Gauging the worth of a used vehicle

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Attie Blaauw, head of personal lines underwriting at Santam, says the current economic climate is a major factor causing a shifted emphasis on the acquisition of vehicles in the used or pre-owned market.

"There are a number of factors at play which impact the value of a vehicle. For example, the current price increases on new vehicles can increase the demand for used vehicles and even exceed the supply. This creates an evident escalation in market prices which affects a vehicle's value. Launching a new replacement model may well have a negative impact on vehicle values, but in certain cases it has also resulted in an increase in value of used vehicles.

"A vehicle valuation is based on various criteria including the make, model and year of manufacture and can factor in modifications or added accessories. Those looking to purchase a preowned or used vehicle would do well to understand how vehicles are evaluated and, more specifically, how it needs to be insured at the correct amount."

In the South African market, the retail value for all major secondhand dealerships are linked to central databases, like the Auto Dealer's Guide, where they log the prices they sell and trade cars for.

"The averages on these databases will indicate what the average retail and trade value is for a particular make and model, or alternatively assume specific values where sales volumes are low," Blaauw says.

"The retail value of a vehicle is normally the guideline price, reflecting the average price at which dealerships sold a specific vehicle recently."

The market value of a vehicle is generally defined as the price a willing buyer is prepared to pay a willing seller for a vehicle. Market forces dictate the price of a car, which means it can differ from region to region and in terms of type, mileage, condition, scarcity and manufacture of the vehicle.

"The reasonable market value of a vehicle reflects the adjusted retail value and could differ from the retail value indicated under the different makes and models in the Auto Dealers Guide," says Blaauw.

Knowing the difference between the market and retail value is important, whether you're selling, trading in or insuring your vehicle. "If something should happen to your vehicle many insurers, like Santam, will pay out the reasonable market value of the car.

"The market value uses the retail value as the basis and takes into account the kilometre reading, the condition of the vehicle as well as any extras fitted."

While many insurers adjust vehicle values frequently, it can never consider the market value of a specific vehicle based on condition and mileage. Blaauw recommends that owners check the extent of their motor insurance cover annually to ensure that their vehicle is correctly insured.

Source: Business Day