pay you 50k right, so where did that 20k come from?”

 

#2.       Overtrade is a marketing gimmick

He revealed, “That 20k comes from your new car. Firstly dealers will have that much margin built into the price of the new car.”  

“But instead of telling a buyer that he can have a 20 thousand dollar discount, sometimes because of branding and market positioning, they don’t want to do that.”

I was in above my head conceptually, so Steven had to clarify things even more.

He elaborated for my benefit. “I’ll give you an example. In the beginning of this year, while checking for my client, I found the Mercedes E250 going at 250k, and they are offering a 30k overtrade for your car. If your car is worth 50k they were willing to take it in at 80k.”

“They could have just given you a discount of 30k right? But that would affect their brand positioning. That car would no longer be worth 250, it would be worth 220. So that could be one reason why they want to do this overtrade thing.”


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