By on April 17, 2007

njstateauctioncom.jpgEvery year over ten million vehicles pass through U.S. auto dealer auctions. This decades old free market has always been dependent on you, the consumer. Dealers will bid up those models that are popular with buyers, while those with a limited audience are stuck in what’s commonly called ‘wholesale heaven’. This is a place where thousands of unappreciated and unloved models go until the market dictates otherwise. Over the course of time, consumers dictates the winners… and the losers.

Over the last few years, The Big 2.5 have been downsizing their domestic production capacity to match falling demand, and compensate for their decision to wean themselves from low-profit fleet sales. Enormous assembly plants that once produced hundreds of thousands of new vehicles are now shuttered. The theory: as production sinks, new car prices will eventually hold firm and profits will follow. Unfortunately, the latest patchwork of new product has already come apart, and the domestics' market share continues its seemingly inexorable slide.

There are three main causes for today's used car glut. First, the manufacturers shut off the supply spigot late in the game. Thanks to restrictive union contracts and timid management, carmakers failed to ‘chase down’ falling demand early or aggressively enough. The failure created an ongoing surplus of used cars.

Second, again, The Big 2.5’s market share for new cars is still falling and they’re still failing to match supply to new car demand. Banking unsold inventory and embracing badge engineering has lead to hundreds of thousands of vehicles that consumers do not know or care about.

Finally, Toyota, Honda, and Hyundai have remained fiercely loyal to the idea of building brand identity and limiting supply when the market dictates. This devastates the profitability of the domestics, who are stuck with an over-sized dealer network and a “stack ‘em high and sell ‘em cheap” sales strategy.

This endless stream of unpopular and largely unknown new cars– and the sales incentives that inevitably follow– has created a significant benefit for the U.S. consumer: a depreciation curve that makes lightly used cars a fantastic deal.

In the early days of zero percent financing (late 2001), experts estimated that every $1k in new car sales incentives resulted in a $400 decline in the price of a two-year-old version of the same vehicle. By the time employee pricing came to the forefront (the following summer), the hit to used car prices was closer $600.

Many dealers peg the current depreciation rate at around $750 per $1000 in new car incentives. For your neighborhood used car dealer, their late model inventory now has a depreciation curve that’s nearly as steep as a new car vehicle’s. As a result, there are literally tens of thousands of unsold low mileage cars churning from dealership to dealership. 

The bottom line: a brand new Mazda Miata with all the options sells for around $27.5K. As of April the eleventh, the Average Auction Wholesale (AAW) on a 2006 Chrysler Crossfire with 3,945 miles was also $25k. Not that many consumers would cross-shop the two roadsters, but a Crossfire that stickered for over $45k a year ago now costs the same as a new Miata.

In the last 60 days, a savvy buyer could also pick up a low mileage 2005 Mercury Milan, Pontiac G6, Mercury Grand Marquis, Cadillac Catera, Buick LaCrosse, Ford Freestar or Volvo V50 for around the same money as a brand new, 2007 Kia Rio. That’s cheap.

You may notice these models are the unloved off-spring of over-stretched or neglected brands. The selection and price reflects a new reality: manufacturers have created a perfect storm of overproduction, fleet sales, model inflation (dozens of new nameplates debuting every year), limited marketing resources and bad branding. Though they’ve been available for years, models like the LaCrosse, Montego and Outlander are falling through the cracks, and into used car depreciation Hell.

Plenty of consumers “get it.” As vehicle reliability has increased, more people are buying used– but still not enough to outstrip supply. And yet still, the new cars keep coming.

Smaller new car dealers in larger metropolitan areas are getting whacked by these economics. For every Carmax, Team (formerly AutoNation) and Sonic Automotive Group that expands its operations, a dozen independent dealerships fall by the wayside. Never mind the mainstream manufacturers’ decisions to “rationalize” (i.e. cut) their dealer networks. The growing used car market is forcing hundreds of family-owned new car dealers to either accept competitor buyouts or simply close shop. 

For TTAC readers who understand that depreciation is the single largest cost of automobile ownership, or who simply want as much car for the money as they can afford, used cars rule.

As for what you should pay, go to the “completed items” section on Ebay and look for a car that’s roughly equivalent to the apple of your eye. You’ll find a price that’s usually a bit higher than wholesale, but lower than the inflated retail values you’ll find at Edmunds and Kelly’s Blue Book. There’s your starting point.

Call or email a few dealerships and bargain hard. You’ll soon see that the old 80/60 principle for a two-year-old model (80% of the life for 60% of the original selling price) is now closer to an 80/40 split. 

It’s proof positive that the free market has spoken. Until and unless mainstream manufacturers can better match supply to demand and learn to produce fewer, more distinctive models, their new cars will continue to make one to two-year-old models cheaper and better values. It’s a virtuous circle– for you.   

