Learn About Buying and Selling Used Cars and News Cars
Onlineautos have such passion for buying and selling used and new cars. We decided to put an Auto Guide and Advice together to make things easier for you, and understanding all the terms and terminologies regarding buying and selling cars.
Onlineautos a used car and new car marketplace and digital marketing platform for cars and vehicles for sale in George, Mossel Bay, Plettenberg Bay, Outdshoorn, Still Bay, Heidelberg, Swellendam, Little Brak Rivier, Great Brak Rivier, Glentana, Wildernis, Sedgefield, Knysna, Storms Rivier, Garden Route, Western Cape, Northern Suburbs, Southern Suburbs, Cape Flats, Cape Town, Cape Winelands, Central Karoo, Eden, Helderberg, Overberg, Southern Peninsula, West Coast
After Market Warranties
Every dealer nationwide will offer a short used car warranty of 30 days or 2000 kms ( whichever comes first) on any retail quality car. Cheaper vehicles are sold cash as they stand (or Voetstoots) and will carry no warranty. This is normally clearly stated on the invoice. This warranty has been around for a very long time and covers the main mechanical components only. Generally labour costs or for the customers account, although in my experience this is rarely enforced and most dealers will go far beyond the written conditions of warranty to keep a customer happy.
As car prices increased and the costs of repairing them did the same, the market place was ripe for an extended after market warranty. One of the first companies to launch a product was Wynns (an oil additive company). Part of the terms of condition, was that their oil products had to be used at every service. There were many problems and complaints in the early days. Ultimately the Wynns brand fell by the wayside. New products were introduced, of which MOTORITE WARRANTIES is perhaps the best known. Each year there are new players on the market, like AMP Warranties (supported by the IDA -Independent Dealer Association) and the newest kid on the block is an extended warranty launched and supported by MFC (Motor Finance Corporation) and underwritten by Hollard Insurance.
Extended warranties fall under the FAIS Act 37 of 2002 as they are all insurance based products and all have had to comply with the new strict laws governing these products. The warranties are not cheap any more, but the cover in many cases is excellent. Many offer additional benefits such as Road side Assist and Medical Evacuation at an accident scene.
My advice is to get a copy of each of the products you are interested in and make your comparisons. I have provided links to the various warranty products available.
Understanding Book Values
Most people only look at the last column of figures in the book. What do all the numbers represent?
Most people who get access to the Auto Dealers Guide don’t understand the numbers and columns, nor do they read the the guidelines at the beginning of the book, which are actually very important. There is a general misunderstanding of what the columns of figures in the book mean: The Trade/Retail values in the ‘book’ are meant to indicate the following:
(T) TRADE: This is the approximate price the book suggests a dealer should pay for a vehicle as a trade-in, subject to the vehicle having average mileage (these averages can be found on the last page of the book) and then any amounts for reconditioning to get the vehicle into showroom condition must still be deducted. Plus allowances must be made for local/regional fluctuations in popularity and supply/demand variations.
(R) RETAIL: This is the suggested price a dealer should sell a vehicle for, subject to mileage and condition, supply and demand, local fluctuations etc.
There are a further two columns on each page:
H = The highest price achieved nationally on this specific product for this month
L = The lowest price achieved nationally on this specific product for this month
No: The number of units sold nationally of this specific product for this month.
This information helps to establish desirability and trends. For example if only one or 2 of the specific model have been sold it might indicate that this is a less popular model and therefore not command a high resale value.
The column on the extreme left of the page is the original new price for that product in that year. This helps to determine how fast/slowly resale values have changed.
Are there any other factors which affect book values?
There are many variables in determining desirability of a particular vehicle. Demand for a vehicle can also change rapidly. For example, the Hyundai range of cars’ saw their resale value tumbling when that company temporarily closed its doors in 1995. When there is a big fuel price hike, most cars that are considered gas guzzlers will see their resale values taking a dive.
Can you simplify into one sentence why my car doesn’t sell?
There are only two reasons a vehicle doesn’t sell. One is PRICE – the other is CONDITION. So, if you are selling your car and you know it is immaculate in every way, and no-one answers your advert, you are asking too much (on that given day). Try again tomorrow or next week. But if, after three weeks, it is still unsold, and you are still convinced that CONDITION is not an issue, it is time to drop the price.
THE DEFINITION OF THE MARKET VALUE OF ANY PRODUCT OR SERVICE IS HOW MUCH YOU CAN GET FOR IT IN CASH ON ANY GIVEN DAY .
Security & Scams
How can I protect myself from being “caught” by a fraudster?
This subject could be a whole book, but I will keep strictly to the point.
Don’t do business with someone that you don’t know or have not been referred to by a reliable source. Easier said than done of course. Use your common sense and err on the side of caution.
One of the most common ways of being caught was with an unsettled HP agreement. In such a case the vehicle is actually the property of the bank and they are entitled to repossess it from you, even though you might have paid a full market related price for it. To a large extent the new NATIS registration system has solved this problem.
How will I know if I have bought a stolen car?
You could insist on the car going for a police clearance certificate. Obtaining such a clearance does not give you any guarantee that it is not a stolen vehicle. SAPS do not hold themselves in any way responsible for any errors or omissions, which could include fraudulent activities within the police clearance unit. In short, there is no guarantee whatsoever that you have not bought a stolen car.
What precautions can I take?
- Check the credentials of the person you intend dealing with
- Get a copy of his ID (Preferably check the original yourself)
- Invest in a “black light” – an ultraviolet device that quickly shows fake ID’s, drivers licences and counterfeit money
- Thoroughly check the history of the car as well as the service books
- Get an AA report
- Do an HPi check
- Don’t accept faxed proof of payments
- Don’t accept photocopied registration certificates
- Insist on a receipt
- Insist on a comprehensive invoice
- If you get a funny feeling that all is not right, walk away from the deal, no matter how far advanced the transaction is.
- Many con artists have a knack of making you feel obligated or behave in an aggressive manner to intimidate you.
- Rather purchase your car from a well established dealer who has integrity and a good reputation.
What about “two in one” cars?
There are some agents who will buy wrecks of cars that have been written off in accidents. They will then use the best parts of the two vehicles to make one complete car. This is what is known as a REBUILD or a CODE 3 vehicle. It is illegal for dealers to sell these vehicles on credit. If you discover that the car you have bought is a rebuild, you are entitled to full cancellation of the transaction. Dealers may sell rebuilds on a cash basis, but they are required by law to disclose that information to you.
The HPi check will usually give an indication of a rebuild, but these agents who deal in this sort of low level trading, can (and frequently do) bribe an official at the traffic department to register the rebuild as a Code 2 or USED vehicle. It might take years for you to discover the truth. Again, my advice is to simply not deal with any shady characters.
What else should I be wary of?
The most common trick is that sellers advertise their cars as one or more years newer than what it is registered as. There is only one official version of the correct date and that is on the registration certificate under the heading: DATE OF LIABILITY FOR FIRST REGISTRATION. Let no-one tell you anything else. Some cars were assembled at the factory in (for example) 2008 but are only sold and registered in 2009 – therefore the year model is 2009.
Some scam artists will sell you a 2008 model and even offer (kindly) to register the car in your name. It might be several years before you actually check the registration certificate, which might read 2007 or even 2006. This is the most common scam so be aware of it. It is no less fraudulent than turning back an odometer.
Cheque fraud is very much on the increase. Beware of buyers from outside our borders. What very few people know that a bank cheque from any international bank (now matter how big or impressive) may be stopped by the drawer at any time within two years! I have no doubt, you can see what levels of fraud that little rule leaves any seller open to. This information obtained directly from Standard Bank Forex Dept.
If you should be approached by a foreign purchaser, rather ask for a telegraphic international money transfer – you will need to supply your bank’s SWIFT code(just get it from your bank) to the potential buyer as well as your normal banking details. This is a much safer way of transacting. Imagine selling your car, the buyer leaves the country with it (receipt etc and registration documents on him) and he gets beyond the border, he simply stops payment on his cheque.
In South Africa every car that is sold must pass a roadworthy test before it can be registered and licenced in the new owners name. In the past only municipalities and local authorities were allowed to perform this test. A few years ago the government expanded the programme to include private firms. Their charges are a bit more expensive than the government testing stations, but the service is far superior. One of the better and bigger companies is AVTS (Airport Vehicle Testing Station). There are many new firms all over the country and this has taken a lot of strain off the old municipal stations.
The inspectors have to undergo training with the SABS (South African bureau of Standards) who run regular inspections on all these stations to ensure that they are complying fully with the legislation.
It is advisable to have your vehicle’s engine and chassis steam cleaned before sending it in for testing. If you want to irritate an examiner, send in a dirty car. Much of the focus is on safety items, so make sure your brakes, handbrake, lights, steering etc. are in sound condition before the test.
Should your vehicle fail the test, you are allowed one free re-test within a period of 14 days. If it fails the second test, you will have to pay for a fresh test. Once your car has passed roadworthy, the certificate is valid for a period of 60 days.
You may of course, register a car on your name without a roadworthy certificate, where you will be charged for the new licence, but the actual disc will be withheld until such time that you are able to produce the roadworthy certificate.
The law provides you with 21 days in which to register a car on your name. Failure to comply will render you subject to penalties. At the time of writing the roadworthy certificate remains valid for a period of 60 days.
