“Our almost-new Kia’s transmission keeps failing. Should we trade it in early?”
Q. Our Kia dealer replaced the transmission on our nearly new 2019 Forte with a rebuilt one that failed two days later due to a missing seal. The seal was inserted into the rebuilt transmission and they told us it was “safe” to drive. We left the car at the dealership for over five weeks, and then towed it home last week and parked it.
I contacted Kia Canada to request a new transmission. After two transmission failures and two near-collisions with the car failing at intersections, I think the car is unsafe. Apparently, it will require a third failure and/or near-death experience before they OK the dealer to install a new transmission.
My dealer has offered to let us trade up to a new 2020 Forte for $6,000 plus fees, or trade across for a comparable used vehicle. Here are the details provided:
- $22,915 for a 2020 Kia Forte Ex Premium at the dealer invoice price with the Kia Cash Discount
- minus $17,000 for our 2019 Forte trade-in (estimated retail value of $19,995)
- cost to trade up: $5,915 difference before taxes plus GST/PST/air tax reimbursement/tire levy = $6,759.20
We bought the car just nine months ago and own another Kia as well. It seems unjust to pay so much to buy a one-year-newer version of the same car.
A. It looks like your dealership’s sales manager is giving you the straight goods, as the offer for your trade seems correct. You may be wondering why the value of the car has dropped almost $7,000 in less than a year—that’s more than 25%!
Trading in your car early
Here’s the answer: A used car buyer for your 2019 will need to finance it at the bank’s loan rate of 5% to 6%, whereas a new 2020 Forte can be financed at an interest rate around 1% (with some help from Kia’s loyalty discount offered to current owners). Low-interest-rate, factory-supported financing contributes to a significant drop in values for many vehicles in their first year on the market. Your used 2019 Forte, financed for 72 months at a bank rate for good risks, will incur almost $4,000 in interest charges over the life of a loan, whereas the cost of financing a brand new Forte will run between $0 and $1,000 because of the manufacturer’s subsidy.
The dealer is also hoping to clear $2,000 on your old car when they resell it, after paying for advertising, preparing it for sale, and offering a discount to the buyer. It should be easy to prepare your nearly new car to sell it, but many dealerships apply a sort of average charge for advertising and reconditioning to all vehicles in their inventory.
If you decide that a new vehicle is the solution you are looking for, you may wish to use the APA’s new vehicle price service to compare the quote you received from the dealer with the true invoice price and applicable customer rebates and incentives at the time of sale. The dealer’s offer seems to assume you will be paying cash. Most Kia buyers need financing, in which case it will be more advantageous to take the below-market-rate financing.