don't 3rd world countries have lower TCO for used cars? why don't they buy up all of them?

General Questions
#1

for an old/used car a major factor in total cost of ownership is the repairs costs. Repairs costs are driven first and foremost by the salaries of auto mechanics. In 3rd world countries mechanics have lower salaries than in the West, are less regulated and might find it easier to avoid paying corporate taxes.

Based on the above notions (is any of them wrong, btw?) we should conclude that it’s cheaper to own the same used car in a poor country than in America. If that’s the case, economic rationality suggests that the used cars should cost a lot more over there than here. In a hypothetical extreme case, if in poor Ruritania the car mechanics repair cars for free for up to 10 years of car life, we would expect a 2 year old used car to be worth 80% of the cost of a new car, whereas a similar used car in America AFAIU is a lot cheaper than that.

Well, if the above argument is valid, why do used cars even sell in America in the first place? Why don’t foreign buyers, let’s say from nearby Mexico, just buy them up since they should be willing to pay more than Americans? Conversely, why don’t prices of used cars in America get pushed up to the higher levels we would expect to see in Mexico, automatically encouraging Americans to sell/replace their cars let’s say on the 4th year of life or at whichever point that a typical car starts to require significant amount of maintenance and repair work?

#2

hmm, correction. The 2 year old car in Ruritania might cost even more than 80% of a new one assuming positive interest rates on bank deposits. Conversely, if effective interest rates are negative due to inflation, it might cost less.

#3

Used car prices in the United States are already through the roof, thanks to the recession (people are keeping their cars longer) and increased reliability (today, “low mileage” means under 100,000 miles), resulting in a shortage of used cars. I’m in the market for a new used car, and prices are probably 50% to 75% higher than a few years ago. Many late-model used cars are now appreciating in value. When it’s difficult to find a used Hyundai with less than 80K on the clock for under $10K, something’s up. Would it make sense for Mexicans to import now-very expensive used cars from the US, rather than buy a new small car? Mexico has many auto brands and small compact car models that aren’t available in the United States.

From what I understand, many countries with right-hand drive vehicles, both developing and developed, import used cars from Japan.

#4

Possibly of interest:

http://en.wikipedia.org/wiki/Japanese_used_vehicle_exporting

#5

I think a LOT of used cars from the US end up in Mexico.

Anecdotally, my parents sold their craptastic old Lincoln Town Car to their yard guy for like $2000, and he said it’d be great in his parents’ Mexican village.

#6

For that whole “used cars from Japan” thing - the Japanese government actively encourages people to buy new cars with an annual tax on your old one.

#7

The cost of ownership might be less in a 3rd world country, but then most citizens there have a lower income as well (think of your mechanic who isn’t earning as much), so they also can’t afford to pay as much either.

#8

I’d think one of the bigger problems would be getting parts for it. I doubt car companies go to any great lengths to distribute replacement parts out of market.

#9

I don’t think there’s much difference in prices on newer used cars, but the difference is that in the third world cars don’t depreciate away to being worth essentially zero like they do in this country. Cars that are in the sub-$1000 range in this country start to approach costing more per-year to keep running than they’re worth*, so it gets to the point that it makes more sense to just trade up instead of keeping the old jalopy running. But with cheaper labor rates in other countries, it makes more sense to keep an older car running, especially since older cars may be desirable because of their simplicity and better parts availability. Simple but tough vehicles like old domestic (or Toyota) pickups or Mercedes w123’s are not particularly valuable here, but are really sought-after in some countries.

The reason why every $500 car in craigslist doesn’t go south of the border is that it’s just not worth it. Even if that jalopy might be worth a lot more south of the border, it’s still not enough potential profit to justify the bother and pay all the middle-men.

*If you pay a mechanic. I justify keeping my ancient cars because I do my own work.

#10

One big factor is transportation. It costs a lot less to sell a car in your town than it would to ship it to another country to be sold.

#11

Hmmm… I saw an old-style smith (fire, hammer, anvil, etc… ) forging cars’ missing parts (themselves rebuild from wrecks), in a weird, very large African suburb/market dedicaced to this activity.

That said, bringing back to Africa (mostly north Africa but also sub-saharian Africa) an used European car to resell it there is relatively common.

