Car dealers dangle overtrades to ease downpayments

Customers in a car showroom. The "overtrade" is back. -- ST FILE PHOTO: MARK CHEONG
Customers in a car showroom. The "overtrade" is back. -- ST FILE PHOTO: MARK CHEONG

The "overtrade" is back.

The practice - in which motor firms offer substantially higher trade-in rates for used cars than market prices - was rampant in the 1990s when the Government first curbed car loans.

Now, as before, the overtrade is designed to help car buyers offset the high downpayment they have to make after new loan restrictions were introduced six months ago.

It works like this: A buyer of a new $100,000 car will have to fork out at least $40,000 for downpayment.

In the "overtrade" plan, the seller adjusts the car price to $110,000. But it also offers the buyer $10,000 more than what his trade-in car is worth.

The downpayment for the new car may now be $44,000, but the buyer already has an extra $10,000 cash in hand. So effectively, he only has to come up with $34,000 more.

Overtrades currently range from a few thousand dollars to $50,000, with Mercedes-Benz and BMW models among those attracting the highest rates.

Toyota agent Borneo Motors is offering a $16,000 overtrade for its Camry, and $8,000 for the Corolla.

Cycle & Carriage offers overtrades of up to $10,000 for its range of Citroen and Kia models. The firm is also offering an overtrade of $22,000 for its Mercedes-Benz E-class, one of its most popular models.

BMW agent Performance Motors is said to be offering the highest overtrades in town now.

Besides helping customers with downpayments, overtrades can also mask sizeable discounts which could upset customers who had purchased at higher prices not long ago.

For instance, a recent promotion brought the price of the popular BMW 520i down to around $216,000, from a list price of $247,800.

This was believed to include a $30,000 overtrade, introduced to clear stock for the arrival of the facelifted 5-series, which starts from $257,800.

In the 1990s, motor firms were largely able to overcome the government-stipulated 30 per cent downpayment with overtrade.

But with the latest measures restricting loans to no more than 60 per cent of the car's purchase price - it is 50 per cent for higher-end models - observers said overtrades may not be as effective as they were in the past.

To fully offset the hefty downpayment, "the selling price will have to be inflated to a ridiculous level", a trader said. "And the banks will not approve loans for such inflated prices."