In this first part of our used car guide, we ask and answer the question: Why buy a used car? Buying a used car is a time-honored tradition. Not long after the first cars were sold in the U.S., in the 1890s, some of their initial owners were ready to "trade up." By the 1930s, industry analysts worried about a "used car glut" that could threaten the market for new models.
Today, the "typical used-vehicle buyer is representative of mainstream America," said Tom Webb, chief economist for Manheim Auctions, speaking at the National Remarketing Conference in November 2010. Yet, after decades of being viewed as "buying someone else's troubles," often sold by mistrusted dealers, used cars are getting an image adjustment. Significant changes are occurring in the buying process. As a result, secondhand cars aren't quite as risky as they used to be, due to increased professionalism among dealers and more available information on a given car's history.
Still, every used car is a gamble, at least to some extent. Even the most meticulously maintained car, driven by an always-careful owner who bought it new and loved it, could break down a moment after you drive it away from the dealer's lot or the owner's driveway. Some folks like the risk-taking aspect of buying used cars. Others seek greater assurance that trouble isn't lying in wait. For the latter, certification might be the answer (see CPO, below).
Late-model cars are generally the best bets, but that's not necessarily the case at present. Because of sluggish new-car sales beginning in 2008, coupled with shrinkage of leasing, the supply of high-quality, low-mileage late models has sunk appreciably. Therefore, prices have remained high. That's inevitable when low supply butts against high demand.
As new-car sales regain strength, the used-car supply will grow too, likely easing prices. But that won't happen for a while yet. Meanwhile, if a tempting late-model cannot be found, older and middle-aged used vehicles may be the best value choices.
Why Buy a Used Car?
Used cars have gained stature and lost most of their stigma in recent years. After all, even affluent folks buy secondhand-though most likely, higher-end models.
Traditional benefits and drawbacks of buying secondhand aren't quite so clear-cut anymore. For obvious reasons, used cars have been the choice of budget-minded shoppers, simply because they're cheaper than new ones. During periods of low supply, however, used car prices aren't quite as enticing. According to the National Automobile Dealers Association, the average new vehicle sold for $29,650 in 2010, versus $16,418 for the average used model. But, that used-vehicle figure rose from $14,995 a year earlier.
Saving money is only one advantage. For one thing, you have less worry about minor damage. With a new car, there's a tendency to fret about every little nick and scrape. Used cars are-almost by definition-less than perfect from the start, so a few more scratches aren't worth fretting about.
Certainly, the Number One drawback is uncertainty about condition and reliability. Thorough inspection by a third-party expert might allay those fears. Still, shoppers who tend to worry incessantly might be better off with a new car, or a certified pre-owned example.
Because vehicles continue to depreciate through their entire working lives, older models are cheaper than late-models. Overall quality is way better than it used to be, so the risk of trouble isn't as great as it was in the past. Still, the older a car gets, and the more miles it's been driven, the more likely it is to develop mechanical and electrical problems. Plenty of cars go through their entire lives with few difficulties; but as a general rule, older models are more likely to fail.
Of course, older cars may be the only choice for buyers with imperfect credit. As we shall see in Part III, if a credit-challenged person can get financing at all, it's almost certain to a carry a high interest rate.
Late models, logically enough, tend to be more reliable, have more safety features; and may be equipped with more comfort/convenience features-whether they originally came as standard equipment or as an option. Deciding between a nearly-new car and a brand-new model used to be easy, because the used one was almost always significantly cheaper. Not anymore. Certain late-model used cars can cost nearly as much as new ones. Occasionally, a used-car price may even exceed that of an equivalent new model.
At the National Remarketing Conference in November 2010, Tom Kontos, executive vice-president of customer strategies and analytics for ADESA (a major auction chain), noted that the average new-vehicle incentive was more than $2,500. In some cases, taking advantage of that incentive could make the new car a better value than an equivalent year-old one.
Used-vehicle buyers generally have less flexibility about the timing of a vehicle replacement. Some purchases become necessary after an accident or mechanical failure of the old car. Other owners feel that the old bus won't keep going much longer without trouble. Still, most shoppers are simply trading-up, seeking a "better" car-which can mean a newer one, a different make or model, a different body style or vehicle size. Often, those revised preferences are tied to lifestyle changes, such as older parents facing an "empty nest" after the children have left home.
Dealers know consumers want those clean late-models. Therefore, they're willing to pay more for them at wholesale or when acquired as trade-ins. Sensible dealers make their buying decisions based on how much they can expect to get at retail for a given vehicle, and whether it's likely to sell quickly.
Before buying a late model, find out what it cost when new, as a comparison. Unless the selling price secondhand is appreciably lower, why take the risk? In those cases, turning to the new-car department-or perhaps to CPO-may be the wiser course.