Get the latest TTAC e-Newsletter!

Recommended

58 Comments on “Car Buying Tips: Feeling Used...”


  • avatar
    troonbop

    Interesting and encouraging. Good stuff, Steven.

  • avatar
    dwford

    There are times when the prices of new vs used are so close, you might as well buy new. Example: I recently sold a 2005 Focus wagon w/ 17k miles for $13600. a brand new 2007 Focus wagon stickers for about $17500, then subtract a $3000 in rebates and a little dealer discount (markup is about $1000). Let’s say you pay about $500 over, that means you are getting brand new for $14000. hmmmm

    Same with a new Explorer. Ford dropped the stickers for 07, yet with the rebates they have now, an 07 is cheaper than an 06 leftover – wholesale hell indeed.

    Strangely, the auction values have been strong, reflecting the lack of units, at least where I live. We paid top dollar for that 05 Focus at auction, and the other 2 there went for more!

  • avatar
    jurisb

    the price of new german cars is so high, that people rather choose a second- hand than a new one, especially here in europe. can you imagine that in russia, there is 100% import tax on new imported vehicles. so an already overpriced bimmer that costs say 50k in dollars in usa, costs the same in euros in europe, and if you want to buy one in russia you pay double of that.( imagine taking that car on lease, and you almost double even that number!)An average salary in Russia- 200 dollars a month!)so people slowly get used to second hand cars. and it all comes down to parity- how many hours do i have to work to get a 3-series small car with king-size pricing ambitions? the thing is, people would rather go for a used power-everything luxury than a new one econo-box with plastic everything. bmw 3series belongs to which category?

  • avatar
    craiggbear

    This phenomenon is affecting Japanese cars too. While it's still true that there is a sucker born every moment, prudent and aware shoppers can get amazing deals in the used car market. Full less warranty coverage for several years and avoiding literally tens of thousands of dollars of depreciation – what is not to like. We also bought the new Hyundai Sonata last year – and were warned of the depreciation. At the time we also looked at the Accord, Camry (previous edition), Ford 500 and Chrysler 300. According to the current market as defined by the "ask" price on the Autotrader site, the Sonata has depreciated by about half of ANY of the others. That's right, a lowly Sonata dropped about $4 – 5k in 14 months, and a well equipped alternative (as mentioned) dropped around $8k – including a loaded V6 Camry. Beyond deathwatch for the 2.5?

  • avatar
    tpapay

    My used car dealer walked with me on the auction lot where I can choose from any of 100s of cars. I gave him a max price, that I know is low based on research similar to what you mentioned, for a specific vehicle in perfect condition, (it’s easy to weed-out the cars that were owned by smokers)then he called on auction day about the great deal on my new car.

  • avatar
    AGR

    There are too many cars, the phenomenon affects all manufacturers, not only domestics.

    There is no mention of lease returns, and the various games that are played to minimise residual losses from the lease returns.

    Manufacturers all have their CPO(Certified Pre Owned) programs to bolster values of recent model lease returns and minimise residual losses.

    When new vehicles are sold aggresively with money on the hood or the trunk it immediately affects the values of a comparable used vehicle.

    How many recent model 1 year old vehicles make their way to auctions since they were used to generate an RDR for manufacturers. Its captivating at times to look at the underbelly of the business.

  • avatar
    philbailey

    No one in the auto repair business EVER buys a new car. Lately, estate sales have been a major source of very low mileage cars in extraordinary condition. As the population ages, more of these fantastic bargains will surface. Watch the local paper want-ads.

  • avatar
    Claude Dickson

    As an example, at Edmunds, a dealer advertised a 2006 Caddy CTS with less than 400 miles for around $41K!!! The sad part about this is that steep depreciation affects the few good cars the 2.5 make as well.

  • avatar
    boredlawstudent

    Claude,

    Did you mean a cadillac STS? 41K seems high for a CTS considering I see 2006’s around me sell for as little as 22K.

  • avatar
    NICKNICK

    I don’t know how much is legit vs. sensationalized “news” coverage, but I would worry about cars coming from out of state and having titles wiped clean. I don’t want a flood car or a hail damaged car with body panels replaced with ungalvanized steel, etc.

    I would rather buy new and keep the car for 10 years so that depreciation isn’t the issue it is with frequent turnover–all 4x4s that aren’t basket cases bottom out around $3000 in this region. If I’m going to buy used, I’d rather buy a total beater than CPO.

  • avatar
    Steve_S

    You will also find that most of the domestics loose value faster than others. So if you are looking for the popular models (and face it many are thats why they are popular) then there are fewer deals out there.

    Another key bit is that there is a limit on how low a car will go. Depreciation is fast early on then slows down. You will see this in all cars but the higher the price initially the faster it will fall.

