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Can you afford your car?

Buying, balloon payments, warranties, maintenance plans and selling – Robert Thompsett (CarZar) & Simon Brown (JustOneLap).

SIKI MGABADELI:  We are asking the question of whether South Africans can afford their cars. We know that the cost of living has been rising steadily. Debt repayment has become harder as our rands don’t stretch as far as they used to. As you heard from Wayne, we are in a sentiment recession, really, at this point. People are feeling depressed and not able to spend as much as they would normally do if they were a bit better condition. You’ll remember, the FNB BER Consumer Confidence Index earlier in the week also pointed to waning consumer confidence.

So we are asking if you can still afford the car that you are driving today. Have you done the sums? And if you are in the market for a new car, are you thinking with your heart and not your head in terms of deciding on what you can afford.

We are chatting to Robert Thompsett, who is a relationship manager with CarZar, and Simon Brown, founder of JustOneLap. Thank you very much to both of you for your time today. Robert, let me start with you. You are at the coalface of this. Are people returning cars that they can’t afford?

ROBERT THOMPSETT:  Good evening to you and good evening to your listeners. Yes, it is a fact at the moment that people who bought their cars a year, two years ago, are now coming to the realisation that the cost of living is increasing and their car payments are actually a burden; 90% of the people who contact me have that in mind. We are there to help them out with advice and to settle their car if they need to, advise them as to what direction to take. Ja, it is a fact today.

SIKI MGABADELI:  Are we simply thinking with our hearts and not with our heads, and not doing the full sums when we are making that decision to buy a car?

ROBERT THOMPSETT:  Absolutely. You go onto a car showroom floor and you see this nice, shiny, brand-new car or nice, shiny second-hand car, and you think ooh, I would like to drive that car. You do the application to the bank, you get the finance and you drive off in your car.

And then a year, two years later you think, oh, no, this is too expensive for me. The novelty has worn off and now it’s just a burden. And every time you drive the car your burden drives with you wherever you are going.

SIKI MGABADELI:  Absolutely. And you feel it with the maintenance costs and all of that. We’ll talk about that in a moment, the things to bear in mind.

Let’s bring Simon Brown into this conversation. Simon, we’ve seen the data on how many people are using creative ways to finance things like balloon payments, for example. Those must be starting to bite now as the cost of living becomes a little higher.

SIMON BROWN:  Good evening, Siki. Absolutely. …[very bad line] deposit down, not taking full cognisance of the …running cost of the car. It’s not just your monthly repayment. It’s servicing, it’s petrol, it’s insurance. … … There are a lot of beautiful shiny cars out there, but we need to get our expectations down and be practical rather than flashy … Your car depreciates monthly … and needs to get from A to B. It can typically do that without the flashy bits. It needs to be functional, you need to take more cognisance, not as to what can we spend, but what should we be spending on a car. [Line drops]

SIKI MGABADELI:  Absolutely. Robert, staying with that, on financing, let’s deal with the deal financing side. How creative have dealerships, and I suppose finance institutions as well, have had to become in the past few years to get people to buy the cars that they want to buy?

ROBERT THOMPSETT:  Yes. Also manufacturers put together very special deals, especially on new cars, whereby you have balloon payments at the end of the term of your payment. Say, for instance, you have R100 000 on a balloon payment at the end of the term, then you have to either re-finance that amount or …you have to pay more in to get rid of your car that you initially thought under much excitement – and now you are suck with a problem because you have a balloon payment at the end of the term. A lot of people are coming to realise that that type of financing for some people works, but for the majority it’s not an option because down the line it’s going to bite you very, very hard.

SIKI MGABADELI:  And Simon, just talking about that as well, let’s talk about the value that we place in a car. I think many people don’t think about how quickly it devalues.

Yes, Robert?

ROBERT THOMPSETT:  When you buy a new car and you drive it off the showroom floor, you are down [%?] minimum as the value drops. And people when they try and sell it after six months are horrified to think that their little car has dropped so much in value and now they can’t get out of it. So it is a problem. But the general public needs to understand that the value of a car drops by 35% as you drive off the showroom floor, and only after something like three years can you actually break even on the value of the car to what you owe to the finance company. And then you come up with nothing. So it’s actually not an asset. It’s a burden.

SIKI MGABADELI:  And Simon, value?

SIMON BROWN:  My sense is never buy a new car. You can buy a one-year-old car with low mileage. And if you want that nice new-car smell, you can almost get it in aerosol can for R100 or so. A new car is just a silly idea. The first port of call, to my mind, must always be to go and buy a second-hand car and give as much of the deposit as possible for it.

But, as Robert said, you can drive it off over the most expensive ten metres of your entire life. It’s nice, but there is no real advantage to it. At this point in the year you could get a late 2016 model car maybe under 10 000km, and you are going to get it at an easy 10, 15, maybe even 20% off what that brand new vehicle is, because someone else has had that depreciation as they drove it off the lot.

SIKI MGABADELI:  Here is an SMS, Robert, from Nick in PE, who says, “Are people still buying new cars? Surely second-hand is a better financial option?”