Should you have your vehicle tested, you will not be issued with a physical certificate, but the information will immediately to uploaded onto the NATIS system (National Traffic Information System)
It is advisable to take the vehicle’s registration documents with you to simplify vehicle identification at the testing centre. Should any details like the engine or chassis number differ to that recorded on the registration certificate, the vehicle will have to go for a SAPS Clearance (South African Police Service)
Let’s look at resale values a little more closely and I will try to explain how the market forces affect each and every product on the market. Some vehicles, like Volkswagen, Mercedes & Toyota for example, have excellent resale values – yet other vehicles don’t hold their value as well. Why is this?
Who determines the book values we all hear about?
It is a mixture of SUPPLY AND DEMAND, product quality, and public perception. Supply and Demand is the primary driving force in every free market economy. It will ultimately override any ‘book value guide’; government intervention, price fixing, or market manipulation.
Within each manufacturers products there are further anomalies. For example, just because it is a Toyota does not necessarily mean it will have high resale value. Certain of their model ranges are not good sellers – for example the new Camry.
We have all heard about ‘book value’, but what exactly is it? Who decides on the values? Why do some dealers offer below book for vehicles and others offer above book? Who determines that a Toyota , for example, should have high resale value? The short answer is: You do! An item is worth what someone is willing to pay for it. What resale values reflect, is quite simply, the demand for a particular vehicle. The book in question is called the ‘Mead & McGrouther Auto Dealers Guide’. Let’s have a look at some misconceptions:
Do book values fall mostly at year end?
No, that is a misconception. Book values fall a little each month on a fairly even scale.
The Mead and McGrouther Digests are published monthly. The values (as a rule) fall monthly. In certain rare instances they remain static and sometimes even increase. The latter happens when the economy is going through an inflationary cycle. (For example when new car prices rise too fast.)
How does the vehicle sales data get collated on a national scale?
It is true, to a point, that the values are determined by the public (which is supply and demand). However, many hundreds of dealers all over SA send in monthly sales returns of vehicles, which are then averaged by Mead & McGrouther, after which a formula is applied to those national figures in order to produce a viable set of book values. I strongly suspect that certain of the manufacturers control and manipulate the data sent in to Mead and McGrouther in order to inflate the resale values of their specific products, which they obviously would all like to see.
Is the book value system fair?
It is a fair and reasonable method to arrive at a market value, but it must be borne in mind that the book values are only a GUIDE – and nothing more. There is absolutely no rule which states that you should pay book value, or less than book, or more than book. It is important to be aware of this. At many of the new car dealers, the staff are so polarized towards trading purely on book value that they either make grave trading errors or end up losing business because of their inflexibility to move around the book values.
How does one deal with local variations in vehicle popularity?
For example in the Western Cape, for a very unpopular vehicle (Like a Musso Ssang Yong) I would offer about 50% less than the book trade value, as I know that in order to resell this vehicle, my selling price must be highly competitive. At the other end of the scale, the resale values of the Toyota Land Cruiser are polarized upwards. I have paid up to 35% more than the book value for a low mileage Land Cruiser.
How does the age of a vehicle affect its resale value?
The older the vehicle gets, the more it comes into demand up to the point of about 8 to 10 years old, at which point values fall off dramatically.
The ability to finance a vehicle greatly enhances it’s value. Therefore vehicles older than 10 years lose value rapidly. In the same breath let me add, that there are a handful of vehicles that completely defy these laws and rules.
What segment of the market is the most dangerous in terms of resale values?
The dangerous segment of the market is the one year old vehicle. If the new car franchise decides to run a ‘special offer’ on the product you have just purchased, it could ruin the resale value of your one year old car as it would make the two prices too close to each other. There has to be a considerable gap between the lowest, discounted new price and the book retail value of a one year old vehicle to entice a buyer into buying used and not new.
How do the car rental companies affect the national supply/demand system?
When the large car rental companies defleet and put large amounts of a specific product into the used car market, the value of that product will drop – even if it is only for a few months. It is a typical result of supply/demand rapidly affecting resale values. Too much of a product coming into the market, means lower demand because of over supply with a resultant drop in resale value.
List of products in terms of resale value from best to worst:
- Toyota (excluding Camry and Auris)
- Volkswagen (excluding Passat)
- Mercedes Benz
- Hyundai (excluding Accent, Sonata and Elantra)
- Kia (excluding big sedans)
Poor: (in no particular order)
- Alfa Romeo
- Land Rover
- All Chinese imports (Chery, GoNow, etc.)
What useful information is available to me as a buyer on a vehicle registration certificate?
Most people don’t know the difference between a licence receipt and a registration certificate. In very simple terms, a licence receipt is the document on which you have cut out the licence disc. At a casual glance the two documents appear to be very similar. A registration certificate will have the words CERTIFICATE IN RESPECT OF REGISTRATION OF MOTOR VEHICLE right at the top. This is the important one and the document that will tell you a lot about a car. It should always be an original. A copy is worthless. The paper is a greenish tint and is similar to cheque book paper.
Where do I find the year of 1st registration?
BEFORE buying, ask to see the registration certificate. First thing you check is the year of first registration. I can’t tell you how many people falsely believe (wittingly or unwittingly) that their vehicles are newer than they actually are. It is imperative that the year of 1st reg. matches that which the owner has advertised it as. (Funny thing is it never works the other way round – where you score a year!) In legal terms, this is called misrepresentation .
How can I tell how many owners a car has had?
Look down about halfway along the page, you will find a line titled: Last 3 registration numbers. If there are three numbers listed, it has had at least 3 previous owners
How can I tell if it is a genuine used car and not a rebuild?
Next thing to check is the Code a few lines lower on the Reg. cert.
It will read one of the following: NEW /USED/REBUILT
SOMETIMES, DEPENDING ON THE PROVINCE AND THE AGE OF THE VEHICLE THESE COULD ALSO READ: CODE1/CODE2/CODE3
Private sellers sometimes get away with selling a Code3 (rebuilt) vehicle to an unsuspecting buyer, but dealers may not sell a Code 3 vehicle unless it is for cash and then they have to declare it up front. A Code 3 vehicle may not be financed. Insurers also sometimes refuse to insure a Code 3. Watch out for adverts where a shrewd seller uses subtle phrases like ‘coded vehicle’ which makes it sound like it is colour coded or even security coded.
How can I tell if a car is being sold by a private person who is actually a dealer?
Look at the DATE OF LIABILITY FOR REGISTRATION. This will tell you how long the seller has had the vehicle registered in his name. If it is less than six months, there is a strong possibility that the car was bought specifically to resell and it could have been in an accident. There might be an alternative reason for the short ownership, so ask direct questions. Make notes of the answers and check their veracity out in your own time.
How can I tell if there is money owing to a bank?
The final check on the reg.cert. is the Owner/Title Holder status. If the vehicle is fully paid and unfinanced, the name of the owner must be the same as the Title Holder. Occassionaly a finance company’s name will appear as Title Holder even though the vehicle is fully paid. In such a case, there must be a letter from the Finance Company, confirming full settlement. (This MUST be an ORIGINAL letter). Do not accept the documents like this. Insist that the owner registers the vehicle in his name as Owner and Title Holder. Otherwise you will be sitting with a registration nightmare and hours in long queues.
How should I handle the situation if there is still an outstanding settlement at a bank?
In the event that there is still an outstanding balance on the vehicle to a finance company – insist that it should be settled first, before you pay for the vehicle. In most cases the owner does not have the cash flow to do that. In the latter case, you should settle the finance company yourself (never pay the owner in full so that he can settle the bank – this is when the bad stuff hits the fan every single time). Only after you have collected the original registration certificate from the finance company, should you pay any balance to the owner.
Ask around – word of mouth recommendations are usually the right ones.
Recessions & Repossesions
As we all find ourselves in the midst of a deepening recession; inevitably there are consequences to over spending. For most of us our cars are our second biggest investment and we must try at all costs to maintain those monthly repayments. But what happens when we skip a payment?
During tough times, once a repayment has been skipped, it becomes very difficult to make it up. Consequently your account remains one month in arrears for a long period of time and your account will continue to attract interest on arrears. The more payments you skip, the worse the multiplying effect of those interest charges become.
Contrary to what many people think, the banks are not waiting drooling to repossess your house or your car. In fact that is the last thing they want to do. Just for interest’s sake, it is really bad business for the bank to take your car back because once that happens; you become blacklisted on ITC for a period of 5 years. Each client who has a repossession is another person removed from the market place. The present rate of repossessions are said to be between 5000 and 7000 per month nationally, between all the banks. Multiply that by 12 months and it equates to the car and finance market losing 60,000 to 84000 clients per year.
The problem with most defaulters is that they suffer from “ostrich syndrome”. In other words they bury their heads in the sand and pretend there is no problem out there. E mails, phone calls and SMS’s from the banks are ignored. Final demands and statements are thrown away unopened. People think: “If they can’t contact me, maybe they will just forget about me”. This is completely the wrong way to handle the situation.
If you see you are getting into difficulties with your payments, contact the bank immediately and preferably before you go into arrears. Explain your predicament to them and request an alternative solution. There are many ways to resolve repayment problems. Sometimes the contract period can be extended, thereby reducing the monthly payment. The banks will do everything possible to help you to keep your car. But be the first to go in and communicate.
