Car Loan(2)

(Continued from last issue) When the salesperson offered a test drive, Mr A got into the Mercedes Benz C200 Advantgarde without hesitation.

Having driven Japanese cars before, it would have been the first imported car for him if he decided to buy it. This current C200 is a model with the Mercedes’ logo on top of the grille and looks sporty. Although the test drive course was only 3Km long, along a National Route and around the dealer’s shop, he just loved its body control. The body remained free of impact while on an irregular surface and on each corner. The car’s steering and road handling was excellent and it was incredibly comfortable to drive in. With the smooth performance at high speed and the quietness inside the car, Mr A could not help but falling in love with it.

After the drive, a pretty female office lady brought him a cup of coffee and a nice piece of cake and he felt rich. The salesperson, without being asked, brought the quote saying the car will come with free floor mats; and Mr A did not think twice about signing on the purchase agreement. The total cost was JPY5,300,000 including all the accessories. Not having enough money then, Mr A also signed a loan agreement to pay the total amount at 1.9% interest rate. He thought 1.9% rate was not a big load. The car was to be delivered a month later.

After he got the car, Mr A was enjoying a weekend drive with his wife. Then half a year later, he received a written appointment to move to his company’s New York office. Working overseas was what he had wanted to do for a while, he was very happy about it but what should he do about the brand-new car? After purchasing it he only took it for long distance drives on the weekend, so it had only done less than 10,000Km. Having only paid the loan for 6 months, the principal was still JPY4,600,000. However he could not export a right-hand drive car to the US, so he asked us to sell it on his behalf, expecting a reasonably high price.

When we sell a car which still has something owing on a loan, we first contact the loan company and get the exact amount left owing on it. We were told the amount Mr A still owed was about JPY4,800,000. But estimating the price from the latest auction data, it could have only been sold for around JPY3,500,000. So if we simply calculate it, to pay the loan back, it is going to be JPY1,300,000 short. In a case like this, we ask the customer to pay JPY1,300,000 to us and if we can sell it for JPY3,500,000, we pay to the loan company the total of JPY4,800,000. When we told Mr A about this, he was obviously upset that his car had lost value of JPY1,300,000 within only 6 months. Eventually Mr A made up his mind, gave us JPY1,300,000, we sold it for the expected price and paid off the loan without any trouble.

Now think about the depreciated amount of JPY1,300,000. Of course a car loses its value once it runs 10,000Km but you would think that if it was in an excellent condition and was only used for 6 months, JPY1,300,000 is too much to lose, don’t you? Fair enough, but the main part of this depreciation is what the dealer made when he sold the car. I heard from a customer who used to be a salesperson for a Mercedes Benz dealer that if they sell a C200 model, their profit is about JPY1,000,000. (For your reference, it will be JPY1,500,000 when they sell an E model.) So, remember the loan Mr A agreed only had a ridiculously low interest rate of 1.9%? Banks business loan rate (Short-term prime lending rate) is 1.875% in Japan, so if you add all the other costs, the loan will incur a loss. Then how can they offer such a low interest rate? This is the dealer’s strategy: luring customers with a low interest rate, they make money from the profit on selling the cars. For a dealer, if they can make around JPY1,000,000 per car, even when they make a loss on the loan, it still worthwhile.

So, if you buy a car from a dealer, you might feel safer buying from a well-known brand dealership but you do have to pay the price. You are buying a white elephant. Especially when you use a loan, although the loan amount will not get less quickly, your car looses the value by the dealer’s profit when you drive out the door. In this case, Mr A had a bad buy but whoever bought his car at auction was lucky and clever. The buyer only had to pay for the actual value of the car.

After all, there is definite merit in buying cars at auction. Please register yourself on our website, check the quality of it and think about buying a car from us!



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(Editor)
JPC TRADE CO.,LTD.
Kato building 4F, 1-1-2 Furuishiba, Koto-ku, Tokyo
Japan Used Motor Vehicle Exporters Association (JUMVEA)
TEL : +81-3-5245-7731
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