ROBERT THOMPSETT:  Yes, people are buying new cars, especially company cars, etc. But for the private individual it’s imperative that you look at either demo models or second-hand. But you’ve also got to realise that when a vehicle has a maintenance plan or service plan or warranty, as a new or a demo, as soon as that maintenance plan and warranty comes to an end, the value of your car plummets to like 50% at least of the original value, since the new cars are so complicated as regards repairs and maintenance. It’s only really the factories and the franchise dealers who can actually look after their cars. So once a maintenance plan, service plan, warranty is finished, the value of your car drops drastically.

SIKI MGABADELI:  So it’s best to sell it just as that ends, or what would you advise?

ROBERT THOMPSETT:  At least six months before it ends. Then you do also have the option of extending that maintenance plan or service plan, but not many people realise that.

SIKI MGABADELI:  That is true. Let’s talk about leasing a car. Why is that not seemingly popular here, Simon? Have you ever leased a car?

SIMON BROWN:  No, I’ve bought all my cars and I buy them second-hand. I’m old enough now to the point that I’m actually able to pay cash for cars, which is the ideal, but not always potentially practical. Leasing is big in other parts of the world. It is something which in South Africa there were issues around.

I smashed a car so I got another about a year-and-a-half ago. It was of course second-hand, and they were going through different finance options and the like. When I said to them “What about the leasing option?” the dealer seemed a bit reticent, which to me was weird because they surely just want me to buy it, whichever way.

But I think in a lot of senses we understand the purchase over a period of time. That’s been pushed up so we can be paying off cars over five or six years now. But also I think a lot of folks – there is an established conflict on that balloon payment at the end of the period – that’s been well established. It’s been available for over 20 years in our market, and I think a lot of folks are going for that route rather than the leasing route. Leasing is also a little nervy, because you never really own that vehicle at all. And what happens if something goes wrong? Of course, if you are baying it via a repayment, you don’t own it either – the banks owns it.

SIKI MGABADELI:  We have that thing about ownership of cars in the country, as well. But I want to hear from Robert on leasing a car. Robert, leasing, why is that not gaining traction?

ROBERT THOMPSETT:  Leasing in certain situations is a benefit. If you are a rep and you can claim at the year-end for your tax, it can help. But under general circumstances leasing is not a good idea because they can go up to 72 months, and 72 months is a very long time to keep a car. And also you’ve got to realise that after three or four years you’ve got to maintain the car yourself. The manufacturers won’t be interested in maintaining your car for you.

So leasing, as I said, is very good for people who have tax relief because you are leasing a car. But under general circumstances hire-purchase is what most people go for, the man on the street.

SIKI MGABADELI:  Okay, let’s talk about people wanting to sell now. There are some tips that you can give them about going through that. To me it always feels like there is a lot of admin involved in selling your car yourself, which is why I just take it to the dealership and say “deal with it”. What advice would you give?

ROBERT THOMPSETT:  What we do at CarZar is we value the car, we test drive the car and, if the customer accepts our offer, then we do all the paperwork. So all we do is hand the keys over. We do all the paperwork, and we pay the customer immediately. And once the money is reflecting in the account of the customer, then only do we take the car away. There is no pressure, there is no high-pressure sales pitch. It’s just an honest to goodness value-add to the customer.

SIKI MGABADELI:  Simon, it can feel like such hard work to just sell your car in the current market.

SIMON BROWN:  Absolutely, Siki. Part of the problem, let’s be honest, is few of us are like Robert and actually know what a car is worth. We all think our car is special, extra shiny, it smells nicer, it’s got the best seats. We don’t know what a car really is worth. And the maintenance plan – how much value does that or doesn’t that add? What about the mileage and all of that sort of thing? That’s just fetching the price.

Then you’ve got the whole process of having the risk of showing to people, the risk of cheques clearing or not clearing. So my advice is, if you are looking to sell, absolutely speak to an expert. I think we should really give strong thought to not doing it yourself.

SIKI MGABADELI:  I’m going to have to leave it there. Thank you both for your time.

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They really play down the negative side of a Balloon. It will wipe you out! Most people don’t have R 50 K – R100 K in their bank so the shortfall on what they owe versus what the car is worth will be a VERY serious problem. The bank will NOT lend you R150K on a R100K vehicle! Now, where do you get the additional R50K ???? YOU DON’T!

They will repossess the car and black list you! All for 2 months of that new car smell. TAXI —–You need Financial Fitness

Left job and company vehicle in 2006, mileage 169000 km . Bought a 1988 Jetta csl for R16,000. Used the car for ten years without any major expenses. Balnace of third party insurance per month was about R80. Sold the car in 2016 for R18000. Bought another Jetta csl for R32000 in 2016. Mileage 127000 and insurance R45 per month. The car is clean and in excellent condition. My service cost is R300 labour and R250 parts. The car will last me a lifetime being a retired person.

Also can’t believe the big fancy cars at budget apartment buidlings. See friends staying in places worth R1.2 million and buying cars for R800 000. Priorities are wrong! I bought up in property and down on vehicle, SA people judge a lot on cars and friends always surprised when they visit me at home.

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