    For instance take a Subaru WRX that stickers for about 25k. After 3 years you can find them for about 17k depending on mileage.

    Next take an Audi A4 which stickers at about 32k (with options) it will also be worth about 17k after 3 years.

    Lastly take an 03 BMW M3 which stickered at about 55k and is now worth 32-36k depending on mileage.

    What we see here is that once a car falls below 20k it is very affordable to most people and if it’s a model that has at least some demand it will level off a bit. As to the M3 (or a mini cooper) these are sought after models and hold their value very well.

    Luxury models seem to fall pretty quick unless they are in demand models like the M3 or S4. However there is a market for luxury 2nd time purchasers who can’t afford new. BMW tends to hold better values than the others but there are bargains. An 04 BMW 525 with some options will sticker at 50k and now can easily be had at 26-28k. A 06 Benz CLS 500 which stickers for 70k can be had at 51-55k after only a year or so. I expect it to fall by at least 10k a year for the next 2-3 years.

  • avatar
    Martin Schwoerer

    Nice article! My uncle taught me there are three Basic Rules of Econonomic Car Ownership. They have served me well: – Buy at three (years), sell at five. – Never purchase a car that has just been introduced: too many niggles and downright defects. Wait until one-third of its product lifetime has gone by. In other words, buy the new C-Class Merc in the 2010 model year. – Stick to a model that is in the lower-half of a car maker's range. Depreciation (in $, not in %) for an S-Class Benz is horrible, even if bought used; but a C or an E is OK. Don't even consider a Cadillac, but a small Opel/Chevy can be economical, depreciation-wise.

  • avatar
    Gerry T

    If GM, Ford and Chrysler are reducing fleet sales, where are the fleets getting their cars from? If the price of 2.5 cars available to fleet buyers increases, does it make import cars a more attractive purchase to fleet buyers?

  • avatar
    nmcheese

    I’m not so sure many of the ex-rental vehicles are that great of a deal. Sure it may be cheap but it has handled at the limit and been run at redline for a much higher percentage of its existence than a normally owned and cared for vehicle.

    However that could have just been me with the rental Pontiac G5 coupe driving up the Pacific Coast Highway last week.

    As someone that has exclusively owned used cars, mostly from the European makes, the values of those that have the ‘ideal’ spec for the type of car (i.e. a Volvo 850R, a BMW 540i-6 sport, Mercedes 300D) remain respectable well past 100k miles. Sure there are cheap examples out there, but those owned by fanatics and maintained religiously fare very well on the used market.

  • avatar
    CSJohnston

    My impression is that the domestics are primarily reducing fleet volumes by lowering sales to daily rental companies.

    Other fleets (government and commercial) seem unaffected.

    Daily rentals still get domestic brands but “flip” them less often, I am seeing more high-mileage cars when I rent now than I did a few years ago.

    I am also seeing more import choices (Mazda, Nissan, Toyota, Hyundai and Kia) than before.

  • avatar
    NN

    Right on, Steven. I troll the used American vehicle market regularly for the amazing values that can be found. I bought a used Chevy Blazer ZR2 on eBay for 1/2 the price of a comparable 4-Runner or Pathfinder, paid it off in a year and a half, and have been driving it for nearly four years now. I’ve gotten more than my money’s worth, and since the depreciation curve is steepest up front, I can turn and sell it now and get a good portion of my money back. If I sold it today, for what it’s worth, I would have ended up less than $100 per month out of pocket for the vehicle ownership. Sure, I give up the pistonhead’s ideal of tight handling, quality interior construction, and other tasty vices…but the money saved has allowed me to place it into investments that are ultimately more important. And the vehicle, being a manual, has still allowed for some fun off-road driving.
    I am happy with my purchase, but I am also aware that this model is not for most people. Most are willing to pay a premium for the quality, image, style, etc. of the modern cars in high demand.

  • avatar
    airglow

    Gerry T:
    April 17th, 2007 at 9:58 am
    If GM, Ford and Chrysler are reducing fleet sales, where are the fleets getting their cars from? If the price of 2.5 cars available to fleet buyers increases, does it make import cars a more attractive purchase to fleet buyers?

    The second tier Asian brands have apparently taken up much of the rental car fleet slack left by GM and Ford. I see zero evidence on the rental lots that DCX has reduced their fleet sales.

    I’m guessing Mr. Lang does not travel too often, or he wouldn’t have stated that Hyundai is matching demand with supply and avoiding fleet sales. The Sonata/Azera have apparently replaced the Taurus/Crown Vic at many airport rental lots.

    Can anyone find out what percentage of Hyundai Sonata/Azera’s are sold to fleets? I’m betting it is going to be well over 50%.

  • avatar
    kaisen

    While the used car market may appear to follow simple Adam Smith supply and demand rules, the variables are increasingly complex. I liked the article, thanks for writing it.

