Friday, April 12, 2013

Buying a Used Car in Singapore

The cost of car ownership in Singapore is horribly confusing - and risky. And a key factor people often overlook in the cost of ownership is how depreciation and road tax vary between similar cars. Understanding this is crucial in finding a good bargain on a car.

I started learning the intricacies of second-hand car pricing when I started shopping for my own car recently. Probably as a legacy of my Wharton education, I am incapable of making any major financial decision without a spreadsheet, and so I got to work studying the tax structure for cars in Singapore, and trying to work out what kind of car would fit my budget. It's a very simple question really, but a fair bit of work. You know much you are being charged for the car, but how much do you get back when you sell/scrap it? Then divide the difference by the term of ownership to work out the annual cost (mainly the depreciation, road tax and fuel costs). There are other calculators out there that help to work out things like how much the car loan will cost, but I was more concerned with the immediate question: which car is the best value of money?

Early on, I came to some very interesting conclusions.

First, the annual cost of used cars is fairly homogenous (despite differences in selling price). This is rather counter-intuitive, but I discovered that the annual cost of cars of a similar size is actually very similar, especially toward the tail end of their lives. If you buy a car 7 years or older, it should cost you somewhere between $7k to $8k a year. (This is down from $9-10k before the new MAS ruling.) It doesn't matter if it is a Toyota Vios or a Mazda RX-8. So although the price of the RX-8 is much higher than the Vios, for example, you get most of the difference back at the end of it's life because of the RX-8's high OMV (see detailed calculations here). It is a similar situation for larger cars, although of course the price range is correspondingly higher. I immediately set about convincing my wife that the RX-8 was indeed the family car we had been looking for all along ...

Second, the cost difference between similar models drops over time. The price of a Mazda 3 and Mazda 6 are almost the same at the 7th year. The main difference in annual cost is the road tax and fuel consumption. Similarly, the cost of a BMW 3, 5 or 7 series will converge. This is because the OMVs of these cars are not much different, but there is a large markup on the higher models in the showroom. As the car gets older, the difference imposed by this markup shrinks as it approaches the paper value which is based on OMV.

With these two discoveries, I don't think I will ever buy a new car again. The markup on the new car is just ridiculous, and you can really get some good deals buying second hand, especially if you are looking for the higher end models. However, it also boils down to your ability to assess the reliability of a used car, and to find a good price.

Third, and most important, despite the convergence in ownership cost, it is possible to find outliers on the low end. This is where the math and hard work came in. By plugging every listing that interested me into my spreadsheet, it was quite obvious which cars were terribly overpriced and in a few cases, to identify some really good bargains! These were the ones I checked out in the showroom, to determine if they were cheap because of defects, or if they were just a good bargain. And that is how I found my Mazda 3 in the space of about 2 weeks. Almost 2 months on, I am still extremely pleased at the purchase, with an annual depreciation of only about $5,600, the car is in excellent condition. (Even with the recent price drop, this is still an excellent deal!)

I put all that I had learned into a simple Android App. This is the app I had tried to find while buying my own car and was shocked that none existed. So I resorted to spreadsheets first. It is such a simple thing, but no one has done it; so after buying my car I decided to build it myself. Because LTA has been unwilling to release any test data to me (citing privacy concerns), I had to resort to going from car to car in Turf City, comparing the calculations. After more than 1000 users tried it, so far so good!

You can find the app here:

See also the tutorial for more details on the Car-culator including screenshots and a quick description of how to use it.

Updated 29 November 2014:
You may also wish to try the latest version of Car-culator, which works on any browser on your phone or computer. It is still included among the suite of tools provided by CarIQ that is still under development, but already has all the features of the first version, and many more including the ability to import a listing from sgcarmart or oneshift, and to save your favourite cars for comparison shopping. Comments, feedback and suggestions on how to make it better are welcome at the release page (please don't post them here), which also contains the tutorial on how to use it.