By Jessica L. Anderson | From Kiplinger's Personal Finance. June 2014
Prices are finally easing. Our strategies will help you find the right ride for less.
Used-car deals are getting better. Desirable trade-ins and vehicles at the end of their lease—especially luxury models—are streaming onto the used market, and that means more choices at lower prices. New-car leasing and finance deals create competition with used cars, too, and that also helps drive down used-car prices, says Laurence Dixon, senior manager of market intelligence at NADAguides.
See Our Slide Show: 10 Best Values in Used Cars, 2014
So it’s a good time to buy used. But if you can wait another year, used cars may be even more affordable, says Tom Kontos, chief economist at Adesa, a vehicle auction company. Prices vary by season, as well. In the wholesale market, prices ramp up from winter to spring and then decline through the rest of the year—but faster in the fall, as carmakers introduce new-car incentives to move last year’s models. That means buying in late summer through the end of the year could save you even more.
Whenever you buy, the strategies here will help you find the vehicle you want at an attractive price. Our picks for the best values in used cars scored high in Kiplinger’s rankings for value as new cars; they are still good values three or four years later.
Find the sweet spots
Some vehicle categories are riper for a deal than others. Right now, you’ll find the best prices on luxury models. Leasing of luxury cars didn’t decline with the economy, so a steady supply of off-lease luxury vehicles has headed to used-car lots. Plus, luxury vehicles typically lose more of their value more quickly than mainstream models do. Prices of luxury sedans have fallen more than those of luxury SUVs.
Prices are also coming down on small and midsize cars. Midsize cars are the most popular models and sell the most in the new-car market. Plus, carmakers have introduced a raft of new choices over the past several years. As a result, midsize prices are falling a little more than prices in the used market as a whole. The same goes for compact and subcompact models, but prices are even better. As the fuel economy of midsize models has risen and gas prices have leveled off, small cars (and hybrids) have lost some of their cachet.
Prices of crossovers and SUVs are a mixed bag. Many buyers of compact crossovers choose used, so high demand is propping up used prices. Traditional, truck-based SUV sales have increased as fuel costs have leveled off, so prices for those vehicles are holding steady. But as buyers move back to truck-based models, larger crossovers are less in demand, and prices are down.
Even if prices haven’t dropped across the board for the type of car you’re considering, there are ways to find a deal in any segment. Look at models that are most often leased, or ones purchased by car rental companies. For example, a high percentage of leases are written for entry-level luxury cars, such as the BMW 3 series, Mercedes-Benz C-Class and Audi A4. The Toyota Prius and Camry, the Ford Focus and Fusion, and the Chevrolet Cruze and Malibu are often found in rental fleets. As rental companies refresh their fleets and leases end, more of these models end up on dealer lots, and that means more room to haggle, says AutoTrader.com’s Juan Flores.
Look for recently redesigned models. With a new-generation model on the market, there’s an inherent discount on the previous version. Plus, the last couple of years of any model run are when cars are mechanically at their best because the manufacturer had plenty of time to work out any kinks that showed up when the model was new.
Don’t limit your search to go-to brands. Japanese carmakers, particularly Honda and Toyota, have stellar reputations for reliability. But the improving quality of all vehicles means you can cast a wider net. Keith Griffin, the used-car expert at About.com, suggests looking at Korean carmakers Hyundai and Kia. They have five-year/60,000 mile new-car warranties, and used-car buyers get the remainder of that time. (Their ten-year/100,000-mile powertrain warranties do not transfer to new owners.)
Do the research
More information is available about used-car models, reliability and pricing than ever before. Edmunds.com and Cars.com allow you to drill down to a specific model and year and see features by trim level, read expert and consumer reviews, and get prices. Edmunds shows models for sale with prices; Cars.com shows the current retail price range estimated by Kelley Blue Book. Check out reliability ratings for used models at ConsumerReports.org (you can get a one-month subscription for $6.95).
You can also search for models for sale at AutoTrader.com and CarGurus.com. Consider looking outside your area. Most sites allow you to see listings 200 miles away or more. If you find a vehicle hundreds or thousands of miles away that will save you more than the cost of a plane ticket to go pick it up or the cost of shipping it to you, go for it. Cross-country transport runs $900 to $1,300, but most
shippers will negotiate. For example, ask what it would cost to ship the vehicle when the truck has a full load, and see if you can save by having the vehicle dropped off at a nearby terminal rather than at your door.
