Think Twice to Buy Used-car
June 18, 2008
With gas prices hovering around $4 a gallon, consumers are giving used cars a closer look, and with good reason. According to the National Automobile Dealers Association, the average price of a used car sold by its member dealers last year was about $15,000, compared with $29,000 for new cars.
While it’s important to buy a used car with a reputation for solid dependability, it’s even smarter to buy a used car that is less popular with consumers, meaning it has depreciated more rapidly.
“The best new cars make the best used cars,” reads the slogan for Toyota’s certified pre-owned used-car program, and in general it is true. But Toyotas depreciate slowly. That makes them attractive as new cars but less appealing as used cars because they cost more than faster-depreciating brands.
The slowest-depreciating brands are Scion, Mini, BMW, Volkswagen and Honda, according to Kelly Blue Book, a vehicle information service.
Instead of those popular models, think about some other brands that get high scores for reliability but can save thousands over similar vehicles. Consider domestic brands like Chevrolet, Dodge and Ford. Sure, it’s good for the economy to buy American, but a more immediate benefit to you is that they depreciate faster than Hondas and Toyotas, meaning you will get a relative bargain.
For example, a 2006 Buick LaCrosse CX, listed among Consumer Reports’ most reliable cars for 2008, can be had for $13,900, according to Kelley Blue Book, compared with $19,250 for a 2006 Toyota Camry SE V6 would cost you.
Camrys make great cars, and as the company’s slogan promises they make great used cars. But does a Camry deliver $5,350 more transportation value than another four-door V-6 sedan that’s made by Buick? It seems unlikely.
And how about the value compared to a new car? The MSRP for a new Toyota Camry SE V-6 is $25,575. The 2006 Buick is still under its original warranty and probably in great shape (assuming you paid attention when shopping). It costs $11,675 less than a new Camry. That is how you can stretch your car-buying dollar during uncertain economic times.
Yes, new Hondas and Toyotas do well in comparison tests, and they cost around the same as domestic models when new. But when looking at used models, the domestics can cost thousands less for a very similar product, making them much more attractive.
Wary shoppers might point to this price difference as a reflection of the expected reliability of these cars, and that was true at one time.
But today it’s more a reflection of the fact that domestic manufacturers have overproduced to keep factories running because of labor agreements. The need to make new cars (whether or not they are wanted by customers) forces manufacturers to push them into the marketplace with incentives that depress the resale value of similar used cars.
Domestic manufacturers also dump a lot of their production into the marketplace by selling cars to rental agencies, which often resell them as used in a year or less, flooding the market with late-model used cars and further depressing resale values.
All of these factors work in the favor of the consumer who is able to buy a low-mileage, nearly new Chevrolet Impala or Malibu, Ford Taurus or Five Hundred, or Chrysler Sebring for barely more than half the price of a new car.
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