#12

This is immediately what I thought of, and not just the cost of the physical transportation, but the payment to the middleman on the way. Individually shipping a multi-ton delicate hunk of metal is not going to be cheap, so there’s going to be businesses along the way that deal in large enough numbers to make the shipments worthwhile. Seller -> local lot -> exporter -> shipper -> importer -> local lot -> buyer. Quite possible another guy or two in between at both ends. All of them are going to want their cut.

If the car is still worth a lot compared to its weight, it’ll be more worthwhile to ship. But if it’s something no one in the US wants, probably not.

#13

Agreed, sales through middlemen don’t make much sense for anybody but the middlemen. But I’ve heard of several people who sold vehicles personally to guys who were going to drive it home themselves–from Virginia to Honduras, for example.

#14

Back in 2008, I read that Mexico had placed a restriction on used cars that could be imported from the US. That restriction was that the car had to be exactly 10 years old. I don’t remember the rationale for this, but they may have been trying to protect their auto manufacturing industry.

Since I owned a 1998 car at the time, I briefly considered selling my car, but wasn’t sure where or with whom I could get a good deal. At any rate, I don’t live all that close to Mexico, so there may not have been a significant increase in prices for 10 year old cars in this area.

#15

Talking about Mexico specifically, it’s got 1/3 of the population of the USA, and with a GDP per capita less than 1/3 of the US, obviously the percentage of people who can afford a car at all is going to be rather lower. And those who do have a car are going to keep them longer. Multiply all those factors and I doubt if Mexico could ever take more than about 10% of the USA’s used cars, even if nobody in the country ever bought a new car again. And obviously as you go further south/overseas the shipping costs increase prohibitively.

Regarding Japan - I bet those cars going to Bangladesh aren’t going there to be driven. The only reason I can think of for sending a multi-thousand-dollar piece of merchandise on an expensive sea voyage to one of the poorest countries in the world is because it’s cheaper than the tip in your own country, not because you expect to make an actual profit off that.

#16

Almost all countries have significant duties on importing used cars. In some countries the duties are 100%.

That, plus transportation costs, more than swamp the OPs factors. The OP’s contentions about cost of ownership *after purchase *are correct. The reuslt of which is used cars are operated in 3rd world countries for many more years into much greater degradation before being scrapped. That, coupled with the relatively small total market size, in, say, Honduras or Gautamala, is why US used cars tend mostly to stay here.

Conversely, for places like San Diego, Tucson, or El Paso, a decent fraction of US used cars do end up in Tijuana, Nogales, or Jaurez respectively. The transportation costs are low and the volume supports an organized smuggling operation to evade Mexican import duties.

#17

It’s actually to protect their used car sales market. It’s the car salesmen who principally lobby the government for the 10 year old rule. And yes, that’s still the rule for permanently importing and registering an American car in Mexico.

It’s also possible for an American (or American permanent resident) to temporarily import a car. Even though the import permission is for only one year, the actual law is that as long as you have a valid immigration status, the car can stay with you for years and years. You don’t even need current US plates (except in Baja N and S).

#18

A big factor is that modern cars are not as simple to repair as older models. Often, you need a diagnostic computer or similar. I know this frustrates my dad, the mechanic, endlessly with newer cars.

#19

A news story n New Zealand in the 1980’s, when their economy crashed, mentioned that boatloads of Japanese cars were arriving because people could not afford new cars.

Of course, used cars don’t cost more in the 3rd world because people cannot afford them. Plus, with fewer people having the money to spend doing routine required maintenance, odds are the foreign used cars would be in worse shape than thier local equivalents. Yeah, some people skip suggested maintenace, but a lot of people do spend that few hundred for the annual checkups etc. Plus with the wonderful northern climate, a poorly maintained engine will become unusable half the year. Not to mention body condition here vs. places where “bumping” your way out of parallel parking is common.

Which brings up another point - in first world countries, you pretty much have to pay some fairly decent insurance and other overhead; if you can afford hundreds of dollars a year for insurance, you can probably afford to buy a car instead of continuously paying very high maintenance rates. Plus… some places have mandatory inspections and air quality checks. All these expenses make it cost effective to dump a clunker that may be chugging along in some foreign country.

#20

In Peru, we got massive ammounts of used Japanese vehicles, especially Toyoya Caldina and Nissan AD Wagon station wagons. They are used as taxis and were so cheap that they changed transport in Peru by allowing thousands of people to own a good car and it provided modern transportation in places where walking or donkeys were the only option.

Of course, the big problem is the steering wheel being on the wrong side. The solution: change the position of the steering wheel.