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Second hand goes the distance

But make sure you know the difference between a warranty and a service or maintenance plan.
Cash-strapped consumers are buying fewer new cars and becoming more dependent on warranties as well as service and maintenance plans. Picture: Supplied

Economic pressure has hit the South African consumer where it hurts, leading to falling vehicle sales and longer vehicle finance contracts.

Automotive consultant and managing editor of Double Apex, Sudhir Matai, says that with consumers forced to keep their cars for longer, knowing the differences between a warranty, a service plan and a maintenance plan can have a significant impact when it comes to keeping the car in top condition and ensuring its future value.

New car sales are expected to drop by 1% year-on-year, says Wesbank CEO Chris de Kock. “South African consumers have become prudent with their personal financial planning, thanks to erratic fuel prices and high inflation – both dictated by the exchange rate. This is evident in buying patterns, with data showing consumers either delaying purchases or buying downwards, moving out of the premium market and into the mainstream segments,” he says.

Read: New or Used? What you should consider when you buy a car

De Kock notes that 95% of car purchase agreements finalised by Wesbank are now 72-month contracts, spread over six years, and of those, 35% include a residual or balloon payment. A residual or balloon payment is a lump sum that is not included in the six-year instalment repayment plan and falls due at the end of the 72-month period. Consumers then have to either refinance the car or have the cash available to settle the amount – or sell the car in the hope that the trade-in price they are offered for it will cover the residual amount. Residual values typically range between 25% and 35% of the value of the car.

“This points to the limited affordability in the market,” says De Kock. “There hasn’t been a decline in the number of vehicle finance applications we receive, but there has been a deterioration in the quality of applicants – with affordability being the number one problem, followed by impaired credit records.”

Matai says that if you are buying a car that is just a few years old, it may include the balance of any warranty and service or maintenance plan that was purchased by the original owner. “Remember that details of each plan will vary between manufacturers and it is important to read the fine print before you buy a service plan or maintenance plan so that you know what is covered,” he cautions.

Marius Neethling, manager of underwriting at Santam, explains the difference between the three products.

Manufacturer’s warranty: Most vehicle manufacturers will provide a warranty on a new vehicle that should cover any manufacturing defects related to the original components, mechanical or electrical, for a certain period after the purchase date of your vehicle. Warranties may differ from one manufacturer to another, but the warranty period is usually for three to five years, or applicable for a limited kilometre distance. Hyundai’s seven-year warranty is one of the longest available on the market. Warranties usually cover the cost of repairs to parts such as the gearbox, water cooling system or head gasket and other large parts in the motor engine. Matai notes that warranties are also contingent on you servicing your car at a specific dealership. Thus, if you have the car serviced by your friendly mechanic down the road the warranty becomes null and void because the car was not serviced at the recognised dealership.

Service plans: A service plan will cover the cost of routine vehicle services, usually annually or when a particular mileage is reached, and includes labour costs. Items that are covered in the cost of a routine service include air filters, oil filters, fuel filters, lubricants such as oil, spark plugs and coolant. Any other repairs that may be required will be for the vehicle owner’s account.

Maintenance plans: Maintenance plans cover the cost of regular services (including labour) as well as the cost of repairs to parts caused by wear and tear. These plans provide cover for parts such as brake pads and break discs, shock absorbers, battery, windscreen wipers, globes and fuses. 

Neethling warns, however, that a vehicle warranty or service or maintenance plan will not cover you for any damage to your vehicle in the event of an accident. You would still need to ensure that you have an insurance policy to cover your vehicle against accidental loss, theft, hijacking or damage caused by extreme weather events such as hail.

Read: Two smart financial decisions I’ve made this year

COMMENTS   7

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No surprise given the obscenely high car prices. When you can buy a house for the price of a car something is very wrong with our society’s value system.

I still don’t get why SA cars are so expensive. Somebody must know why we are being milked?

a) More expensive the car, more VAT etc you pave – regime win
b) More expensive the car, the more insurance you pay – regime win
c) Public transport is non-existent so you need a car – regime win
d) No public transport means little competition and regime loves you spending fuel – more taxes 😉

Are SA cars obscenely high?

Or is just the rand in steady decline (and with it the buying power of Joe Average)?

“you can buy a house for the price of a car ” only because SA houses are largely very cheap by international standards.

We are racing hard to reach the roof. The house of card will start falling soon. A gti is at a good house price. Banks are forcing one to buy a car.

With time we will pay for these decisions as a society.

@Dazee

A golf GTI in the UK costs “from” £28,460 = R497,000

In SA, the equivalent price seems to be R558,000

So the SA price is somewhat more, about 12%. I assume the UK benefits from economies of scale and more FX stability.

Gtech, I got it at GBP of 31k.

But thats neither here or there. UK cars, as far as I understand, does not include service or maintenance plans. These are sold separately and on the GTI, and I wont be surprised if that is the difference.

Essentially the same price then

But we are obsessed with included service and maintenance plans to help the bank to some additional interest on the principal we borrow

End of comments.

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