So what happens when the debt collectors knock on your door at 3 am to take your car? You have probably not been in contact with the bank at all and ignored all attempts by the bank to get hold of you. This will normally happen when you are approximately 3 months in arrears.
The bank will obtain a court order to repossess your car and the person collecting the car from you will have that document empowering him to take the car away. The car will be moved to a place of safety – all the banks have huge sheds where these cars are kept. The car has to stand there for a specified period of time, during which you are given a final opportunity to make up the shortfall on all the arrear payments plus all administrative and legal costs. This period is usually 30 days.
After that, if the car is till not settled, the car is put up on public auction. Now this is the really bad part and I strongly recommend that anyone who is currently in this situation should be present on the day his car is auctioned to confirm the highest offer. OK, so let’s say trade book value on your car is R 100,000 and the highest offer is R 60,000, you are still liable for the shortfall, plus all costs. In other words R 40,000 plus costs.
It would be safe to assume that you are not in a position to cough up R 40,000 plus in cash, so then the bank may attach any or all of your other assets, sufficient to cover the shortfall. This could include you furniture, appliances, other paid up vehicles, caravans, boats, trailers and even your home if the amount is large enough to warrant such action.
Obviously this is a worst case scenario, but it can and does happen frequently all over South Africa. So take a tip, and understand that the very best solution is to put your pride in your pocket and go and visit the bank manager. Be frank and honest and try to be a part of a solution rather than a problem.
Recessions happen in all countries. In South Africa, they seem to happen every 9 to 10 years and their duration is usually 18 months to 24 months depending on what the circumstances are locally and world wide. This recession will also pass, just as all those before it have done.
Sound financial planning does not require you to have a degree or to be super smart. It only takes a little common sense. During the tough times, cut back on some of the luxury items, have shorter holidays, don’t go overseas, maintain your car rather than replace it, and talk to those you owe money to – in 99% of the cases they will understand and appreciate your honesty and make a plan to assist you.
It takes a lifetime to build a good name. Don’t destroy it by being an ostrich.
How on earth do we know if the reading is accurate? Why do some people turn the mileages back (what is commonly known as a ‘haircut’). Firstly it constitutes fraud and is a criminal offence. People do this to gain a higher selling price.
If there aren’t service books AND a contactable previous owner, just walk away and take your business elsewhere. In all the years I have been in this business, I have rarely heard a genuine case of the books being missing. 99% of the stories are pure nonsense. I can look at a steering wheel, upholstery and foot pedals and tell you within 10,000kms accuracy what the actual mileage of any vehicle is.
Here is a list of the usual reasons people give me for not having service books:
- They broke into my car and stole my service books (Yeah, right!)
- I packed them away in a box when I moved house and can’t find them now, but I’m sure they are there somewhere.
- The dealer who serviced my car last, did not put the books back. (Highly unlikely)
- They were there last week. I can’t believe this! (Yeah, right again!)
- The books are in Jhb. They are being posted down to me next week (which never comes)
In the very rare event that one of these stories might just be true, at least one should be able to contact the previous owner and confirm some level of truth. The reality is that there are enough used cars in SA to NOT have to buy one without service books.
Even digital odometers are being turned back. I saw a large ad in a local paper recently where someone is advertising that he “repairs and corrects” digital odometers. Be careful guys and girls. Have a standard and stick to it. No books – no buy. It’s not that difficult.
A tell tale sign to look for is the little service sticker that garages paste on the inside of the drivers door support column. The one that tells you when your next service is due. Many people forget to remove that and it is common for me to catch a potential fraudster out like that. (Just compare mileages and dates on the sticker). The clever guys will pull this sticker off – and when I see that, I immediately know the odometer reading has been tampered with. So if you have a scenario of ‘books missing plus service sticker removed’ you can take poison on it – it’s had a haircut!
Any other tips how to check on odometer accuracy?
Another test is the steering wheel wear. This takes a little more skill and experience. The different manufacturers use different materials for their steering wheels. Opel, for example, use a recycled material, as does Ford and Mazda, which wears out much faster than Toyota or Mercedes. Let’s take Toyota as an example: If a Toyota ‘s steering wheel is shiny and smooth from wear, the car will have done anything from 180,000kms upwards. It’s a learning process to know and understand the different wear characteristics of every car’s steering wheel, but it’s still the best way for me to quickly confirm what the odometer shows.
When you check the service books, follow this line of reasoning:
- Check the opening page and note the details of the original owner. Check date of 1st registration. Look for signs of alterations and especially the use of Tippex.
- Follow the service stamps. Check that each service was done on the correct mileage and check the intervening time gaps of the dates. They should be approximately similar.
- Sometimes a new service book is purchased and “fixed” to look like the original.When looking at the service stamps, scan your eye over all the stamps quickly. You are checking to see if all the stamps were done on the same day and completed in the same ink and handwriting. If so, be suspicious. Some “operators” turn back the odometer, throw away the books and order new books from the franchise and ‘arrange for the book to be stamped ficticiously. Look for signs like all the handwriting on the service stamps being the same; the same pen/ink being used and the same ink and pressure of all the stamps. With a little suspicion, you should be able to tell fairly quickly whether the books are genuine or not. You can also confirm telephoncially with the servicing dealer the veracity of the service records as most of the franchise dealers keep computer data bases updated. Always have the VIN number ready to quote.
The service history should provide you with a proper audit trail.
New or Used?
Which is the better buy? New or used?
This is one of the most common questions I get asked. From a pure ego point of view, undoubtedly new beats used, but from a Rands and Cents point of view, used is king.
How can I say that? Well…lets start by looking at the Auto Dealers Digest and you will see that there is no book value for cars of the current year. They start with 2007(at time of writing in December 2008)
Lets take an arbitary example. A 2008 Audi A4 2.0 TDi sells new for R 298000. The book retail value of a 2007 model is listed as R 229000, whilst trade value is R 199300. That is a drop of R 98000 in one year. In that specific case, if you had put your ego in your pocket you could have been at least R 69,000 better off – and probably more in the current market. I have been very conservative in this example. The reality could be a lot worse.
Or try this as a test. Go and buy a new car and drive it straight home and return to the selling dealer a week later saying you have made a mistake and would like to sell the car back to them. I guarantee you will be dumbstruck at what you will be offered. In the example case of our Audi, you might be offered R 200,000. What this tells me is that a new car loses on average 30% of its value the day you drive it out the showroom. Remember that the selling dealer has to now sell a USED car and even though the mileage might be negligible, it is still technically a used car, so he has to make his selling price low enough to entice a buyer to rather buy used, than new and think about insurance later on.
You pay a large premium for the privilege of driving in a brand new car. That’s fine if you have the money, but if you really want to save money, then buy used. Obviously there are another set of rules for buying used, but I have covered those elsewhere on this site.
There are rare occurrences when supply is low and demand is high, when buying new might actually be financially superior, but they happen far and few between. In 2006 when the new level Mercedes C Class was launched, is a good example, when one could fetch a higher price a few months later for what you actually paid new. Its also known simply as inflation.
Where new cars have the upper hand over used is the finance packages they are able to offer. You will often hear ads where a new car is offered at prime minus 7% and even more in some cases. How do they do that? It’s fairly easy. The manufacturer offers an incentive via one of the major banks and those interest rates are then subsidized by the manufacturer as an incentive to attract customers to buy the product, whilst the finance company enjoys the benefit of high volume and exclusivity.
When buying new you have no idea how popular your chosen car will be in two or 3 years time when you want to resell. So that becomes quite a big gamble. If you are buying used, try to buy the first year of the newer range. In other words, don’t buy a run-out model, or the last year a particular model is made.
In short, providing you go about things the right way, buying used will almost always be better than new. In most cases today, new car warranties are valid for several years and more than 100,000 kms. These are mostly transferable, making a used purchase very attractive.
Even the very cheap Chinese cars that are available today, do not necessarily represent good value for money, despite the low price tag. The test comes when you need to resell it and you find it is worth between 20 to 50% less than book value.
I am going to list the different manufacturers’ ability to hold resale value in the current market, from best to worst: This is only my subjective opinion based on what I experience on a daily basis.
1. Volkswagen (excludng Passat)
2. Toyota (excluding Camry)
5. Mercedes Benz (C Class only)
6. Opel (Corsa/Astra in particular
8. BMW (excluding 5 and 7 series)
40. Asia Wing
Marques like Porsche, Maserati, Jaguar, Aston Martin, etc. are not included as they fall beyond the scope of this talk. I have also omitted some of the minor makes like Proton.
My first word of advice here is to read the small print. You get policies and you get policies. Some have high excesses and low premiums, others have the opposite. There are certain things that they all have in common:
- Male drivers under the age of 25 are penalized heavily on premiums
- High performance cars carry very high premiums
- Your car needs a good immobilizer system to reduce premiums
- Older drivers and women are rewarded with lower premiums
Value Added Products:
There is wide array of insurance based products available on the SA market.
Purchase Protection Insurance: This policy will protect the outstanding debt in the event of death or disability
Shortfall Cover: This policy will protect the buyer against the possibility in the event of an accident, that the amount paid out by the comprehensive insurance policy, does not fall short of the outstanding balance of the contract.
Mechanical Warranties: These policies protect the client against the possibility of expensive mechanical repair costs in the event of a breakdown of the vehicle.
