When old is gold: A few used automobiles can fetch you returns  

October 19, 2010

Traditional motor vehicles usually provide a better rate of return than other investments
 

Barring vintage motor vehicles - which appreciate faster than the stock market or, lately, gold, and commercial vehicles - which will usually provide a rate of return better than other investments, if you know the trade and are willing to take risks; most other vehicles are certainly depreciating assets, unless they become famous due to exclusive ownership or something similar.

Think of Ravi Shastri's Audi or MF Hussain's Fiat 1100. Currently, an automobile is regarded as a monthly expense and not an investment.

If you could think expenses on an automobile like you treat a monthly mobile phone bill, or another utility bill, that's fine; you are probably closer to the truth than some of us who think otherwise. But, if you are from that segment of people who still wants to think of ownership of an automobile as something that will bring tangible benefits during and after its life with you, then think about it the way Warren Buffet does - he, typically, buys a two-year-old car and drives it till it is about five or six years old before selling it. You bear the lowest depreciation that way. But it doesn't seem to work that way in India. One reason is that re-registering a private automobile is seemingly more difficult than registering a new one. The lack of truth in transactions of second-hand vehicles is another. Here's why:
 The second-hand commercial vehicle trade is a cesspool of traps and potential disasters for the naive. One has some knowledge of the subject, but it would take a book to do justice to the subject. For instance, if you wanted to buy a second-hand truck or bus and convert it into a mobile home, you would not be able to do so without a few kilometres of paperwork. It's simpler to buy a new one.
    The second-hand private vehicle trade was cleaner in the days when you could buy and sell as individuals through the classified ads; but here, too, the pitfalls now far exceed the benefits of trying to use that route. Today, you are risking everything, either as a potential buyer or a seller, if you don't go through a 'dealer'. The moment you do so, you're seeing the arbitrage work against you both ways. And all that is without the paperwork, which only the regular 'dealers' can understand.

So where then do the second-hand vehicles go, and why don't older automobiles retain at least some decent percentage of value after they cross 8-10 years in India? The answers are, indeed, surprising.
o    The largest exit route for older vehicles in India today is apparently the scrap trade. Once an automobile has been sold down a few times, it ends up at the junkyard. Over there, everything re-usable (including the vehicle's documents, incidentally) is removed, and what's left is sold at scrap metal rates. The 'business' of second-hand automobiles is apparently geared towards this, including the realities and difficulties involved in re-registering used vehicles in the name of buyers.
o    Another exit route is the export trade in second-hand vehicles. Since legit export is very difficult, some innovative methods are being used - vehicles are knocked down and then exported in containers, to be re-assembled at the destination. This used to be a trade dominated by the Japanese second-hand vehicle exporters until recently, but prices from India are now increasingly competitive and there are reportedly some export benefits accruable too. All this leads to the question: What should you do when you finally need to sell your car or bike?

There's not much you can do to buck the system. But please take precautions with the original registration certificates for your vehicle. Ensure that you have all the particulars of the buyer and inform the Regional Transport Office after the sale. For, the third route has to do with, apparently, the stolen vehicle trade; where 'they' are always on the lookout for documents of vehicles that are disposed of by the first two routes. — Veeresh Malik