3 more months until 2023 ends, should you buy a new car today or wait for a 2024 model?

In Malaysia, the decision to buy a new car often comes with an array of financial considerations and is influenced heavily by resale values. As we inch closer to the end of 2023, many potential buyers are faced with the dilemma of buying a car now or waiting for the new 2024 models. To make an informed decision, let's dive into the intricacies of the Malaysian car market.

The resale value predicament - why Malaysians love their Perodua, Honda, Toyota

Malaysian car buyers are, without a doubt, very resale-value driven. This characteristic of the market is further emphasized by the fact that a substantial number of buyers depend on long 9-year loans to finance their purchases.

Consequently, opting for a model with a low resale value might trap a buyer in negative equity – meaning that the car’s market value is less than what’s owed to the bank. This happens when the car is depreciating faster than the owner can pay off the loan.

Since selling the car is not enough to clear the debt, the owner has no choice but to pay more to the bank before the car can be sold. The situation is worse if the owner, for whatever reason, needs to sell his/her car urgently.

It is for this reason that Malaysian car buyers don’t stray too far away from trusted, high resale value models from Perodua, Toyota, or Honda. By staying with trusted brands, buyers are confident that they won't run into problems with negative equity, should they need to sell their car.

The year-end car stigma - still justified today?

Also, on the topic of resale value, there's a long-standing belief that cars manufactured at the year-end have a reduced resale value. A car's resale value is mostly determined by its year of manufacture. The exact registration month means nothing to the next buyer.

Thus, buyers from the older generation believe in steering clear from purchasing year-end cars.

However, does this belief still hold weight today? In the '80s and '90s, it might have been true, as buyers don't keep their cars that long. Today, buyers hold on to their cars longer, especially those relying on longer 9-year term financing.

With longer ownership period, this argument begins to blur. As a car nears its 10th year, securing financing becomes more challenging, leading to sharper drop in its resale values for cars older than 5 years.

Banks typically don’t finance cars that are older than 10 years. By ‘10 years’ they refer to the vehicle’s age at its final instalment payment, not its age at point of purchase. If it’s a 7-year-old car, the bank may only provide financing for another 3 years. Of course, some lending institutions will provide financing options for cars up to 13 years old, but interest charges will be very high, requiring a much higher downpayment.

All these factor combine to reduce the gaps in resale values between a 7-year-old car and an 8-year old - all else being equal.

For a sub-RM 100k car, the differences amount to around several thousand Ringgits - which is the amount of discount most new car dealers are willing to offer you today.

Inflation's impact on the Ringgit - your projected savings from a 2024 car is not what you think

Inflation is a rising concern, eroding the value of the Malaysian Ringgit faster than in the past decade. Essential commodities are seeing a surge in prices, which has implications on car resale values.

Inflation simply means that the value of your Ringgit becomes less. As such, the projected difference in resale value between a 2024 car and a 2023-end registered car after 9 years, in real money terms, will be less significant than what the raw number calculated today suggests.

With this backdrop, it makes more sense to take advantage of today’s discounts, which usually are available for year-end cars. After all, a Ringgit saved today is indeed earned, going straight into your pocket. In contrast, the value you might save after nine years remains speculative.

The looming price hike in 2024

As if the price hikes seen in 2023 were not enough, 2024 may see car prices creep up further.

Budget 2024 has already announced that logistics has been added as a taxable service, at 6 percent.

This additional cost will inevitably be transferred to consumers. Furthermore, the rise in service tax will also raise service centre’s labour cost, which will now be taxed at 8 percent.

The job of delivering parts and finished cars to the service centre and showroom will soon cost 6 percent more, while labour to service your car will go up 2 percent more. The sum of increase will add up across the supply chain and ecosystem.

Several brands currently offer complimentary service packages, with the cost already factored into the new car's selling price. In the past, manufacturers bundled such deals as a value-add to the customer.

Honda Malaysia for example, offers free labour for the first service and selected major service intervals - 1st month/1,000 km, 18th month/30,000 km, 36th month/60,000 km/, 54th month/90,000 km, and 60th month/100,000 km.

Bermaz Auto (Mazda) on the otherhand, covers everything from parts, lubricants, to labour for 5 years.

UMW Toyota Motor sells pre-paid Service Savers package, which offers discounts if the buyer makes upfront payment for the car's maintenance.

With global inflation on commodities and energy prices not abating, 2024 could continue to burden businesses and consumers alike, and with the 6 percent tax on logistics and 8 percent on service centres' labour, the current free service-inclusive selling prices quoted might become untenable.

However, manufacturers are bound to honor free service contracts made with customers upon purchasing their cars. So existing owners and those buying a new car this year can have some measure of certainty.

The question is whether new car prices will go up even further next year.

Conclusion

Given the expected price hikes and the evolving perspective on resale values, it seems more logical for potential car buyers to consider making their purchases now, taking advantage of the current discounts.

Waiting for 2024 is a bit of a gamble that might come with its set of financial implications, making the present an opportune moment to buy a new car, if you are in the market for one. One thing is for sure, you are not going to get better prices next year.