Smash and Grab: A impregnable film applied to vehicle windows making it difficult for criminals to smash your window and grab your valuables. The tint also provides protection against the UV rays of the sun and prevents ionlookers looking into your vehicle
How to sell your car
Here is some useful information on how to sell your car privately. We can break the process down into three sections: Preparation, Marketing, and Conclusion.
Let’s start with preparation.
What is more important? Cosmetic items or mechanical items?
Take a good look at your car and focus on any of those obvious ‘in your face’ items, like a cracked windscreen, a tear in the upholstery, a damaged dashboard, or dents and scratches in the paintwork.
Let me assure you that the cosmetic side of things are far more important in selling, than mechanical issues. Before you can even hope to get to second base in the sales process, the buyer first has to like what he/she sees. Visual impression is everything. Once you have dealt with the obvious cosmetic items, send your car for a professional valet. A neat, clean car will make a huge difference to whether you will conclude a sale or not. More often than not any money you invest in preparing your car for sale will be doubled or even quadrupled by getting a better end price.
If there are any mechanical problems with your car, the chances are the potential buyer will pick them up, so get them sorted out before putting your car on the market. The better your preparation, the quicker the sale and the lower the chances of after sales complaints. List any problems in order of priority and attend to them from the top down according to what you can afford. For example, if there is a hole in the exhaust and a slightly worn tyre and you can’t afford to attend to both, do the repair to the exhaust first as that will make a bigger negative impact on your sale than a slightly worn tyre.
Try to get your car as factory standard as possible. Take everything out the car that wasn’t there when it was new. That includes those fluffy dice or CD hanging from the mirror; the air freshener your girlfriend gave you; those spotted Dalmatian seat covers; take the tinting off the windows; put the original steering wheel back; take off the wind deflectors, and so on.
OK, so your car is now ready for sale. Now let’s look at the marketing side of things.
Selling your car privately or to a dealership has its advantages, but there is another way to sell your car in the Digital Age.
CarZar is one of a number of new generation companies operating on a national online basis that streamlines the buying process.
If you are in CPT or JNB and are looking for a fast, safe way to sell your vehicle, CarZar has you covered. Their three-step process is quick, easy and convenient:
- Fill in your vehicle details on their website for a free instant quote online.
- Book an inspection for them to assess the condition of your car and make you a final cash offer.
- If you accept the offer, they make an instant payment into your account and handle all the paperwork on your behalf.
CarZar seeks to make the inspection work for you as well. In Cape Town, they have Car Buying Centres located in the CBD and in the Northern Suburbs, and Sandton in Johannesburg. However, if it is inconvenient for you to meet them at their premises, they will conduct the inspection at your home or place of work. From the time you arrive for your inspection, they promise to buy your car in just 30 minutes (if you accept the final offer, of course).
According to a recent survey CarZar conducted with News24, 82% of South Africans are concerned about safety while selling their car privately and 87% are worried about not getting a fair price. CarZar is the solution for those South Africans that seek safety, transparency and convenience when selling their car. You don’t have to deal with potential buyers calling early, arriving late or haggling for a better price. You also avoid spending money on marketing to advertise your car and the fact that they handle all the admin and paperwork is a bonus. CarZar is transforming the way people sell their cars by bringing the industry up to speed with today’s technology.
Is the venue where I sell my car important?
Where will you have your car on display? At home? At work? On a public pavement? Imagine what the potential buyer will think when he arrives to see the car. The display venue makes a difference. Try to choose somewhere that will enhance, rather than detract from the car.
How do I know what the “right” price is to put my car on the market?
Set your price you would like to get for it. Almost every buyer wants to haggle, so give yourself some room to negotiate. Before you set your price consider all of the following:
- What are the current trade in and retail values?
- How popular is your car in the current market?
The rule of thumb for used cars being sold privately in a neutral market is just above trade in value. In a bull market (when things are going well) about half way between trade and retail and for very popular models, even right up to book retail. In a bear market (when the economy is in recession ( like now), work on trade value and lower. You can of course, ask any price you like, but it is a big waste of everybody’s time and the reality is you will only get what the market is willing to pay for it.
What should I do if I owe more on my car than its book value?
One of the most common mistakes I see is people advertising their cars for what they owe on them, even if that figure is much than book value. They are unable to negotiate as they have no bargaining chips at all. Their cars remain on the market month after month, as they drop deeper and deeper into financial trouble. If this is your scenario, remember your first loss is your best loss. The sooner you take the pain, the better.
Where is the best place to advertise my car?
How will you advertise it? In a newspaper? The Internet? Or simply put a for sale sign in the window with your number?
The internet is by far the cheapest and most effective place to advertise your car. There are many free sites you can use. For example surf4cars; cars4sale; carfind; automedia; gumtree; auto trader and vottle to mention a few. There is one smalls type paper (Cape Ads/Junk Mail) that accepts free print ads from private sellers. All the other newspapers will cost you dearly to advertise and are not as effective as the internet.
How do I screen the inquiry calls?
So let’s assume you get a few calls. Some will be time wasters, but maybe there will be a few genuine buyers amongst the callers. How do you tell which are the genuine buyers? Ask questions as well as answer questions. What do you do if someone wants to test drive your car? Try to never be outnumbered or allow only the prospective buyer to drive whilst you go along as a passenger. Always ask to see the buyer’s driver’s license – for very obvious reasons.
How quickly/slowly should I negotiate?
Don’t reduce your price too quickly. Play the waiting game, but at the same time bear in mind that 90% of all buyers will make a buying decision within 72 hours (3 days).
What paperwork am I required to give the buyer?
Once you have successfully concluded the sale, you must now deal with the paperwork.
The buyer will need an invoice. All you need do is write one out on a blank sheet of paper. It should contain the word INVOICE; your name and address and contact number; the buyers name and address and contact number; a full description of the goods (For example: One used 1995 Toyota Corolla 160 GLE, Registration Number: Engine Number; Chassis Number); and of course the price of the goods. You should also note any special terms of sale like Roadworthy certificate only or No warranty supplied or Sold Voetstoots.
Also ensure that you obtain a copy of the buyers ID book as well as proof of residential address.
Once the handover takes place and you have the money either as a bank guaranteed cheque; cash or Electronic internet transfer, you must give the buyer:
- The Invoice
- The original registration certificate
- A transfer form (Yellow) obtainable from your local licensing office which must be signed by yourself.
What is the safest form of payment?
First of all avoid taking cash. I will explain this fully on the page called Security and Scams. Your best form of payment is an internet payment, but even this is subject to fraud, so do not release your car until you can physically see the money in your account. Some people fraudulently change the PoP (proof of payment) printout. Once your car is gone, your insurance will not pay out unless you can produce the car keys.
A Bank Guaranteed cheque is fairly safe, but again be ultra careful, as there have been thefts of counter cheques, so accept the cheque, bank it, and only release the car when the bank informs you the funds have been transferred.
Avoid personal cheques at all costs. No serious buyer would expect you to accept a cheque for such a large sum of money.
How long does the buyer have to transfer my car onto his name?
Ensure your buyer understands that he has 21 days to transfer the vehicle onto his name. Failure to comply will render him liable to penalties. And speaking of penalties, I would advise you ask for proof that he has transferred the car onto his name, otherwise you could end up being arrested at a roadblock for failure to pay a traffic fine which you might not have incurred, but which you will remain responsible for if the car is still in your name. This is not something you want to experience (a weekend in jail)
Where am I allowed to display my car?
If you have elected to put your car on display in a public space, you need to be aware of the municipal bylaws. Open pavements have been a popular place to sell cars of late, but many residents lodge complaints. Some authorities are very strict about banning this practice and you could find your car being towed away and impounded. So don’t rush in and do something which might be illegal. Inquire first.
How safe is it to leave my car on display in a public space?
There are certain ‘pavement garages’ as we call them, that attract all manner of rogues and it is common to find accident repaired and even stolen cars on display. The SAPS are aware of these hot spots and regularly inspect cars on display. If you park your car for sale there your car will be tarnished by the same brush or you could be subject to parts being stolen off your car or be the subject of police raids.
There are requirements by law for trading to take place which include public toilet facilities and certain documentation has to be in place. These laws are being tightened up and 2009 may well see the end of pavement trading of used cars.
If I find a willing buyer for my car but he needs to obtain finance, what is the procedure?
If your buyer intends obtaining finance to buy your car, it is another ball-game altogether. You may not apply for finance on his behalf. He must go through the application process himself at a finance company of his choice. There are very few banks who will do private financing nowadays. There are only a few institutions remaining who are willing to fonance private deals. The best known is AA Autobay.
What are my obligations if I have sold my car “subject to finance being approved”?
A finance application can take anything up to 10 days. Until your buyer gets an answer on his finance you have no definite sale. What happens now is that you and your buyer have agreed on ‘terms of business’. You need to be really careful now, because if you have agreed to keep the car for him until his finance is approved or declined, you legally may not sell the car to anyone else. So what will you do if a cash buyer arrives the next day and is willing to pay your full asking price and take the car away immediately? It will be an enormous temptation to do that.
Only 2 out 10 finance applications are being approved at the moment. That means you have an 80% chance of your buyers finance not going through. Moral of the story is DO NOT AGREE TO KEEP THE CAR OFF THE MARKET FOR ANY PERIOD LONGER THAN 24 HOURS. Preferably keep your options open and insist that the car remains for sale and the best policy for the seller is FIRST COME FIRST SERVED.