    It’s interesting too that perception is reality when it comes to used car pricing. So many people ‘think’ a used car is a better deal than a new car that the demand is artificially inflated, which raises prices for the used models. However, the manufacturers are still under the gun to sell new ones so they slash prices, sometimes to near-used-car levels. It pays to shop new AND used.

  • avatar
    NICKNICK

    I bought my last car new. Gently used (2 years old) was slightly less than $3000 cheaper. Buying new got me an interest rate of 1.9%. The interest rate for the used car was 4.8%. The difference in monthly payment was less than $30. I’ll gladly give up two pizzas a month for a new car.

    Of course, I’m shopping at the lower end of the market, not bimmers and mercs–I can’t save 20K because the car didn’t cost 20K to begin with. Having said that, I agree with the above posts–from my limited experience, it seems favorable to buy the cheapest car from a good brand instead of the best car from a cheap brand. Stripper 3 series: 33K or so. Loaded passat: 33K or so. 5 years later, the bimmer is worth way more.

  • avatar
    thetopdog

    I just picked up a 2006 Corvette last month. 17000 miles on it, fully loaded, MSRP was around $51,500 and I paid $41.5. The last owner paid dearly for the 10 or so months he had the car, but his loss is my gain

    He also subscribed to XM radio which I am now enjoying on his dime, I have no idea how long the prepaid subscription runs for, but I’m not complaining as long as XM decides to keep letting me in on free satellite radio

  • avatar
    Tummy

    Last year we bought an Infiniti FX45 with every option for $35,000, MSRP was $54,000. Of course they never sell for MSRP, most sold for around $46-48k, so we still saved at least $11,000. It was only 9 months old. Now a year later, it is probably only worth around $28,000, so I guess I didn’t do too well after all.

  • avatar
    kaisen

    I just picked up a 2006 Corvette last month. 17000 miles on it, fully loaded, MSRP was around $51,500 and I paid $41.5. The last owner paid dearly for the 10 or so months he had the car, but his loss is my gain

    This illustrates my previous point somewhat. A comparable NEW 2007 Corvette has a lower MSRP ($50340) and, in most places, can be purchased near its $44793 invoice. Let’s call it $45000.

    $3500 buys a year-newer NEW car, with 17,000 fewer miles, and the 100,000 mile powertrain warranty the ’06 didn’t have.

    I guess it’s cup half-empty, cup half-full.

  • avatar
    NickR

    Very interesting article.

    The deals that can be found now are amazing. Although it tends to me most pronounced for the domestics (the Five Hundred has got to the title holder) it applies to Japan and Korea. I purchased a demo Solara SLE with 2,000 km for over 10k off list. And my parents were also looking at a Hyundai Azera (which I might add is a great car) demo for 10k off list.

    As someone mentioned above, in this climate one of the best ways to buy seems to be to go to a few dealers, tell them the make model (and possibly even colours and options) and a price point, and wait for a call. Sooner or later, someone will.

    I’m not so sure many of the ex-rental vehicles are that great of a deal. Sure it may be cheap but it has handled at the limit and been run at redline for a much higher percentage of its existence than a normally owned and cared for vehicle.

    Actually, that is seldom the case. Most rental cars are treated very well, and maintained religiously by the rental car companies for liability reasons. If you want something very basic, an ex-fleet rental Taurus is an amazing bargain. Not my cup of tea, but for people who need something to get groceries and little else…

    Mercedes has also to be one of the kings of depreciation. A few examples: S65 AMG new price (in Canada) $228,000. A year and a half old with 30,000k? $135,000. For an S550 with similar stats they are knocking off $30,000. 2005 SL65AMG with 1,116km? $75,000 OFF LIST!!!! If I drove a car 1,000km and list 75,000, I’d shoot myself.

    Even the Bentley Contintental GT falls victim to pretty steep depreciation.

    On the other hand, as someone else mentioned for some new cars the incentives are so ludicrous that you may as well by new.

  • avatar

    kaisen it’s like you posted earlier one needs to look closely at new and used. Sometimes the used prices are out of whack and it pays to buy new. The scion XB used were commanding unreal premiums in comparison to new prices.

  • avatar
    Hooligan

    Great post. A few weeks ago, I bought a 28,000 mile 2004 Saab 9-5 Arc with Saab’s Certified Pre-Owned warranty for $16,000. I have about 3.5 years and 72,000 miles worth of bumper-to-bumper warranty and a far nicer vehicle than I could buy new at that price. I considered buying a new Mazda6, but a 4-cylinder 5-speed car would have run me upwards of $20,000, plus it would only include a 3/36 warranty.

    I didn’t finance, but if I had, Saab approved me for 2.9% financing, which is better than a lot of carmakers offer on brand new cars.

