Overtrade to Improve Mileage?

Confused SG Driver has requested for advice via comment on my earlier post Overtrade for a New Ride?

Confused SG Driver said...
"Hi,
As mentioned by many other visitors to your blog, the information you have presented here is truly useful and concise!

And like many people who visit your blog, I'm currently looking to upgrade my present car. However, I'm not that great with detailed numbers and am perhaps not very adept at translating the full meaning and implications of the data which were calculated after entering them into your most detailed "used car" spreadsheet. As such, my present situation is like so:

1)I currently drive a second hand Mazda 3. I purchased this last year October (10/2009) at a price of $34k. My current monthly installment is $550 and my current mileage is approximately 79k. It was originally registered in 2005 october.

2)I understand that it sounds silly to sell my present car being that I have only bought it less than a year ago.However, I made the mistake of purchasing a '05 mazda 3 which has a appalling Fuel consumption of 10.4km/l, at best. I am in sales and drive alot, having to pump approximately 5 to 6 full tanks of 92 grade petrol at SPC for a cost of approx $70 to $80 per tank PER MONTH.

3)I am looking at a second hand 2009 Toyota Allion which has a highly praised Fuel consumption of around 15 to 17km/l.
A dealer has offered me a trade:To sell my Mazda 3 at $28k(being car paper value of 21k), and a buy of their second hand '09 Allion with a low mileage of less than 20k at a pice of $60k. I am also may be looking at a over trade of around $5k to help to settle all the administrative fees and requirements

So my question would be:

1) Would it be a good time to buy and sell right now(being that all cars are now inflated due to the high COE bidding)? Or should I wait further?

and If I waited further would I lose more money due to petrol costs (or touch wood maintainence costs) of the high fuel consuming Mazda 3?

And also, should I believe the car agent who tells me that ,should I choose to wait till October, they would only be able to export it and thus only be able to offer me much less for it?

Or

Should I buy the Allion in a moment of insanity, how long would I have to drive it before selling it in the future?Would it also make it doubly hard on me to sell it then being that I bought it at a high COE value peroid?

Thank You very much,
Confused SG Driver. "

I empathized the situation that you are currently in.  At the end of the (business) day, the dealer will only survive if there is business transaction.  Thus, you can tell your story to a dealer and almost every one of them can come up with a deal for you.  The key point is that you should make a proper financial analysis of the deal rather than an emotional one which you may experience a second regret.

Although you only numbered one question, I find many question marks in the final paragraph LOL.  I will attempt to answer each of them.

Q: Would it be a good time to buy and sell right now(being that all cars are now inflated due to the high COE bidding)? Or should I wait further?
Unfortunately, I am not Paul the Octopus and thus, cannot predict with 100% accuracy where the COE quota premium is trending in the future.  If you are buying and selling in back-to-back transactions, then almost anytime is fine since you either "buy low sell low" or "buy high sell high".  The real question is whether you really need to change your ride.


Q: and If I waited further would I lose more money due to petrol costs (or touch wood maintenance costs) of the high fuel consuming Mazda 3?
Petrol and maintenance costs are operating costs that you need to incur when you own a car.  I don't think you are losing more money unless you do your sums and prove that you spend more per month over the useful lifespan of the Mazda 3.


Q: And also, should I believe the car agent who tells me that ,should I choose to wait till October, they would only be able to export it and thus only be able to offer me much less for it?
Talk is cheap so you should based your computation on the paper value of the car, any trade-in quote by the dealer is just a bonus to you in lowering your cost of upgrading.  You may want to also check out online advertisements for used cars similar to the age and make of your ride.  The dealer will attempt to sell it at a good profit before exporting the car if it cannot be sold.  He will always take the most profitable (or most cost recovered if he made a bad call on a deal) route for himself. 


Q: Should I buy the Allion in a moment of insanity, how long would I have to drive it before selling it in the future?Would it also make it doubly hard on me to sell it then being that I bought it at a high COE value period?
Haha, I don't think you should doing anything rash if you are in moments of insanity.  The paper value of the car stays the same whether it is a high or low COE value period so that is how much the operating cost of the car should be computed.  If the question is how long you need to drive before selling the car without any cash top-up, you can see my post on When is Your Ride Breaking-Even?


Here is how I would recommend that you do your analysis:

1. Compute your monthly financial cost of ownership of the Mazda 3 for two scenarios:
a) the full useful life and add the fuel cost of $80x6 (worse case)
b) till the point of trade-in and add the fuel cost of $80x6 (worse case)

2. Compute your monthly financial cost of ownership of the Allion, including the overtrade amount and fuel cost (expected based on your optimistic assessment)

If you have all the number crunched, you can then make the decision based on the monthly cost of the Mazda 3 over the six years or the combined monthly cost of (1 year Mazda 3 usage plus 9 years Allion usage).

However, I have to warn you that the monthly operating cost is not realized until you fully used the car for its lifespan or when you sell the car.

Without all the actual numbers, I can only advise you to consider the additional fuel cost of the remaining 5 years of the Mazda 3.  Based on optimistic fuel saving of 1/3, you will save 1/3x$480 per month = $1,920 over the five years = $9,600.  Does it make sense if you are going to incur the $5,000 overtrade, loan prepayment penalty and other costs?  Yes, you may improve your mileage but you should also make sure the change will improve your financial health.

I hope this helps.  Please also read the following relevant posts for more insight.

Related posts: Lowering Cost of Ownership, Overtrade for a New Ride?, When is Your Ride Breaking-Even?