After a period of ten years, my wife and I decided to buy a new car. Our old one wasn’t exactly falling apart, but we felt it was time for something a bit more modern. Some people would say our current model was from the stone age: it had no USB or audio jack, no hands-free function and no parking assistance. No cruise control or anything like that either. The driver still had to have some skills.
Choosing a new car is great, of course. Getting rid of the old one perhaps less so. All the asking around, advertising, having viewers over, etc. etc. It is sometimes possible to trade in your car at a car dealer in Ecuador, but you won’t get the same amount for it. Luckily, a good friend of mine has a used-car company. So, I went over to him, and it didn’t take long to agree on a deal. Car gone, my friend happy and I was happy too.
What’s remarkable about the Ecuadorian car trade, is how vehicles maintain a very high commercial value. A car with an original price of 30,000 USD that’s sold for 16,000 USD ten years later, isn’t unusual. The reasons for this are quite simple: the population is still growing (more drivers), the maintenance costs for older cars are relatively low and it’s prohibited to import used cars.
That means that each and every car on the road was newly bought in Ecuador one day. What’s more, the expectation for second-hand cars here, is that they’ll be good for at least another 25 years.
For many years, companies were taking advantage of the high resale value of cars. They’d purchase new commercial vehicles when times were good and spread out the depreciation expenses over a 5-year period, which allowed them to cream off some nice profits at the end.
After the 5-year period, those cars would be transferred to shareholders or directors for a symbolic amount, providing them with a nice perk. The tax authorities quickly got on to this though, which is why there’s a compulsory 10-year depreciation period for cars nowadays.
By the way, if you want to buy a car in Ecuador, cash payment is always preferred. Other financing options aren’t really within reach for private individuals or a small business. With interest rates of 18% and 11% respectively, purchasing a car becomes very expensive. And that while Ecuador has a dollar economy!
Oh, well… If it all goes horribly wrong for me in the flower industry one day, I’ll become a banker!
Victor van Dijk,
Area manager South America, FleuraMetz
