When planning an export strategy to sell cars in an overseas market. A question arises – if it’s better to sell new or used cars. The answer to this question is not definitive in either direction.
The reason for this ambiguity is that new-used car decisions will be dictated by the type of profit margin expected. In addition, the volume of cars sold, risk considerations, and the target market.
Based on these considerations, one can look at these factors and decide whether new, used or a mix of new and used cars will provide the best investment strategy.
5 Things To That Can Potentially Increase Margins When Exporting New or Used Cars For A Resale Overseas.
1. Finding the Right Car for the Right Market
One of the main considerations in the new vs used cars debate is what type of vehicle will provide the best profit margin. The answer to this question depends on the next consideration, that being the target market. In some markets, a used vehicle that is in demand and able to be purchased in the United States at a low price will yield the greatest profit margin.
This calculation depends on several factors being correctly aligned. This involves a considerable amount of planning to be able to buy low and sell high in the export market. An example of this is in the Chinese market. As reported on the website autoblog.com, “The price of a Range Rover over in the People’s Republic sits at the equivalent of about $450,000, despite its US starting price of $84,225.” (1)
Most exporters will not be able to navigate the often-risky path of exporting to the Chinese market. Although new and used luxury vehicles offer a high-profit margin, they also involve a great deal of capital investment.
Setting aside the case of luxury cars in China, a second option would involve selling a high volume of less expensive cars in a market with a healthy demand for these vehicles. Therefore, instead of opting for a handful of Range Rovers to China with a total margin of $1.5 million, one could opt for 30-used German luxury cars with a more modest price. The same percentage markup could result in a more lucrative transaction. This, of course, would require a higher shipping cost, but the overall profit garnered would be similar and likely at a lower risk profile.
2. Finding the Right Balance between Depreciation and Value
It’s common knowledge that cars lose their value the moment they drive off the lot. A recent study by iSeeCars.com found that buying a used 1-year-old model over a new one could translate into substantial consumer savings — from $6.8K up to $37.6K. (2) The study involved a comprehensive evaluation of new and used car values.
The top 10 cars with a high residual value that is best to buy used over new
| Rank | Vehicle | $ Price Difference over the First Year | % Price Difference over the First Year |
| 1 | Hyundai Genesis | -$16.6K | -38.2% |
| 2 (tie) | Smart ForTwo | -$6.9K | -36.9% |
| 2 (tie) | Cadillac CTS | -$20.0K | -36.9% |
| 4 | Chevrolet Impala | -$10.8K | -33.5% |
| 5 | GMC Yukon XL | -$21.1K | -32.8% |
| 6 | Volvo S80 | -$15.7K | -32.6% |
| 7 | Mercedes-Benz S-Class | -$37.6K | -32.4% |
| 8 | Lincoln MKS | -$14.6K | -30.4% |
| 9 | MINI Cooper | -$9.0K | -29.3% |
| 10 | Jaguar XK | -$28.1K | -29.2% |
Source: blog.iseecars.com
Based on the data presented above, the decision to buy new or used would depend on two factors. The first would involve the level of depreciation and the second the disparity of price between the United States and the target market.
If a seller wanted to export a Hyundai Genesis the optimal time to buy this car would be when the vehicle was one or two years old.
3. Finding The Best Market
The next step in this strategy would likely involve finding a market where this vehicle would be in high demand.
For example, a slightly used Mercedes S Class could offer a chance to reap a high-profit margin if buyers in the target market would be willing to buy this used car. In addition to the potential for a high markup are other potential benefits in reduced tax liability. Particularly in countries that may have a high import tax.
4. Understand Export & Import Duties
Normally, import taxes are on the market value of a vehicle. If a seller pays $50,000.00 for a vehicle whose sticker price is normally $70,000.00 due to the fact the vehicle has depreciated significantly over its first year of use, the tax declaration on this vehicle would reflect the current market price. Therefore, a seller would be able to leverage a better profit margin. Some tax savings as well.
5. Considering the Time Gap
When buying a new or used car, there may be a time gap between when a new car hits the market in the United States and the rest of the world. Therefore, buying a one-year-old car, which may have a significant amount of hype surrounding it in the rest of the world, would offer the dual benefit of high demand in the target market and price savings in the United States due to depreciation.
Finding the Balance
Selling new or used cars is ultimately a matter of timing. A seller must find the perfect balance between low-demand cars in the United States and high demand in the target market. If a seller can find a niche, the consumer may ultimately dictate the new vs used cars debate.
The best strategy for sellers is research, ranking the best bargains in the USA to the most in-demand vehicles overseas. Where these two lists overlap, would ultimately guide a customer’s purchasing decisions. The decision to buy a new or used car is a matter of selling strategy and market conditions.
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References:
(1) http://www.autoblog.com/2014/07/23/cars-being-exported-carmakers-upset-report/
(2) http://blog.iseecars.com/2015/02/04/top-10-cars-to-buy-used-over-new/
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