If my buyer does get finance approved, what am I required to provide?
Let’s assume that your buyer does get his finance approved. You now have to supply the bank with proof that you have paid in full for the car; that it is on your name; a copy of the roadworthy certificate (You may not sell a car through a bank on a Voetstoots basis). There is a fair bit of paperwork you have to comply with. Your buyer will need to sign the contract at the bank’s premises after which he will be given a release note.
When he collects the car from you, he must sign the release note and hand it over to you. Once the car is registered with the buyer as Owner and the bank as Title Holder, you may then go to the bank and hand in the release note, after which you will get paid.
Remember that the buyer has a 5 day “cooling off period” during which time he may return the car to you if he is not satisfied. These matters are enshrined in the National Credit Act. Check that page for more detailed information on the Act.
These procedures are complex and very time consuming. Many of the banks no longer want to finance private deals – mainly due to the inability of the seller to provide adequate backup service.
How to buy a used car
1. Phone first and confirm all the details in the ad are correct. Focus on year model, engine size, exactly which model (GL, GLS etc.), Extras, Mileage. Save a copy of the actual ad. Check the prefix of the phone number. Stay away from dubious areas.
2. Make an appointment to view the car. Take someone with you who knows about mechanical things if you don’t have the knowledge. Don’t appear to be over eager to the seller.
3. Break your inspection up into two segments. Bodywork and mechanical. Start with the bodywork. Walk slowly around the car starting and ending at the same point. Look carefully at each body panel. Look for signs of body repairs and overspray. Open every door as well as the boot and bonnet. Always examine bodywork in good light and never look at a car in the rain or if it is wet. Best light is neon. Bright sunlight can also hide things. Be careful. Check the roof, bonnet and boot lid. Bumpers are prone to damage and scuff marks. Check corners for rust. If you don’t have an eye for this, take a small magnet with you. If it doesn’t want to stick to the body panels, there is probably body filler under the paint. Remember certain cars have plastic panels (Renault, Smart, etc.) so the magnet trick wont work.
4. Still on bodywork: Check all the glass but pay attention to the windscreen for chips and pitmarks. Look at indicator and headlamp lenses for damage. Make notes of everything you find wrong. These will become valuable bargaining tools later on. Check the wheels (mags or hubcaps) for damage.
5. Open the boot and look inside. Check the spare and tools. The condition of the boot will often tell you a lot about the rest of the car. Look under the boot mat for signs of rear accident damage.
6. Open the bonnet and check the firewall, shock housings and chassis rails for signs of repair or damage. Fresh paint is a give away. Look for manufacturers plates and original stickers. If the paintwork under the bonnet seems new, be suspicious and check further.
7. Check inside the car. Look at the general condition of carpets and upholstery. Test everything including electric windows, mirrors, radios, CD’s, Seat mechanisms, check ashtray for signs of cigarette ash. If you are a non smoker, the smell of old stale smoke might irritate you for the rest of the time you own this car.
8. Check the service books. Compare actual mileage to the last service. Do the dates check out? If you are a bit suspicious, check that the ink is not the same for all the services and signed and written by the same person over 4 years – highly unlikely! Check the service sticker in the door pillar. Does it match the service book? Check the steering wheel and pedals for wear. Does it match the mileage reflected on the odometer. Ask questions. If the seller seems to be getting annoyed, he is probably hiding something. (Also read the page on this site on Odometers)
Check the oil on the dipstick. Is it clean and clear? Is it filled to the correct level? Check for milkiness which will indicate water in the oil – usually a blown head gasket. Does everything under the bonnet look neat and clean?
9. Get onto your hands and knees and look under the car. Does everything look normal? Check for thick black paint which can hide accident damage.
10. Right – now for the mechanical test. Start the car. Does it start easily when cold?
11. Check all the instruments are working properly, including check that the aircon is actually getting cold.
12. Does the car drive quietly? Do the gears select easily? How does the clutch feel? Does the car pull left or right? Are the brakes effective? Check the handbrake. Take the car to a place where you can lock the steering fully and drive in a tight circle. Test it in both clockwise and anti-clockwise directions. You are listening for noisy CV joints.
13. Test the car on a highway if possible. Listen for odd noises and also wind noise (common after an accident repair)
14. After the test, try to not make an immediate decision, but preferably think about things overnight. Obtain the book value and ask your friendly local car dealer for advice on this models’ popularity and value. Book values may also be obtained from Transunion on their website www.myautoinfo.co.za
15. Once you are happy with all your observations and you are certain this is the car you want to buy, write down the price you would like to pay for the car based on your research. Also write down the highest price you are willing to pay. It’s a good idea to discuss this with your partner before making offers.
16. Now go in and make your first offer and see what happens. Be patient and don’t rush things.
17. If you are uncertain at any stage about the overall condition of the car, you can ask for an AA test. Be prepared to foot the rather hefty bill for this, but at least you will get a thorough report on the car. When reading an AA report, take the age and mileage of the car into consideration and understand you are not buying a new vehicle – make allowances for that. Don’t miss out on a good buy because the AA report says something like : Appreciable wear on tyres.
18. It is a very good idea to do an HPi check on the car (through the AA) if you are buying privately, as you will have very little recourse to the seller once you have paid. If buying through a dealer it is not necessary. (More detail on the HPi check is available elsewhere on this site)
19. Try to pay per bank cheque or electronic internet transfer. Avoid handling large amounts of cash.
20. Before you pay, check the registration certificate. Is the year of first registration correct? Is it registered in the owner and title holder’s name (the same name)? Is it still in the name of a finance company? (If so, the seller must first register it in his name as both title holder and owner). Is there a roadworthy certificate? Is the licence current and valid? Ask if there are any outstanding traffic fines? Make the seller sign a letter that he will be responsible for any outstanding fines.
21. Insist on a letter or invoice from the seller. It should state the date, all the details of the vehicle, the price, and any conditions of sale. You will need this to register the car on your name.
22. It is often better and safer to buy from a reputable car dealer than risking a large sum of money on a private sale, even though it might seem a ‘bargain’ at the time.
How can I check to see if a car has ever had a major insurance claim or if there is an outstanding ISA agreement on it?
The HPi check is a national vehicle database run by Transunion – the same people that publish the Auto Dealers Digests. It will tell you whether there are any outstanding Instalment Sale Agreements on the car; whether the car has ever had a major insurance claim; been written off; been scrapped; or been stolen; or stolen and recovered. It also logs progressive/sequential dealer inquires where mileages are noted. It will confirm that the engine, chassis and registration numbers are correct as well as the year of first registration.
The cost of this check is about R 180 (at time of writing) and available through the AA or through www.transunion.co.za
Regardless of how certain I am of a good buy, I still do this check. It gives me peace of mind and helps me to sleep well at night. It is money well spent to check any potential purchase out on this system. It will also inform you if the car is a gray import or an illegal import.
Before the National Credit Act in June 2007, almost 85% of all cars were financed. The NCA changed that dramatically. For the first six months of 2007 the figures reversed themselves with almost 85% of cars sold being for cash. That figure is slowly changing as finance houses and the public are becoming accustomed to the NCA.
The big difference now is that your affordability is based on disposable income, whereas before it was based on your gross salary. There is a far greater focus on responsible lending. All the finance companies, with the possible exception of MFC, have seen a huge downturn in sales since June 2007.
The first thing to note when you apply for finance is that you will be required to bring the following with you:
- Your Identity Book (A copy must be verified at the dealers)
- Your valid Drivers License
- Proof of Income (Pay slip or 3 months bank statements if self employed)
- Proof of residential address. (A utility account is best)
The F&I (Finance and Insurance) manager who takes down your credit application must hold an NCA qualification. Ask to see his/her NCA Identity Card. He is required to have it on him. Once the application form has been completed it generally takes between 2 and 36 hours to get an answer, depending on which banks you are dealing with. Most car dealers will submit your application to more than one bank, so that you have freedom of choice – one of the hallmarks enshrined within the NCA.
Once you have been presented with written options of finance available, you may choose which bank you wish to deal with. The dealer will then arrange for a contract to be drawn up and a delivery date set.
If you sign the contract at a place other than the dealers premises or the credit grantors premises, you have a cooling off period of 5 days, within which period you may withdraw from the contract for a valid reason and hand the vehicle back to the credit provider.
In essence the dealer sells the finance to the bank and you then become the banks client for the duration of the contract. Many clients tend to go to the bank when they have dissent with the dealer, but unless something serious (like fraud) has taken place, the bank has no legal jurisdiction or power over the dealer to attend to any problems. In most cases the bank will diplomatically raise the complaint with the dealer and encourage some sort of compromise to take place.
The main players in the motor finance industry are (in Alphabetical order) ABSA, Motor Finance Corporation (MFC), Nedbank, Standard Bank, Wesbank (in no particular order).
FICA, FAIS AND THE NCA
Here is a brief overview of some of the new legislation and how it affects buyers and sellers alike. There were three acts promulgated in parliament during 2007.
- FICA (Financial Intelligence Centre Act)
- FAIS (Financial Advisory and Intermediate Services Act )
- NCA (National Credit Act )
What is the difference between these acts?
- FICA – Fica is about protection against money laundering and tax evasion in SA
- FAIS – Is about consumer protection on insurance products and to enhance integrity of that segment of the insurance industry.
