If you are out and about looking to buy a car, you may hear a car salesman trying to talk you into a pre-registered car, usually with the spin that it’s done zero miles but was registered a few weeks ago. It’s a brand new car but amazingly much cheaper!
But what’s the real story? Is it really as good a deal as you are being led to believe?.
What is a pre-registered car?
A pre-registered car is one that has been registered by the manufacturer or dealer to itself (not to a customer) but not actually used. This is called self registration, and is done to add extra ‘sales’ to their quarterly/annual results, even though the manufacturers or dealers have simply sold these cars to themselves rather than to genuine buyers. Because they don’t have customers for these extra cars, they sit around in a storage yard or paddock somewhere (sorry, a “secure storage facility”) until eventually being sent to dealer forecourts and sold as ‘pre-registered’ cars. ‘Eventually’ might be anywhere from three to many, many months.
In simple terms, it means that the manufacturer and dealers can’t sell these cars new because nobody wants them, so they register them to themselves to make their sales numbers look good, lock them up for a few months and then have another go at selling them at a lower price. As such, it tends to only happen to models that are not selling in adequate numbers, and is a last resort rather than part of an overall plan.
Industry analysts have been reporting for years that the number of cars being pre-registered , and is skewing the official sales results being reported by manufacturers and the UK industry body, the (SMMT). The SMMT is very careful to report monthly ‘registrations’ rather than ‘sales’, and that’s because there’s often a giant difference between the two.
As with most industries, Brexit may have a significant impact on the practice of pre-registration, depending on how the new car market fares as the UK’s economy changes and how well the manufacturers revise their sales targets accordingly. We may see an increase or a decrease in pre-reg activity, but (as with the rest of Brexit), no-one really has a clue what’s going to happen.
Why register a car that hasn’t been sold?
As we have discussed before here at The Executivecondominium, everyone in the car sales world has targets that they need to hit – every month, every quarter, every year. The factory needs to build a certain number of cars to make a profit, so it sets a sales target for each market or country. Ultimately, this trickles down to every single dealership and every single salesperson having a target number of cars that they must sell. These targets are measured in the number of cars registered with the DVLA (or equivalent transport department in other countries).
If a brand doesn’t hit its targets here in the UK, there can be huge financial penalties from the company Head Office (which may be in Europe, Japan or the USA). So if a brand has an annual target of 100,000 cars but only actually sells 90,000 to genuine buyers, they may well register another 10,000 cars just to hit their targets.
At any point, there are thousands of cars standing around in fields across the UK, waiting for an accountant at a car company to decide that it’s time to sell them as ‘pre-registered’ cars.
So is a pre-registered car a new car or a used car?
Despite what a car salesman may tell you, a pre-registered car is not the same as a new car. It might have negligible mileage and might look for all the world like a new car, but it’s not. A pre-registered car is most definitely a used car.
The car was originally registered to the manufacturer (often through its finance company or fleet department) or the dealership. They are the original owner of the vehicle, and will be listed as such on the vehicle logbook (registration document, known as the V5 or V5C in the United Kingdom). You will be the second owner. It might not sound that important, but if you sell the car sooner rather than later, the value will be less than if the car had only had one owner. If you keep the car for a number of years, this won’t be important.
The date the car was first registered is also the date that the New Car Warranty started, not the date when you bought the car. This means that you will have less warranty cover than on a new car – potentially several months less. Many new cars also come with breakdown cover for the warranty period, and obviously that is reduced as well.
It is also common for pre-registered cars to be older specification vehicles, even if they are basically ‘zero miles’. When a manufacturer updates a model, they inevitably struggle to sell remaining stock of the old model, so these cars are prime candidates for pre-registering. So despite being described as being “just like a new car”, they may not be the same specification as the model sitting on the showroom floor.
Also be aware that new car finance offers will not normally apply to a pre-registered car, since it’s not a new car, so the interest rate on the finance could be much higher than on a new car, and there may not be any deposit contribution either. This means that although the cash price might be thousands of pounds cheaper, your monthly finance payments might not be much cheaper at all.
How much cheaper should a pre-registered car be?
As we have discussed before, new cars take a savage depreciation hit as soon as you drive out the door. The market price of a car that is less than a year old is always going to be a lot less than the brand new price, and this applies to pre-registered cars as much as it does to other used cars.
As a rule, a pre-registered car shouldn’t be significantly dearer than an equivalent used car or demonstrator model. It certainly shouldn’t be even close to the new car price, just because the mileage is small. If you are selling a used car with very low mileage, a dealer won’t give you much more money than if it had average mileage, so the same works in reverse – you shouldn’t be paying more if they wouldn’t do the same.
As for the argument that the car’s condition is ‘as new’ – even if it’s true, it still adds precious little actual value to the car, so it shouldn’t add anything to the price tag. A similar age demonstrator should be in excellent condition (after all, that’s what they use to sell new cars to customers), so the only key difference should be mileage. And in three years’ time, that difference will be inconsequential.
The constant push from car companies to sell more and more cars each year means ever-escalating sales targets for dealerships. So despite the improving economy, more and more new cars are going unsold, leading to more pre-registrations. Ultimately it’s not good for anyone, since the cars are sold at basically no profit (or even a loss) and the residual values for the model range take a hit as the market is oversupplied with cars it doesn’t really want. While a pre-registered car can appear to offer a good saving off the official new car price, the likelihood is that there will be plenty of new car deals about, especially if you are taking the manufacturer’s finance plan offer. And the car’s resale value in three year’s time is likely to be pretty poor as well.
Remember that pre-registered cars are unwanted cars – if there was enough demand for them in the first place, the car company wouldn’t need to be registering thousands of unsold cars…
This article was originally written in May 2015 and updated with new information in February 2017.
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