    The 9-5 is a nice vehicle, maybe not the most thrilling drive, but for the money, I simply couldn’t do any better. I’d be shocked to see myself buy another new car anytime soon.

  • avatar
    jthorner

    Great article and very true. There are a few vehicles which hold their value so well as to make a lightly used one no great bargain, such as the Acura TSX or a Toyota Prius. In every case of high retained value you have a desireable vehicle for which the mfg. keeps supply and demand well balanced. The TSX is kind of an interesting case because it is sort of a stealth car. The average person on the street knows what a Prius is, yet few would know a TSX.

    One sort of bargain used car I would stay away from are the recent Ford Five Hundreds and other Ford models with the CVT transmission. Nobody really knows what the long term reliability of that expensive unit is going to be. The conventional automatic version gets better fuel economy, so one really wonders why Ford bothered with the CVT.

  • avatar
    Claude Dickson

    bored:

    Sorry, I left off the “V”.

  • avatar
    Gottleib

    Good subject and well written article. For years I have known that most of the money made in the car business is on the used car side of the ledger. Used cars are like a market traded commodity and there occur windows of opportunity in the ask/sell prices. Used car dealers and their managers know this and have a skill as good as any wall street trader. It is not uncommon when looking at the profit and loss reports of franchised auto dealers so see that the average gross profit for used cars is significantly higher than for new cars. The main reason for this I think is that new cars have well known prices available from the internet or consumer reports while used cars prices are known by the auction houses, dealers and wholesalers and change rapidly. Experienced dealers use this knowledge to their advantage to make a profit. Of course just like on wall street price changes can and do occur rapidly which can cause some losses if you can’t react quickly enough.

    Another point, do you remember in the 1970’s when people bought Mercedes and actually bragged about being able to sell the car used after driving it 2-3 years for the same they paid for it new. That was when price appreciation was outpacing deprecitiation and demand was increasing faster than supply. Its all been balanced out now, tell me of someone that has been able to sell a used Mercedes or any import for anything close to what they paid.
    I recall some Economist has a theory about this pricing mechanism but I can’t recall his name. Interesting stuff though.

  • avatar
    Claude Dickson

    I think the single model depreciation king in luxury vehicles rests with VW, not Merc. Hardly anyone wanted the Phaeton new, let alone used. Possibly one of the best luxury cars nobody wanted (or wants). Now if you change to range of vehicles with high depreciation, Merc is certainly in the hunt.

  • avatar
    NICKNICK

    This might seem obvious or even simplistic, but it seems used cars cost what they’re worth.

    Used early 90s 4runner: $25K msrp, now sells for $2500: 90% used up.
    2006 Corvette with 17K miles: 10-15% off original selling price, about 10-15% used up.
    2006 Cobalt with 30K miles: half price/50% life left (just because it’s still running doesn’t mean it’s worth keeping).
    Three year old WRX: 30% off, 30% used up.

  • avatar
    Luther

    “You’ll soon see that the old 80/60 principle for a two-year-old model (80% of the life for 60% of the original selling price) is now closer to an 80/40 split. ”

    It would have been 80/40 before you let the whole world know about it with this article…Geeezzz… Thanks a lot Steven…:)

    In a few months, the best used car deal will be the the Chrysler Sebring. I think that is what Jonny is waiting for…:)

  • avatar
    richard whitman

    There is one factor that will change the market radically in the next few years. Under the NAFTA rules Mexico will be able to import used vehicles from the US and Canada with little or no import duty. That broadens the market considerably.

  • avatar
    thetopdog

    Kaisen,

    MSRP on a 2007 optioned exactly the way mine is (Manual transmission, dual roof option, 3LT Package, Orange tintcoat paint) is $52,170. I would post the link to Chevrolet.com’s “Build and Price” section, but it’s about 100 characters long

    I am aware of dealers giving slight discounts on Vettes, but I doubt you can get one for only a few hundred over invoice (I may be wrong though). The Corvette is not exactly a fleet car. Plus I was in no position to bargain because I have only been out of college 8 months and I have no credit history (I moved from Canada and apparently Canadian credit doesn’t count), so I needed all the help from the dealership I could get.

    Besides, it’s a little bit of a stretch for me to afford the 2006, I would not have been financially responsible of me to pay $3500 (in reality it would probably have been at least $5000 more, assuming I was a great negotiator) more for a 2007. Not that buying a Vette at 23 is a responsible decision in any way, but I’m pretty happy with how I made out all things considered

  • avatar
    Tummy

    thetopdog: “The Corvette is not exactly a fleet car.”

    Funny because I have a convertible Corvette reserved from Hertz in Orlando this summer. It replaced the Cadillac XLRs they use to have.

