Something old for something new

11.06.2009 | Oleksiy Stepanov

Buying a new car and getting rid of a used one is not a problem if you are ready to shell out some additional coin

Trade-in services help people change their used cars for the new ones. Car dealerships deal with such exchange systems trying to adjust to the terms of the economic crisis. WeeklyUA found out whether it is worth to deal with the dealers or it is better to sell your used car yourself and but a new one independently

Come in to trade-in

At the first sight trade-in service is a very convenient one. Everything is simple and easy for consumers: one arrives to a car dealership, sells a used car, chooses a new one, pays the difference and leaves in a new car. When a dealership buys your car according to the trade-in system the price of a vehicle depends on several conditions: model year, mileage, state of paint and lacquer coating and carbody and kitting of a car. The origin and popularity of the car in Ukraine also matter much. It is also important whether original spare parts were installed to the car and which auto repair station did the maintenance: dealership station or ordinary privately-owned repair stations. The price will also be higher if a car was bought exactly in the dealership you are trying to sell it.

You shall remember that besides everything else the estimation of price for your vehicle will be based on the following rule: 25% of price is lost during the first year of exploitation, then another 10% for every next year. For such reason you shall make a rough calculation of your cars price yourself (see Table). Be ready to bargain your task is to raise the price for your used car and reduce it for the new one, which you chose to replace the used vehicle. You shall also keep in mind that crisis makes car dealerships make concessions so that you leave your money at their place.

Borys Kholmohorov
car market analyst

Ukrainian car dealerships that are having hard times nowadays, will do everything to gain extra profit from car exchange programs. They try to profit at the cost of clients. Car diagnostics experts sometimes artificially lower the cost of used cars and find imaginary defects. Prices for cars which are offered in exchange for used cars are also by 20% higher of the average price in the market.

Terms of exchange

Most drivers have the difficulties with exchanging a used car for a new one starting with the first second of talking to dealers. Firstly, most car dealerships in Kyiv do not like having business with cars older than 5 years. Secondly, they often refuse to take rare in these parts brands like Chrysler, Buick, Daihatsu, etc., which are hard to sell. Finally, dealers are especially critical about Russian and Chinese cars. Moreover, it is officially non-profitable for car dealerships in Ukraine to deal with trade-in systems. The thing is when buying a used car a dealership has to pay 20% VAT as a tax-payer plus 15% income tax. A dealership will also have to bring a vehicle into order, pay for ads about selling and re-register it in Interdistrict Registration and Examination Offices, etc.

The legislation in force does not help development of trading-in. At present, the Rada examines and improves several variants of a bill regulating the work of companies dealing with the used cars market. All those bills are aimed at reducing tax pressure on car dealerships rendering trade-in services, said expert at Ukrainian Automobile Holding Oleksandr Minenok.

Those are prospects. In the meantime, market players are forced to obviate the law. Car dealerships are eager to buy almost every used car for cheap (1520% lower than market prices). For such reason, the trade-in system in Ukraine usually looks as follows: one arrives to a car dealership, tries to sell a used car, hears the price and leaves. Exchanging a used car for a new one can be profitable only when you manage to agree on a gray deal so that you will not pay taxes.

Gray deal: make a penny, skip the tax

Many car dealerships are forced to use trade-in not only as a method to earn an extra but also as an instruments to raise their image in the eyes of potential clients. Of course, it will be hardly manageable to become popular among clients estimating cars by 15 20% lower than their market prices. Exactly for such reason many salons offer their clients alternative variants. Everything is precisely the same as with the classic trade-in method but you do not pay taxes.

Managers register deals the way that one of the employees of dealerships rather than the dealership itself is the official buyer of your car. There will be no risks for you as seller of a vehicle in such case. The main thing is that you get the money in cash, which you will later pay for a new car, said Oleh Kravchenko, a legal expert with Kravchenko and Partners law firm. As a result, no VAT and income taxes which means the price of your car will become considerably higher managers at a dealership will offer you more so that you buy a new car from them for which they will receive commission. Have no doubts, car dealers will also make a buck on selling your used car. The only thing here is that the state will not receive its share. Lets say, if a car is offered on the market for US $10,000 then one can wait for a customer for months. Hence, if a client wants to get rid of his used car as soon as possible we will estimate it 20% lower than its market price. If there are technical defects the price will be even lower, said Oleksandr Tarasov, manager at one of the car dealerships in Kyiv selling used cars.

Commission: more profitable but takes a while

Businesslike dealers invented another variant for selling and buying used and new cars, which will probably satisfy everyone commission. For example, if a client does not agree with the estimation of his car, he is offered to leave the car in the dealership next to the other used vehicles pool and charge his own price. In this case, all the troubles with selling the used car are solved by the dealership. As soon as the vehicle was sold the car dealership receives its commission (approximately 5%) and the rest of the sum is paid as the part of the price of a new car. Usually, in such case people manage to sell their cars by 10% more expensive than the price offered by the dealership. The only drawback of such mechanism for the clients is that they have nothing to drive while their cars are on sale, which can take a while.

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