For the most peace of mind, buy a certified pre-owned vehicle. Only late-model vehicles (typically less than five years old) with low mileage (usually less than 60,000 miles) qualify for CPO programs, and they’re put through rigorous inspections and come with an extension of the vehicle’s new-car warranty. For example, Toyota certified vehicles come with an extra year (12,000 miles) of comprehensive coverage and two additional years (40,000 miles) of powertrain coverage. After the inspection, vehicles are repaired and reconditioned. You’ll pay a premium for the reconditioning and the additional warranty—about $1,500 on a mainstream make or $2,500 on a luxury model. Perks such as roadside assistance and special financing rates from the manufacturer’s captive finance companies can lessen the sting of higher prices. Be sure your choice is certified by the factory, not a dealer—you want the warranty to be backed by the manufacturer.
If you’re not going the CPO route, check out the car’s history before you get serious about pulling the trigger. First, run the vehicle identification number (VIN) through the National Insurance Crime Bureau’s Web site to make sure the vehicle hasn’t been reported as stolen and isn’t a salvage vehicle (a vehicle deemed totaled by an insurance company). Then use the VIN to run a vehicle history report on AutoCheck.com or Carfax.com ($30 to $40 for one report, $45 to $55 for unlimited reports).
Make sure that recall work has been done. According to figures compiled by Carfax, 3.5 million cars with unfixed recall issues were for sale online in 2013. That’s about 8% of all used cars sold last year. Though big recalls (and reluctant carmakers) make news, most are garden-variety fixes, and all are repaired free at a dealership. You can check for recalls, complaints and service bulletins (the manufacturers’ recommended fixes for smaller repairs) at SaferCar.gov. If you’re buying from a dealer, ask for proof that repairs were done before you buy; with a private-party sale, ask for repair and maintenance records.
Get a non-CPO vehicle inspected by a mechanic. This precaution is vital for a private-party sale, and it’s a good idea even if you’re purchasing from a dealer and you’re assured that the vehicle has been vetted by its service team. The cost will be $75 to $150, but it’s money well spent, says Joe Wiesenfelder, executive editor of Cars.com. It lets you know how well a vehicle has been maintained and what service you may have to do yourself in the future. And, he says, “it can save you a lot in the long run if it helps you rule out a car.” If you don’t have a trusted shop (or you’re buying long distance), check out AiM Mobile Inspections. For $129, it conducts a 150-point inspection, which it arranges with the seller, and provides a report.
Protect your wallet
Figuring out a fair price for a used car is even harder than with a new car because no two cars are alike, and mileage and condition will vary. A variety of Web sites offer used-car prices and break them down by transaction type—dealer, private party, CPO and trade-in (see below for the pros and cons of each type). For any car you’re interested in buying, look up pricing on several Web sites and come up with an average as your target. Edmunds.com lists the most prices, but Kelley Blue Book’s Kbb.com and NadaGuides.com will round out your research. All three sites base prices on actual transactions. CarGurus.com is another good site to visit; it analyzes listings in your area and rates each vehicle from “Great Deal” to “Overpriced.”
So much more information is available to consumers now than five or ten years ago that dealers are starting to set prices with less room to negotiate. Some now start with their bottom-line price and may allow only a couple hundred dollars in wiggle room, Flores says.
Don’t forget your trade-in, if you have one. Used vehicles in good condition are in high demand, so dealers are willing to pay good money for yours. Richard Arca, senior pricing manager for Edmunds.com, recommends getting an appraisal before hitting the dealer lot. AutoTrader.com has a new trade-in guarantee tool that starts online. Enter your vehicle’s features, mileage, condition and so on, and you’ll get an offer good for 72 hours. Then, you take your car to an affiliated dealer near you. Take your car to CarMax, and it will give you a guaranteed price good for seven days. If you have the stamina, shop your trade-in at several dealers as well—-the best price wins.
Finally, if you’re not paying cash, get preapproved for a loan before visiting a dealer. Check with several banks and a credit union, if you’re a member (to join one, visit www.culookup.com ). Rates at banks recently averaged 4.7% for 36-month loans, and credit unions averaged 3.7%, according to Bankrate. If a dealer offers a better rate, grab it.
Which route is best for you?