  • avatar
    thetopdog

    You can rent anything if you’re willing to spend enough. I’m well aware that you can rent Corvettes, Vipers, Boxsters and even Ferrari’s, but as a 23 year old male, I’m also aware that the price to rent those vehicles is either prohibitively expensive (2 days in a rented Vette will be enough to cover my monthly finance payment) or not even possible until you’re at least 25.

    The point is that I don’t expect to receive the same overly aggressive ‘cash on the hood’ incentives on a Vette as I would if I were buying a Cobalt. Which makes me think that buying a 2006 for 20% under MSRP was a good idea

  • avatar
    Fred D.

    I drive 30k per year, so I go thru cars quite quickly. I’ve run the numbers several times, and with the kind of cars *I* want to buy (Honda/Acura), it is never significantly cheaper to buy used.

    If you drive less than the average person and can tolerate the second tier brands and models, there are definate advantages to buying used.

  • avatar
    NICKNICK

    thetopdog:
    “…makes me think that buying a 2006 for 20% under MSRP was a good idea.”

    Not waiting until you’re having a midlife crisis was a good idea.

    All of the Corvette owners I know are 45 or older and are afraid to get it wet, scratched, or over 75mph. I hope you’re enjoying yours!

    I’ll do something foolish before too long…

  • avatar
    thetopdog

    Buying the Vette is one of the best decisions I have made in my life. I’m not sure if that’s a good thing or a bad thing though ;)

  • avatar
    boredlawstudent

    NickNick said:

    2006 Cobalt with 30K miles: half price/50% life left (just because it’s still running doesn’t mean it’s worth keeping).
    Three year old WRX: 30% off, 30% used up.

    A Cobalt has a life expectancy of only 60,000 miles? I’ve never driven a Cobalt, nor know anyone that owns one, but that seems low, doesn’t it?. But if it is true, GM is in worse trouble than I thought.

  • avatar
    Claude Dickson

    Fred D:

    That is not necessarily true. The Caddy CTS-V may not be a class leader, but is hardly second tier, IMHO. Audis in general have had relatively high depreciation rates. You can get a great deal on Porsche Cayennes and Boxsters. Expensive cars tend to have high depreciation rates, whether first or second tier.

  • avatar
    NICKNICK

    boredlawstudent–
    that’s what i meant by “just because it’s still running doesn’t mean it’s worth keeping.”

    i have an older vehicle with 166K on the clock. it still runs just fine, but little stuff keeps breaking and it’s somewhat of a pain. it’s loud, slow, and unsafe by modern standards. going by it’s true life expectancy, it’s probably only half used up–but going by it’s annoyance life expectancy, it’s about 90% gone.

  • avatar
    Luther

    “Buying the Vette is one of the best decisions I have made in my life.”

    People (jokingly/chokingly) say that about their marriage…You made the better decision.

    Agreed. Never buy a Vette as a mid-life crisis car. Nothing good can come of it. Not even whats-her-name.

  • avatar
    Joe O

    Quote from article: “As of April the eleventh, the Average Auction Wholesale (AAW) on a 2006 Chrysler Crossfire with 3,945 miles was also $25k. Not that many consumers would cross-shop the two roadsters, but a Crossfire that stickered for over $45k a year ago now costs the same as a new Miata.”

    Sure, I respectfully submit the example of Overstock.com. Overstock.com was selling NEW Crossfire’s for 21-23k last year; albeit, not optioned out. Nor SRT6 versions.

    So, one year ago, you could buy a new vehicle made 85% by mercedes with that beautiful 3.2 liter engine in it.

    I bought a 2005 Saab 9-2x Aero for 18,600. 5-spd, heated seats. No other options. I traded it in…not even private party…after 9 months and 9000 miles and got 20,500 for my trade-in. And in PA you do not pay taxes on the purchase of a vehicle for the amount you trade-in.

    There are sometimes good reasons to buy new; there are sometimes good reasons to lease. And there are sometimes good reasons to buy used. All based upon what you are looking for, and what your situation is…

    Joe O.

  • avatar
    Geotpf

    I have a 2006 Scion xA with 10,000 miles on it. In excellent condition, the private party sale value is only two thousand dollars less than what I paid for it (MSRP; Scion is no haggle, you can’t negotiate). Retail price for the same vehicle is about $600 less than what I paid for it. I think that’s pretty damned good.

  • avatar
    Terry Parkhurst

    Dealer auction are, in one sense, no different than any other auction: the auctioneer will always push the price somewhere above wholesale, but below retail. The difference lies in the fact that unless you have a dealer license, or are a guest of someone who does, you can’t attend dealer auctions; and you surely can not bid unless you’re a dealer.

    I myself drove cars through dealer auctions in 1992 and ’93, so I got an interesting insight into these auctions. Yes, titles were sometimes wiped even at these auctions – until “60 Minutes” did a piece on how cars that had been stolen or wrecked or both had their histories obscured and then stolen. That led to auctioneers making announcements of “salvage title.”