- NCA – Is about consumer protection in respect of finance agreements and to make credit available to all South Africans
FICA – Money laundering in South Africa is estimated to be between R20 billion and R85 billion per annum. FICA provides for the establishment of 2 independent state bodies:
- Money Laundering Advisory Council
- Finance Intelligence Centre
The most important control measure for any dealership is “to know your client”. Therefore car dealers must carefully check:
- Proof of identity document
- Proof of residential address
Tax evasion and money laundering is a serious offence. Any person convicted of such an offence is liable for imprisonment not exceeding 15 years and a fine not exceeding R10 million.
For the dealership not implementing these rules, imprisonment not exceeding 5 years and a fine for a maximum of R1 million.
For example if you came to me with R 110,000 cash to buy a car, I would be obliged by law to ask you where you got the money from. If you then told me you have been keeping it under your mattress, I have to complete a form with your answer, which you must sign. If I have the slightest suspicion that the cash could have come from an illegal source (eg. drug money) I have to inform the Financial Intelligence Centre. Their office is linked via computer to SARS, SAPS, NATIS, INTERPOL and property registration offices nationally. They can trace all your activities simply by having your ID number.
FAIS – This act completely changed the minimum requirements for any person wanting to be an F&I (Finance & Insurance) business manager. This act validates the F&I and dealership to consult on value added products and protect the consumer against unlawful practice and advice.
Minimum Qualifications for a business Manager is:
- Level 4 NQF qualification (i.e. Matric)
- 60 Credits from a registered skills program
Value Added Products
- Purchase Protection Insurance (credit life)
- Shortfall Cover
- Mechanical Warranties
- Smash & Grab
- Comprehensive Insurance
- Paint Protection
- Maintenance Plans
NCA – NATIONAL CREDIT ACT 2005
This act became effective in June 2007 and had a major negative impact on the South African vehicle market. An unprecedented number of insolvencies have resulted throughout the retail motor sector. The vast majority of the blame for the current slump in vehicle sales can be laid at the door of the NCA. However, it is not all bad news, the industry did require cleaning up and there are some very positive issues arising from the Act’s implementation.
The NCA is all about flexibility and transparency in financing your asset. The NCA was passed mainly to protect the consumer regardless of personal wealth, colour, race or religion.
All dealerships must have a qualified and dedicated agent on the premises to process consumer applications and financial transactions. The agent/F&I business manager must identify him or herself by producing an ‘Agent identity card’ before consulting with a consumer.
The NCA provides for the establishment of 2 independent state bodies:
- National Consumer Tribunal (to adjudicate cases where there is a dispute)
- National Credit Provider (to administer the NCA)
The most revolutionary aspect of the NCA is undoubtedly the introduction of controls for “over indebtedness” and “granting of reckless credit”. The NCA made room to prevent reckless credit by introducing the following steps:
- Consumer must fully and truthfully answer any request for information
- Understand the risks involved
- Understand his rights and obligations
- Furnish debt repayment history
- Furnish existing financial means, prospects and obligations
A significant change with the introduction of the NCA is the calculation of affordability.
Prior to the NCA credit providers (banks) approved transactions based on a percentage of gross income irrespective of expenses. I.e. a salary R10 000 per month would qualify a person for R2 500 per month payment based on 25% of gross income.
With the NCA car allowances are now included in your monthly salary and not considered separately. The good news is that credit providers now look at joint incomes even if you are not married but living under the same roof.
Credit is granted based on disposable income. Disposable income is the amount of money that is surplus in your budget after all expenses have been deducted from your joint income. The credit granting policy is now regulated and in the majority of cases, fair credit is granted.
Another important function of the NCA is “disclosure” – limiting the number of items allowed to appear on the credit agreement. In other words no hidden costs! The only items to be permitted:
- Principal debt
- Iniation fee (R1140 once off payment)
- Service fee (R37 pm)
- Cost of credit insurance
Settlements: Only on large agreements (more than R250 000) may the credit provider charge interest on settlement amounts. All other agreements may only be for capital balances (unpaid balance of the contract without interest).
Cooling off Period: The goods may be returned after 5 days of signing the contract, provided that the contract was not signed on the Dealer’s premises.
It is very important that consumers know what their rights are, especially when it comes to reckless credit. Any consumer has the right to:
- Apply for credit
- Protection against discrimination
- To know the reason for refusal of credit
- Receive information in an official language of consumers choice
- Plain and understandable language
- Receive copy of contract
- Protection for consumer rights
- Transparency in the contract
- Confidential treatment
- To receive a Pre-agreement and quote
A reckless credit agreement can be suspended by the court if the credit provider is found guilty of transgressing the NCA of 2005
Consumer Protection Act
Much has been written about the CPA; its effects on business and consumers alike. Reading the Act is a major undertaking as it covers some 480 pages. We made a point of studying the parts which affect the used vehicle industry. In this article I will explain in simple terms how the CPA will affect you in terms of buying and selling motor vehicles.
The media has made a meal of the Act in that in many ways they have misled the public into believing they can return a car to a dealer within 6 months of purchase under almost any circumstance. I receive approximately 30 calls for assistance in connection with CPA issues each week and I have been appalled at the levels of misperception. What the (the media) have singularly failed to do is explain under which circumstances this may happen and what the ramifications thereof are.
I am going to list some of the more important facets of the Act:
The dealer must disclose any known faults in the vehicle to you and also list what he has done to the vehicle in terms of reconditioning. Note that these should be abvious faults. The dealer has to rely on his experience and mechanical knowledge to make a judgement call on a car’s condition. It cannot reasonably be expected that the dealer must know absolutely everything about each car he deals with. In cases of arbitration the Ombudsman will most certainly always revert back to the issue of “reasonableness”.
The dealer must also disclose the year of first registration as well as the code status of the car. i.e. New; Used; Imported; Stolen/Recovered; or Rebuilt. He has to allow you to inspect the vehicle and conduct a road test. The object of this clause is to ensure that the buyer is making an informed choice. The words “Voetstoots” and “As Is” are no longer permitted but of course, older, high mileage cars still need to get sold and these will now be sold as “scrap” but without a roadworthy certificate. If the seller has supplied a roadworthy certificate on such a car, it implies a six month warranty. Note that the intent of the word warranty within this context does not imply maintenance. It must match the criteria of “fit for the purpose for which it was purchased”
2. Wear and Tear:
The buyer will be required to sign that he accepts that he is buying a used vehicle and that it has a level of wear and tear and that it is not expected to perform like a new vehicle. i.e. The buyer will not be able to return the vehicle based on wear and tear complaints.
3. Right to return the vehicle:
The buyer may return the vehicle to the seller within a 6 month period under certain conditions. This is subject to Section 56 (2) of the Act. – Wear and tear is excluded. There has to be a proven defect in the car or the buyer must prove that the vehicle was sold to him which was not fit for the purpose for which he bought it. The onus will be on the buyer to provide evidence of such defect. The buyer has the option of requesting a repair, replacement or refund. The reasons for such an action have to be legitimate, reasonable and provable. A motor vehicle is a complex piece of machinery and will be treated differently to buying a fridge or a toaster, for example. It is very important to note that the National Credit Act has to fit into the CPA, so if the car you have bought is under a finance agreement, things will be a lot more complicated.
Since vehicles are goods which devalue with use, the purchaser will be liable for the usage of the vehicle, plus any damages he has inflicted on it, plus the costs of re-roadworthying the vehicle and getting it back into the dealer’s stock. For those naive buyers who thought they could buy a car from a dealer and hand it back after 6 months and keep going like that forever having a free car, well, sorry, but that is simply not a reality. There is also a certain time frame and a process for dispute resolution which has to be taken into consideration. The Motor Industry has its own Ombudsman to whom all unresolved disputes will end up with. It is expected that the time frame for resolution will be about 3 months.
In cases where refunds are given on vehicles, the buyer will be responsible for the difference in price attained when the vehicle is resold to a new buyer. These are all items the media have failed to inform the public of. My concern is that this will lead to unrealistic consumer expectations.
4. Cooling off period:
This is only applicable if the Offer to Purchase and/or Instalent Sale Agreement was signed at a place other than the seller’s premises or the finance company’s premises. It is also applicable if the vehicle was sold to the client by direct marketing. i.e. If the salesperson called you as a “cold call”.
The price of the vehicle must be fair, reasonable and just. The basic intention of the Act was to protect the poor and the uneducated segment of the population. This would be a very difficult law to apply in practice as in the case of vehicles they are all bought and sold very close to the book values, give or take a percentage for low or high mileage and/or condition. By definition the correct market value of a product is what one can get for it on a given day. Some cars command values far in excess of the book value and the public are willing to pay those prices if the product is in short supply. Conversely other products are not worth anywhere near the book value, but every car has a given price at which it will eventually sell. Thus it would be almost impossible to apply this part of the CPA to the sale of used cars, except in a very obvious circumstance.
6. Safe use of the product:
The client will now be required to sign a declaration whereby he accepts responsibility that a motor vehicle is a dangerous item and he will not be allowed to claim against the seller if he injures himself in using the vehicle after signing such a declaration.
7. The right to Documentation:
Buyers will be entitled to receive copies of all relevant documents relating to the purchase of the vehicle. He will be required to sign receipt of all those documents.
