Buying new vs second hand vehicles

, posted: 6-Nov-2014 17:50

The most common misconception we hear from second-hand vehicle buyers before they work with us is:

“New cars cost too much - I can’t afford a new car.”

Smart car buyers consider three criteria as a minimum:

  1. Fitness for purpose: that is, the vehicle class and specification that most closely matches the intended use of the vehicle so you only pay for what you need.
  2. Safety features: The presence of critical safety technologies like electronic stability control, anti-lock braking systems, cruise control and audible reversing sensors that reduce your risk of collision and injury.
  3. Lifecycle costs: All of the cost inputs of the vehicle over the expected term of ownership, including the purchase price, all running costs, the residual value of the vehicle at the end of the term and those tax deductible expenses, being depreciation and finance interest payments. If we compare the lifecycle costs of two of New Zealand’s most commonly purchased vehicles - new, or at five years old - it is only around $100 more per month to drive a new vehicle.

image1(click image to view full info PDF)

So why is buying a new vehicle more affordable than you think?

One of the biggest contributors to the lifecycle costs of a vehicle is the resale value you achieve at time of sale. As economic confidence increases, so does demand for new and used vehicles, which means residual values for quality New Zealand-new vehicles are strong. Naturally, the higher resale value you realise, the lower your true depreciation costs will be. Selling your vehicle in the summer months when vehicle demand is typically higher, according to vehicle disposals experts Turners Auctions, can improve your position even further.

Vehicle purchase discounts also have a large part to play in lifecycle costs. When buying used vehicles you’ll typically pay market value, but when buying new vehicles as a GST registered business, you qualify for discounted rates. These discounts will be higher based on the number of vehicles in your business or the ‘prestige’ of your brand. To achieve higher purchase discounts, and therefore lower lifecycle costs in relation to used vehicles, consider aggregating your vehicle purchases with industry peers.

Vehicle running costs are higher in used vehicles for a number of reasons. New rules introduced from July 1 2014 mean that new vehicles won’t require a WOF inspection until their third registration anniversary, while annual WOF inspections are required for vehicles three years and older. Manufacturers are investing heavily in R&D to improve fuel-efficiency and new vehicles are beginning to utilise highly pressurised fuel injection technology, reduced cc ratings with increased power through turbo chargers and super chargers, electronic valve control for fuel and exhaust, engine start/stop technology to reduce idle time, and electronic tyre pressure sensing devices (which measure wheel rotation speeds to detect flat tyres). All of these features are contributing to consistent improvements in fuel economy ratings over time and lower fuel costs as a result. Vehicles have a higher risk of failure with increasing kilometres and while extended warranties and scheduled servicing will mitigate the majority of this risk, owners of aging vehicles are at greater risk of vehicle downtime and unexpected costs. Everyone has an anecdotal example of how their ‘best friend’s cousin’ purchased a five year old vehicle, ran it for ten years and spent nothing on it, but when we analyse data across a large sample of vehicles, several hundred per model, the average running costs per annum are substantially higher for ageing vehicles – particularly when they are out of warranty.

(click image to view full info PDF)

Buying a new vehicle over a used model is the smartest choice in most cases from both a risk management and value perspective. Buying new vehicles:

  • Reduces lifecycle costs.
  • Reduces R&M cost risk.
  • Reduces your carbon footprint.
  • Reduces WOF administration costs.
  • Allows you to take advantage of safety innovations like electronic stability control, cruise control and antilock braking systems that lower your risk of collision and serious injury.
  • Assures you progressively higher standard specs which now generally include Bluetooth, navigation and improved driver interface, ergonomics and drag co-efficiency.
  • Gives your customers a better perception of your company brand.
  • Results in higher employee satisfaction.

If you’re interested to discuss this further, please contact us.


Disclaimer: I have a vested interest in Optifleet.

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I'm Nate Dunn, and I work for 3Bit, own Tuihana Cafe, and am a moderator here at Geekzone.

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