    In fact, “salvage title” cars are some of the best bargains going, since it might simply mean the car was stolen for a joyride, and later found by the police, relatively unscathed.

    Certain collector car auctions, around the county are essentially dealer auctions. Silver Auctions held a collector car auction in Portland, Oregon on March 31, where a 1975 AMC Pacer DL was bought by Monte Shelton, a collector himself and a Jaguar dealer, for just $3550.

    Two weeks later, he entered it in the Portland swap meet and was asking $8,900, after putting in some seat inserts and a new windshield. Last I heard, he had dropped the price by $500 and was still looking for a buyer.

  • avatar
    kaisen

    I have a 2006 Scion xA with 10,000 miles on it. In excellent condition, the private party sale value is only two thousand dollars less than what I paid for it. Retail price for the same vehicle is about $600 less than what I paid for it.

    So if a used one was parked next to a new one, what would the difference have to be before you’d buy the used one? At $600, I’d pick the new one every time. This is where the ‘market’ determines the real transaction price, not the book value. Books don’t buy cars.

  • avatar
    taxman100

    In my opinion (humble as it is), the best used car value is any of the Ford Panther platforms (Town Car, Grand Marquis, or Crown Vic). They depreciate like a stone, but they are flat out built to last. Plus, you are not driving some sort of penalty box or car made from recycled steel cans and plastic.

    Bonus is they are owned by old people, who never go over 50 mph, or park them outside, etc.
    You buy a 2 year old one with 30,000 miles at half of MSRP, and you are good to go for another 150,000 miles.

  • avatar
    Landcrusher

    Kaisen,

    I often find the book numbers a bit unbelievable, and for cars less than 2 years the methods they use to determine values are challenged.

    However, your example shows only what someone with excellent market knowledge will do. Often, used car buyers do not compare to new, and the deal is done. The net has reduced this practice, but over a decade ago, you could easily find used cars marked higher than new ones on the next lot.

  • avatar
    Steven Lang

    A few comments…

    A Ford Crown Victoria Police Interceptor that has seen non-police duty (owned and driven by city officials) can often be an excellent deal. I’ve been through three of them myself.

    The Scions are going to hit depreciation a bit harder this year. The Xa is/was unpopular, the Tc will probably outperform all sports coupes except the Acura, the Xb will get hit but has the best chance of becoming a cult classic. The Xb is actually one of the few enduring vehicles that Toyota has produced in recent memory. Toyota hasn’t built what I would term a ‘classic’ since the last generation Supra.

    Car collector auctions are very unique creatures. Virtually all the norms of dealer and certain public auctions are reversed. Keep in mind that with any of these auctions you are not under the obligation to buy just because you put your hand up. The auctioneer is not a judge even though the gavel may give you other ideas.

  • avatar
    Dave M.

    For the past 25 years I have bought nothing but new cars and run them into the ground (190k, 228k, and currently at 120k or halflife on my latest….). For the first time I am considering a CPO for a weekend car…something about that 30%/2 year depreciation hit with 100k warranty that seems mighty attractive……

  • avatar
    calacak

    A good majority of car nuts know this and use it to their advantage.

    I occasionally get asked about looking at a new car, what car someone should buy, etc. When it’s one of my friends that do not earn that much money, I usually recommend:

    1. Small car? Dodge Neon. I’ve seen 1 year old models with very low miles go for 4 to 5k. I’ve seen a few 3 year old models for go for $1500. Mercury Cougar is a good buy too. My dad has had his for 2 years and book value is still higher than what he paid.

    2. For those that need bigger transportation, the Taurus makes a good choice. 2 year old models with 35k miles routinely go for pennies on the dollar.

    3. For those that have kids and need something bigger, the Mercury Villager (or it’s Nissan sister) sells for almost nothing. Not the best minivan, but it’s better than spending 29k for new Honda or Toyota.

    Grant it, all of these cars are not the best, nor are they the most exciting cars on the road, but when your getting a 2005 Taurus for 3k versus it’s 22,000 MSRP, it’s hard to lose.

    Unfortunately, some people are just stupid and want to buy the most expensive model possible or one that doesn’t suit their needs. One of my friends with 3 kids, two bankruptcies and driving a Plymouth Sundance wanted a new car — I recommend those above, he bought a 2006 Suburban. It’s now repoed and he’s back to the POS Sundance

  • avatar
    Tiger Commanche

    Hey Joe O., thanks for the info on your 9-2X purchase/sale, and glad to see you made out like a bandit. That confirmed what I suspected with that model, and I desperately tried to find one when GM was offering those ridiculous incentives (I think $7K off at one time) but they all the Aero’s disappeared real quick at that time.