8. Implied 6 month warranty.
(Note how frequently the word “reasonable” is used in the Act. It is important to understand that the Act was written with the intention of it being applied within reason to all parties)
The CPA requires the seller to stand good for the reasonable durability of the vehicle for a period of 6 months. This is an implied warranty on defects. It is important to understand the difference between wear and tear and defects. Tyres, exhausts, brakes, clutch, etc, would be wear and tear, whereas a gear suddenly jumping out would be a defect. There is no mention of a mileage limitation. However, again, there are several clauses preventing abuse of this protection. It excludes wear and tear and normal maintenance; as well as misuse or negligence. It also specifies the word “defects”. This implies that the fault should have been (wittingly/or unwittingly) present in the vehicle at the time of delivery.
The buyer will need to provide proof to the dealer/finance house/Ombudsman of such defect. This is going to be costly and time consuming. The main beneficiaries will no doubt be the legal profession. Many dealers will not sell a car to you, without you purchasing one of the extended warranty products available on the market. It is also important to note that the Act does not require a seller of second hand/used goods to supply those goods with a written warranty.
Fortunately most dealers do provide a written warranty. In such a case, the warranty might be less than the 6 month stipulated period, or equal to it or even longer than 6 months. The vast majority of dealers will strongly encourage customers to purchase an extended after market warranty. By doing so, it would not in any way, reduce your rights as a consumer.
That covers the basics in terms of buying used vehicles. The wise buyer will carefully study the Act before embarking on a claim as it could end up costing him money to return the goods. Used vehicles are different to a new toaster bought at a supermarket. It is far more complex and hence the reason that the motor industry has been given its own Ombudsman. After all the dust has settled, I believe those dealers with a solid reputation will carry on doing business as before and will not materially be affected by the CPA, but the dubious or dodgy ones will be in for a tough time! The office of the Ombud is fully aware that there will be a certain type of “integrity challenged buyer” looking to take advantage of the Act and the industry has been assured that those types consumers have already been earmarked.
There will be a big increase in paper consumption. Most dealers Offer to Purchase document was a one page affair. It now runs into some 20 pages of terms and conditions, so a lot more forests will fall by the wayside as a by-product of the Act and a lot of lawyers will have lucrative additional work. Mostly when consumers are “the best protected in the world” it comes at a cost as when businesses are forced to close their doors, there will be job losses and tax losses for the state. At the end of the day, the cost of this legislation will be borne (once again) by the consumer.
Given that every single sale of any kind of product, or service, falls under the Act (with the exception of the State itself), the mind boggles at the sheer volume of complaints that will no doubt end op on the CPA’s doorstep. Of greater concern is how adept will the office of the CPA be? The Act itself and its specific conditions were only published two days after the Act came into force. This meant businesses were unable to modify their paperwork and policies in time. I would imagine that many complaints will be rejected in the first six months as the timing was clearly unconstitutional and infringed on the rights of business owners.
Time will tell and no doubt over time only the very worst cases will come before the Ombudsman. In the first week some 4000 complaints were received, of which the majority were against the City of Johannesburg (rates/taxes incorrect accounts) and the cell phone companies.
Addendum July, 2012 – The Commissioner was recently interviewed on radio and gave the following statistics in terms of the CPA. Some 240,000 complaints were received by the CPA in the first six months. After 12 months the COA had successfully ruled on 6,800 cases. So, looking at some basic arithmetic, if we take the 240,000 cases and double it for one year, we have 480,000 cases of which 6,800 have been heard. That leaves a massive shortfall in unresolved cases. I am not aware of which plans have been put in place to close that gap, but I am willing to stick my neck out and say that it is going to take a very long time
The "Cash is King" Myth
This particular topic is one of the most misunderstood issues in modern business practices. The inevitable question from purchasers is “What’s your best cash price?”
Fifty years ago, some businesses used to run a “book”. In very simple terms, that would typically have been your local grocer and he would literally have a book that he would write up daily purchases in with a page for each of his customers. Any family member could pop in to his shop and buy bread, milk and assorted groceries. These would then be scribbled into his book and the father or mother of the family would then be expected to settle up the total at the end of each week or month as agreed. I suppose if one thinks about it, that would have been the first unofficial credit card, albeit it in an unsophisticated manner. There was no interest charged and there were no contracts. It was offered on an honorary basis.
The OK Bazaars phenomenon
From that early concept, flowed a slightly more sophisticated version of credit, developed primarily by furniture stores like OK Bazaars and Russell’s Furnishers. Their products could be found with two prices on display. One was a cash price; the other a terms price. Running a debtors book was time consuming and expensive and store owners typically encouraged consumers to rather buy for cash and their marketing strategy was to ‘prove’ to customers that there was indeed a substantial savings if the goods were purchased for cash. In reality, the terms price was simply the cash price inflated to make it appear as such. This was the first South African national drive towards the creation of the “Cash is King” myth.
Era of the credit card and micro lenders
The most natural follow through from that concept, so prevalent in the sixties and right up until today, was the establishment of finance companies and the explosion of credit card sales, not to mention the plethora of micro-lenders who would typically charge very high interest rates and have some brutal methods of debt collection.
The four step process of making less money by selling for cash
Looking at the problems facing car dealers in terms of the “What’s your best cash price?” scenario, most consumers have no idea, that a cash sale is generally bad news for a car dealer. Here are the reasons why:
1. Cash is the most expensive financial tender to transact in.
The dealer gets cash for his vehicle, regardless of whether the client arranges finance or pays him in bank notes, EFT, cheque or any other means. His pricing structure has been based on a percentage markup and generally does not include a discount for cash.
2. Cash presents zero benefit to the dealer.
The customer traditionally expects a discount for cash, but there is absolutely no benefit to the dealer as was the case with store owners from the 60’s who carried their own debtors book. If the client buys on terms, the dealer gets paid in full regardless. So here is the first point at which the dealer loses out. Any discount offered is a direct loss and reduces the profitability in most cases to below industry norms.
3. The banks don’t want the cash either
It is common knowledge that the banking sector is discouraging the use of hard cash. They want us to use electronic banking, ATM’s and EFT’s. To help us move in that direction, they have made the depositing of hard cash expensive. So typically, it will cost a dealer who takes R 100,000 in hard cash, approximately R1000 to put the cash into his account. Again the client is not even aware of this cost, and the dealer loses out again.
4. Cash & crime ” True partners”
With crime levels being what they are in South Africa, carrying large amounts of cash between the business and the bank is fraught with danger and can be life threatening. Again, the dealer is put at risk as he has to employ additional security to minimize the risk. (ie. Cash in transit specialists). This additional cost is borne by the dealer.
“Fact or Fiction ” a Mythbusters story
So, now anyone can see that the “Cash is King” theory is a long stretch from reality. In our business we actively discourage customers from paying in hard cash for all these reasons. Payment by bank transfer (EFT – Electronic Funds Transfer) is the cheapest and safest method of payment.
So next time you casually mention : ” What’s your best cash price?” don’t be surprised if the dealer doesn’t appear to be overly enthusiastic. In reality he is seeing a lot of his profit disappearing down the “cash is king” myth drain and that could be a big mythtake!
Consumer perceptions lagging behind
It is going to take a long time for consumers to fully understand why businesses are luke-warm about cash sales. Times have changed and perceptions need to catch up. I am willing to predict that over the next five to ten years, there will be a general move away from cash as a bargaining tool and like the banks, many businesses will implement disincentives to cash purchasers. I am aware of certain car dealerships that have a standing house rule of “no hard cash to be taken”
This is the tip of the iceberg. An avalanche will follow in the years ahead.
Watch this prediction!
Auctions - How safe is it?
Why, you might ask, do certain people get attracted to buying at auctions?
Why would anyone want to a buy a car where he is not allowed to take it for a test drive and is given very little time to pre-examine the goods?
Perhaps if we all applied a little common sense it would become obvious that 95% of cars that end up at public auctions are one of the following:
- Repossessed cars
- Accident damaged cars
- Stolen and recovered cars
- Cars from dealers that they cannot get sold.
So why do people like to buy at auctions? Because they think they are going to get a bargain. So who, you might ask, would want to buy a repossessed car? If the owner could not afford the repayments, he most probably didn’t service it either. I am not even going to discuss accident damaged or stolen cars. The final category is cars from dealers. So if the dealer couldn’t sell the car, why would you want to buy it? In short, there are precious few genuinely desirable cars that make it to an auction.
Then we get to the actual auction itself. You are immediately under pressure as you are bidding against other buyers. The auctioneer waves the Buyers Book around announcing what the book retail value is and asks for an opening bid. You will note that most auctioneers stand on a chair or a ladder – this is so that he can easily see the whole audience and who is bidding. An auctioneer is the ultimate super-salesman. He is sarcastic, intimidating, speaks very loudly and very rapidly. This is ubiquitous amongst all auctioneers. In short, the entire performance they put up is there to bedazzle and impress you.
You must take note that bids are excluding VAT, but the auctioneer keeps shouting out what the book value is, which happens to include VAT. Then in the small print is also a clause which entitles the auctioneer to an admin fee – in many cases it is substantial, so make sure you read the conditions and fine print on your bidding card very carefully before you jump in and start making offers you might regret later.
Establish the correct book value after you have examined the car you want to bid on. Work out your starting offer and also your absolute maximum offer. Once you have those figures, deduct VAT, as well as the admin fee and you will then have a realistic set of offers to work on. Chances are your bid will not be successful as most people get swept up emotionally by the auctioneer and the VAT and other fees are soon forgotten in the excitement of the bidding process.
