COE Prediction - November 2008 1st Bidding Exercise

The stock market is going like a roller coaster ... up ... down ... up ... down, so uncertainties are mounting with many media reports of the recession, unemployment and central banks' action to calm the markets. This is a good time for the brave ones (need deep pockets and stable job though) to pick up bargains but I believe that the cheap sales will continue for some time. It is awfully quiet in the showrooms ... spooked because of the Halloween festivity?

Prediction on October 31:
Category A: $9,000-10,000
Category B: $10,000-11,000

Verdict on November 5:
Category A: $10,455
Category B: $ 8,301

Currency Impact on Car Purchase

Anonymous said...
"Hi, would you be able to do an analysis between currency fluctuations and car prices / OMV / market / car distributors profits? With the current movement in korean / japanese currency, will be interested to know your thoughts. =)"

Well, I don't possess the knowledge and experience to make a good analysis of currency impact on those factors. I can give my layman perspective from a buyer's point of view:

1. Movement of Currency against S$
As the Korean Won has fallen against the US$ at a faster rate than against the S$, Korean cars should be cheaper now. However, there are other factors and time lack before impact from the rate change kicks in.

2. Distributors' profits
Distributors faced currency fluctuation risk but their exposure depends on the supply chain operating model. It depends on the inventory of cars being bought into Singapore ahead of the sales transactions. The distributor will be unlikely to lower the selling price if the existing stock is purchased at a higher exchange rate earlier. On the other hand, the distributor may hold the price steady even if the existing stock is purchased at a lower exchange rate - this is the case for the authorized distributor without any competition from parallel importers.

3. Profits made by Authorized Distributors versus Parallel Importers
Authorized Distributors usually have a higher operating cost to provide a better service level and also incur high advertising expense to increase the branding of the mark. The pricing strategy will also be dependent on the margin target at the point of sales versus after-sales servicing. Factors to be considered are the competitors' strategy, the availability of OEM parts and skills or technology required for servicing. The going concern of a parallel importer is an important criterion since there have been many reports of non-deliveries due to financial health and fraud - do your homework first before buying from the P.I.

I don't think you can time your purchase to an advantage of currency impact since there are so many variables in the motoring market. Affordability and suitability are more important criteria. Hope this is helpful.

COE Prediction - October 2008 2nd Bidding Exercise

The stock market crashes over the last two weeks have made headline news. With the current sentiment so gloomy, I do not expect many new orders for the dealers. I have seen today's Nissan advertisement offering the Latio at less than $50,000. Now, that is a clear sign of dampened demand and fear of the recession impact.

Prediction on October 17:
Category A: $10,000-11,000
Category B: $11,000-12,000

Verdict on October 22:
Category A: $10,989
Category B: $7,589

Lowering Cost of Ownership

Anonymous has requested for advice via comment on my earlier post Overtrade for a New Ride?

Anonymous said ...
"tks for giving your perspective. I am in the same situation as this person. current monthly mortgage is 900+, and my car is coming to its 5th year in Dec. My car paper value is at $38k. a dealer has put together a package of both rebate and overtrade such that my monthly is lower at 900 over 7 years although I still need to come up with cash of $5k. from my perspective, it seems to make sense: I pay less per month, I have a shorter loan period (7 yrs vs 10yrs currently), and I get a new car. in this instance, would you agree that its OK?"

Based on the limited information, I can attempt to give a high-level analysis on the situation.

Assumptions:
1) I will round down your current monthly instalment to $900 for ease of illustration.
2) You did not put down any downpayment for your current ride.
3) December 2008 is the changeover to the new ride.
4) The primary objective is to lower the Cost of Ownership and there are two perspectives to that too (A & B).
5) You will use the new ride up to its full useful life of 10 years.
6) Cost of Operating the Car is not included.
7) Net present value of cash or car is not computed.

A. Overall Cost of Ownership (full usable life of the Ride(s))

Current Ride only
-----------------
Total Cost = $900 x 12 x 10 = $108,000

Cost per month = $900

Current Ride + Overtrade to New Ride
------------------------------------
Total Cost = Payment on Current Ride up to December 2008 + Full cost of New Ride

Payment on Current Ride = $900 x 58 (2 months short of 5 years) = $52,200

Full cost of New Ride = $5,000 (downpayment) + $900 x 84 (7 year loan with $900 monthly instalment) = $80,600

Total Cost = $52,200 + $80,600 = $132,800

Cost per month = Total Cost / Total Useful Lifes = $132,800 / (58+120) = $746
The denominator (58+120) is the used life of current ride + useful life of the new ride.


B. Future Cost of Ownership (remaining useful life of the Rides)

Current Ride only
-----------------
Cost per month = $900
for the next 62 months

Current Ride + Overtrade to New Ride
------------------------------------
Total Cost for next 122 months = ($900x2)+$5,000+($900x84) = $82,400
Cost per month = $82,400 / 122 = $675.41

Thus, you can yield lower monthly cost with the overtrade if all the assumptions are correct. However, you should consider these factors when making your decision:

1. Is your financial health and job security in good shape to take up this deal?
2. Is the new ride at the same or better standard to your current ride?
3. Can you use your new ride to its full lifespan of 10 years? Analysis is based on full useful life.

Point 1 is key to a happier life - you will not enjoy your ride if you are constantly struggling in paying the monthly instalment and running costs (petrol, road tax, insurance, parking, maintenance, etc). Do take the time to make that decision and not get pressured by your dealer. Good luck!