    And I thought I did good with a ’91 Eclipse GS turbo I bought a few years ago for $2,500. Drove it for 2.5 years, 25K miles, and sold it for $3,000. Man, those deals are hard to come by but sure are gratifying when you can find them.

  • avatar
    liechter

    I couldn’t agree more with this article.

    I also agree with the poster who said that used Tauruses are great deals. I bought a used 2002 Taurus in 2003 that was previously a rental car with 23K miles. It now has 108K miles on it and I never had to fix anything on it. The seats are the most comfortable seats I ever sat in. And don’t think that I only sit in “crappy” cars: I am an actuary, so most of my colleagues drive luxury brands and I have sat in a lot of them.

  • avatar
    rtz

    I’ve never had a car payment. There’s an excellent chance I never will..

  • avatar
    postjosh

    based on the number of responses, i’d say this posting has hit a nerve with ttac readers. as far as i am concerned the only way to buy a car is on ebay. you can get exactly what you want without leaving your desk. since most dealers these days are selling cars that they bought at auctions, there is no advantage to buying at a local dealer. the days of them selling you a car that they serviced are over. if you want a warranty just buy one from a 3rd party. on ebay, you can get excellent photos and car history info. only buy from someone who has sold a lot of cars and has a near perfect feedback rating. most of these people are used car dealers who are not going to risk their feedback rating to screw you in a deal. in my case, i recently bought a beautiful 2002 volvo v70xc with 49k miles right off the lease equipped the way i wanted it in the color my wife wanted. we paid $16k for it, less than half of what it sold for new (msrp $40k). the car lots in my area ask $20 – $22k for similar cars. this model routinely last 200k miles. i know that because i see them for sale with high mileage on ebay all the time. my research also showed me that the passat v6 which i liked better than the volvo (better handling & prettier) didn’t have very many high mileage examples on ebay.

  • avatar
    Sanman111

    Honestly, used car deals have been good to me and my family. In 2000, I purchesed an Altima GLE for $11,100 and the car is still selling for around $8k now. My dad purchased a 2003 v-6 Camry LE with 17k miles for 14k with a 1992 pathfinder trade-in. It all depends on where you are and what you want. I’ve been looking at 3 year old celica GTS and RSX-S in Virginia selling for 15-16k, much better than the 22-23k for a civic si. In New York, they wouldn’t be such a deal. It works great for me because I don’t drive far.In four years, my car has gone from a good slightly high milage example to a low mileage example. Negotiating well on both ends yields me less than 1k/yr depreciation.

  • avatar
    confused1096

    I’ll add my .02 on the Panther platform. It’s been around forever and goes for long periods without update. This makes getting ahold of parts easy and most shops have no trouble what so ever reparing them.
    I recently bought a used police interceptor with a almost new rebuilt engine for $2600. Even with significant repairs I’ll still be ahead financially of where i would be with a new (or slightly used) car payment. Plus it is large, comfortable, safe, and fun to drive.

  • avatar
    nino

    I think a few here are missing some points.

    While the depreciation on a BMW or Mercedes is great, the cost to fix one doesn’t change. A used M3 with 35,000 might sound like a good deal at $32,000, if there is something even slightly wrong with it, you could be out several thousand dollars.

    You also need to take into account finance charges and if there is a subsidised lease on the car. Many Cadillac leases are susidised by GMAC that turns $40,000 car into a no money down, $300 a month deal. Math will tell you that you paid $10,800 over 3 years for the use of a new $40,000 car. That’s cheaper than what its depreciation would be. If you run it through a business, you may be able to write off the payment as well.

    There is more to car buying than just stating absolutes that used cars are always the better deal. A friend who recently purchased a 3 year old BMW 525 for $30,000, is finding out the hard way that the new Camry he was considering may have been the better deal

Read all comments

Back to TopLeave a Reply

You must be logged in to post a comment.

Recent Comments

  • speedlaw: Agreed. Caddy’s only path to success is to be exclusive, not selling parts bin cars with more...
  • el scotto: @Dartdude Our Federal Government, thankfully, is not like Apple computer corporation. I have an iPhone 3...
  • el scotto: @SCE to Aux; I can think of three stand-alone Cadillac dealers. Lockhart Cadillac in Greenwood and Fishers...
  • Ol Shel: You should choose a car from a company that’s never had a recall, like: Nash, Duesenberg, Datsun,...
  • RHD: That’s a lot of money to put on the line for such a silly bet. Truth be told, ICE vehicles will be slowly...

New Car Research

Get a Free Dealer Quote

Who We Are

  • Matthew Guy
  • Timothy Cain
  • Adam Tonge
  • Bozi Tatarevic
  • Chris Tonn
  • Corey Lewis
  • Mark Baruth
  • Ronnie Schreiber