I am not tarring all auctioneers with the same brush, but it is a common technique for them to put ghost bidders in the crowd. These guys will then artificially chase the prices up to where the auctioneer would like them to be. (The recent expose on ‘Carte Blanche’ amplifies and confirms my sentiment)
The other thing to be aware of is that you are not given the opportunity to thoroughly test the vehicle. If you are paying cash, the sale will be deemed to be Voetstoots – and you have no recourse back to the auctioneer if the car you bought gives problems. There is also very little protection for consumers under the Consumer Protection Act for cars bought at auctions.
Many of the bigger auction houses offer on the spot finance facilities. These are mainly the finance companies trying to sell all their repossessions. Auctioneers do not have to comply with the National Credit Act, like car dealers do, so be aware that your rights may be diminished.
I know of countless clients of mine that burnt their fingers buying supposed bargains at auctions and then deeply regretted it later. The current situation is that the major banks are repossessing cars nationally at the rate of between 4000 and 7000 per month. All of those cars need to be disposed of to make space for the next wave of repo’s coming in.
Personally, I would not recommend anyone except the most experienced, cool and calculating people to buy at an auction. With forty years experience under my belt, I still find auctions too intimidating and risky and I would prefer to source my stock elsewhere and preferably from trusted sources and bona fide private sellers.
After Sales Complaints - How to...
If you have bought a car from a dealer and you need to return with any complaints, I strongly recommend that you read your warranty properly before doing so. That will give you a clear understanding of what is, and what is not covered under your warranty and what your rights are. Most of the 30 day warranties will cover engine, gearbox and diff only. So, for example, if the CD player packed up after a week, that item would technically not be covered.
Remember, the dealer wants to keep you as happy as possible, and is probably doing his utmost to give you after sales service over and above the terms of warranty. Take into consideration the age and mileage of the car you have bought and ask yourself if your demands are fair and reasonable – more importantly, are they covered under the warranty.
When returning with after sales issues, it is so much easier dealing with a polite client than an upset one, so try to stay calm and reasonable. You will get so much more achieved that way.
Always remember that you have bought a used vehicle and it will have wear and tear on it. Although a one month warranty might appear to be a very short warranty, that is the industry standard and its been like that for at least 40 years. In the event of disagreement between buyer and seller, the written agreement of warranty will be the deciding document for any legal argument.
If the warranty has just expired and you experience a serious problem with the car, ask to speak to the senior manager or owner and ask for assistance and appeal to their goodwill. Shouting and screaming will not help, except to alienate you further.
If you feel you have been swindled, you have various options open to you:
- If it is a financed deal, you can contact the finance company. The relationship between dealer and bank is important. The banks are able to exert some quiet diplomacy on the dealer. In many cases it is sufficient to generate a satisfactory conclusion.
- Most dealers belong to dealer organizations like the IDA (Independent Dealer Association) or the RMI (retail Motor Industry). Find out to which organization they belong and raise your complaint with the appropriate person.
- If you are still not satisfied, you will need to consult an attorney. Before you do that, understand the financial and time constraints and possibly get an independent persons opinion of your likelihood of success or failure.
If I am the seller, what is the best way to handle after sales issues?
This is a good way to deal with an after sales complaint:
Before agreeing to see the client, check that the warranty is valid in terms of both time and distance.
- Be courteous and relaxed. Offer the client the privacy of your office for the meeting.
- Listen intently to the client’s whole story. Do not interrupt. Not even once.
- Make notes that are relevant as you are listening.
- When the client has finished, ask if there is anything else on his/her mind
- Now go and physically examine the car with the client in attendance. This will ensure no miscommunication.
- Write everything down that you observe.
- Return to the office and confirm with your client the list you have written down.
- Once you have affirmation, cross reference the complaints with the warranty and establish which items fall under the scope of the warranty.
- Get your client’s agreement on those items.
- If you are able to assist your client with any of the other non-warranty items, ask your client which are the most important ones to him.
- Many complaints are inevitably very small and easy to remedy. I try to cover as many as possible to create goodwill with the client.
- It is much more about HOW you deal with the client than WHAT you end up repairing.
Successfully and intelligently resolving after sales issues is an opportunity to cement a good relationship with your customer for life. Think about that before you turn down a borderline request. 8 out of 10 people will be reasonable and understand the limitations of used car warranties, but the other 2 will be difficult and unreasonable. Accept that as the norm.
This is bound to be controversial. I have decided to raise this as a topic, as it really concerns me to see how much money is wasted on accessories.
So, you think your car looks cool with a lowered suspension, tinted windows, mag wheels, a boot fin, racing pedals, an amp and speakers powerful enough to cause an earthquake, tweeters, skirts, air dams, one of those chromed after market filters under the bonnet and a fake metal petrol cap. All that stuff would have cost you several thousands of Rands . You have also substantially devalued your pride and joy by approximately double that which you have spent.
So you think I’m kidding? Well, I’m not.
Accessorising a car is the quickest possible way of devalueing your car. Dealers look for cars that are as factory standard as possible. And they will pay book value and often considerably higher for stock standard cars. The reason for this, is that the buying public want standard cars. The more it is modified and accesorised, the less desirable it is and the lower its resale value becomes. What looks cool to you does not necessarily appeal to the next person – but stock standard appeals to almost everyone.
One of the weirdest fads I have seen lately is the guys that completely deface their cars into a non-descript, spray painted vehicles that could have been built somewhere between China and Hungaria. No badges, grille substituted, a car which absolutely no-one would want to buy. It is worthless. Why do it? It’s a bit like committing financial suicide.
Now I know there will be many of you recoiling in horror at what I have just said, but it is unfortunately true. The public spend millions annually on car accessories, but when the day comes when you want to trade your car in, you will find that it is worth considerably less than a stock standard model which has had nothing spent on it. So you think you can take all that stuff off and sell it independently. No Sir! It’s worth very little on the second hand market.
There are certain cars that lend themselves to mag wheels, but not all cars. A Citi Golf, for example can look quite cool with a set of mags, but a Renault Clio might look terrible with the same mags. That three Grand you spent on that sound system that now fills your boot from pillar to post and means you can’t get a suitcase in there to go on holiday, is worth 10% of what you paid for it. My advice is to keep your money for a better car and don’t waste it on accessories. It is the surest way to lose your hard earned cash. You would have better odds at the casino.
So, your image is important to you and you don’t care about resale value. Well, that’s OK, as long as you understand what the market consequences are.
And here’s the acid test. Ask yourself this question. Would you buy a car that has been heavily accessorized? Or would you rather buy a car that is neat and clean and is still in it’s original factory condition?
The need to personalize your car is a normal and natural human need. We all need to belong to a group – be a part of an image – but it comes at a price. Just be aware of the potential to lose money this way.
What exactly is an AA report and who owns the company?
Everyone knows what an AA report is, but how does an AA report fit into buying a used car? Firstly, let me explain that the AA is a non-profit organization, who do not have any shareholders. I will get back to AA reports in a moment. First we need to understand some legalities.
There are three basic ways to buy a car.
- Cash as its stands with no warranty and no roadworthy certificate. This is usually restricted to the lower end of the price spectrum and cars bought at auctions.
- Cash with a roadworthy certificate.
- Financed with RWC and a limited warranty or an after market extended warranty.
Which option will suit me best?
OK, so what is the best way to buy? It all depends on your individual circumstances. For example, if you are an experienced mechanically minded person, the first option might well be best for you.
As a rule, most private sellers will sell to you on a cash/as it stands basis and you will have no recourse to the seller if you have any mechanical problem.
Dealers, as a rule, will sell their cars with a RWC and often with a short warranty. When dealers sell a car on a financed basis, they are obligated to provide both a RWC and a written warranty. Most dealers offer a variety of extended warranties for a 1 or 2 year period which the buyer has to pay extra for.
When and how should I ask for an AA Report?
Imagine for a moment that you are the seller and someone has negotiated a price with you and you have agreed to provide a RWC only and no warranty. The deal is done and two weeks later the buyer is back on your doorstep, armed with an AA Report. He waves this in your face and demands that you attend to every item marked on the report. Obviously this is wrong as no prior agreement had been made to include that and then we have a problem – an unhappy buyer and an unhappy seller.
So, if you are one of those uncertain buyers and you want to have the vehicle AA tested, please ensure that you negotiate that upfront with the seller. The seller has no obligation whatsoever to attend to any AA faults found if he has agreed to provide only a RWC. Having said that, most reputable dealers are willing to run through the report with you and attend to anything that appears to be unusual or falls under the safety category, but few will attend to every single item marked. And rightly so.
Who should carry the cost of the AA test?
Always the buyer, unless arranged otherwise. Be willing to pay for the AA test, whether you buy the car or not. It might be money well spent if the car has a lot of faults.
Is the test cheaper if I am an AA member?
Yes, almost 50% cheaper. The AA test is comprehensive but fairly pricey – especially if you are not an AA member.
Are there alternatives to an AA report?
Almost any registered car workshop would do an evaluation of a car’s mechanical state for a lesser fee than the AA charge. That is also an option, but please state your terms of business BEFORE you sign. It’s a real curved ball to throw at a dealer after the sale has been concluded. It is basically the same as moving the goal posts
For Sale in the George,...