ATM :: Does it make sense to avail December discounts on cars?

By Prashant Mahesh, ET Bureau | 18 Dec, 2013, 06.56AM IST | Economic Times

Balancing discounts, resale values and launches is a complicated equation and you need to give it a serious think before buying a new car, feels ET…



Motor enthusiasts always wait for December to upgrade their cars. Car manufacturers and dealers offer a host of exciting offers and attractive discounts to clear the inventory before the New Year to make space for new models with higher prices in the showrooms. With passenger car sales falling by 8% in November, the discounts are even better this year as dealers are trying their very best to clear the stock.

For example, Nissan Motors is offering as much as 5.6 lakh off on the Teana and a discount of 40,000 on Micra. MarutiBSE 1.13 % is offering a discount of 66,000 plus with four year free warranty on the A-star. Hyundai is offering savings of up to 48,500 on the diesel i20. Dealers are also pitching in with a few accessories or free insurance to further sweetening the deal.

A car depreciates in value by 10-12% every year. The extra discount would work in your favour if you plan to use the car for at least seven to eight years. If you change your car every two to three years, its better you wait for the new year,” says Roshun Povaiah, of cartoq, an automobile website.

Does it make sense to upgrade now?

Well, the answer is a tricky one. It depends on factors like the discount offered, how long do you plan to retain the car, resale value of the car at at that time (cars value depreciate by around 10-12% every year), among other things.

Let us work with an example of Maruti A-star which is available for 4.71 lakh (on road price) in Mumbai. Currently, you could get a discount plus exchange bonus worth 66,000 as per dealers, which brings down the effective price to 4.05 lakh. If you sell this car in 2020, this 2013 model would approximately fetch a resale value of 1.94 lakh.

Now, let us see what will happen if you wait for a few months to buy a 2014 model. The car will definitely command a better resale value of 2.50 lakh in 2020. However, despite the better resale value ( 56,000 more) it makes sense to buy the car in December because of the attractive discount ( 66,000).

Nonetheless, if you plan to sell the in two or three years, this mathBSE -0.04 % may not work. Supposed you buy a Maruti A-star in December and sell it after three years. You will get 2.9 lakh for the car. If you buy the same car in 2014 and sell it in 2016, you may get 3.81 lakh. Here the difference is 86,000. So buying the car now is not a great idea.

However, please note that it is not so simple to arrive at the resale value of your car. “The resale value is a combination of various factors, such as how much a car has run, the year of manufacture, fuel used, how well it has been maintained, how popular the car model is and the fuel efficiency,” says Kunal Khattar, MD of Carnation Auto.

Will prices go up in January?

Most car manufacturers hike prices and launch new models in January. With consumer price inflation touching a high of 11.24%, there are chances that interest rates could go up further.

However, experts believe companies may not be in position to go for steep hikes because of a sluggish economy and higher interest rates.

With the rupee depreciating by as much as 14% in calendar year 2013, manufactures are left with little choice other than hiking price,” says Vinay Sanghi, managing director of Cartrade, an automobile portal.

Volkswagen has already announced it will hike prices by 2.5% from January.

So, if you are planning to buy a car next year, factor in a marginal increase in car prices.

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