When planning an export strategy to sell vehicles in an overseas market, a logical question arises as to whether it is better to sell new or used vehicles. The answer to this question is not definitive in either direction. The reason for this ambiguity rests in the fact that the new-used car decision ultimately will be dictated by the type of profit margin expected, the volume of vehicles being sold, risk considerations and the target market.
Based on these considerations, one can look at these factors and arrive at a decision as to whether new, used or a mix of new and used vehicles will provide the best investment strategy.
Finding the Right Vehicle for the Right Market
One of the main considerations in the new-used 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 a number of factors being correctly aligned. This involves a considerable amount of planning in order to be able to buy low and sell high in the export market. An example of this can be found in the Chinese market. As reported one 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 to get the operation rolling.
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 and 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.
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 $37.6K. (2) The study involved a comprehensive evaluation of new and used car values.
The Top 10 Cars to Buy Used Over New
|Rank||Vehicle||$ Price Difference over the First Year||% Price Difference over the First Year|
|2 (tie)||Smart fortwo||-$6.9K||-36.9%|
|2 (tie)||Cadillac CTS||-$20.0K||-36.9%|
|5||GMC Yukon XL||-$21.1K||-32.8%|
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. Therefore, 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.
Finding a Market
The next step in this strategy would likely involve finding a market where this vehicle would be in high demand.
If one were to lean toward exporting luxury cars, 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 a used vehicle. In addition to the potential for a high markup, there are other potential benefits found in reduced tax liability particularly in countries that may have a high import tax.
Normally, import taxes are calculated 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 not only be able to leverage a better profit margin, but some tax savings could be realized as well.
Considering the Time Gap
Another consideration for deciding whether to buy new or used is found in the fact that there may be a time gap between when a new car hits the market in the United States and in the rest of the world. Therefore, buying a one-year-old vehicle, 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
The decision to sell new or used cars is ultimately a matter of timing. As such, a seller must find the perfect balance between low demand or depreciation in the United States and high demand in the target market. If a seller is able to find a niche, the consumer may ultimately dictate the new-used debate.
However, if the decision rests on the seller, the best strategy is to conduct research, ranking the best bargains in the United States to the most in-demand vehicles overseas. Where these two lists overlap would ultimately guide purchasing decisions. The decision to buy a new or used vehicle is a matter of selling strategy and market conditions.