If you buy a used car, you're buying somebody else's troubles.
That tattered bit of automotive buying advice has been making the rounds since Jack Benny bought his first Maxwell. While it might have been true in the heyday of planned obsolescence, the fact is some of today's smartest vehicle shoppers are buying used. There is no doubt that there has never been a better time to buy a used car.
There are several reasons, all working in favor of the used-car buyer. The first of these is quality. They say they don't make 'em like they used to? That's correct; they make 'em much better. Today's new vehicles are the best-designed, best-built, most reliable vehicles in history, and that means that today's one-, two-, three- and four-year-old used cars are the best in history as well. Though they are certainly more complicated than the cars of the Fifties and Sixties, today's vehicles have staying power. So if you buy a car that is, say, three years old, it should give you at least six more years of good service. Of course, it will require some preventive maintenance and some repairs, but it terms of cost-effectiveness, it will be about as good as you can get for your transportation dollar.
That ol' debbil depreciation is another key reason why today is a great time to buy a used car. You know what the number one cost of owning a new car is in the first five years of ownership? That's right. Depreciation. You don't write a check for the cost; it doesn't show up in your bank statement, but it hits you in the wallet pretty hard. For example, over the course of three years a new car might drop as much as 40 percent in value. So your spanking new 2000 model year chariot might be worth only $12,000 come 2003. Though vehicles still depreciate after the first three-year period expires, the curve flattens out so that the year-to-year drop in value is not nearly as severe. What this means is if you buy a three-year old vehicle, you can avoid a significant amount of depreciation cost.
One last bit of good news: The increasing popularity of leasing virtually guarantees that there will be a steady supply of high-quality two- and three-year-old cars to choose from when you decide to buy. These days about one-third of all new vehicles are leased as are well more than 50 percent of luxury cars.
Leasing has had a profound effect on the car business, and it has come up nothing but aces for the used car buyer. Cars coming off lease are just a few years old, plus most are well-maintained and have relatively low miles on them. Lease contracts have tight stipulations on condition and mileage so most lessees play it straight and bring back cars in good condition under the contractual mileage limits. Because of this, these "off-lease" cars can be great used car values.
Leasing has had another positive effect for used car buyers as well. It has put auto manufacturers into the used car business. They don't necessarily want to be in the used car business, but those who have a finance division end up owning thousands of used cars each year when leases expire. They have to sell these vehicles on the used-car market to meet their profit goals. And those who don't have a captive finance arm still are vitally concerned with the used-car market because used-car values help determine their new-car lease rates. Because of this many car manufacturers have put together special programs to add value to their used car offerings in the form of certified used car programs. While plans differ from manufacturer to manufacturer, virtually all of them have strict criteria for what vehicles may be included. Those vehicles are then thoroughly inspected, brought up to specs and backed by a warranty that mimics new-car warranty coverage.
For example, here are the highlights of two top certified used car programs:
BMW Certified Pre-Owned Vehicle Program
- Eligibility: Late models, with fewer than 60,000 miles
- Warranty: Two years/50,000 miles from the date of expiration of the four-year/50,000-mile BMW new vehicle limited warranty (total: six years/100,000 miles)
- Safety, performance and wear inspections
- 24-hour roadside assistance
- Consumer inspection checklist for first-hand verification that car meets BMW's safety and quality standards
- Lease and retail finance options for select certified vehicles through BMW Financial Services
- Certified Pre-Owned BMW Protection Plan, which spells out all components and systems covered by the warranty and clearly states exclusions
- Web site includes a searchable database of certified pre-owned BMWs
Honda Certified Used Cars
- Eligibility: Models up to three years old/60,000 miles
- Coverage: Six years/72,000 miles on the powertrain (from original in-service date); 12 month/12,000 mile non-powertrain equipment
- No deductible
- 150-point mechanical and appearance inspection
- Certified used car decal for identification
- 24-hour roadside assistance
- Finance and leasing services
- Web site features a dealer locator, model library, vehicle locator and special offers
As you can see from the plans, the coverage mimics that of the original new-car warranty, so if you fear buying somebody else's troubles, these plans and others like them from a wide variety of manufacturers should alleviate that worry. A key item to remember here is that you should look for factory-backed certified vehicle programs. Because the word "certified" has gained cachet as a sales tool, a number of new and used car dealers are referring to some of their used cars as "certified." Generally, that term has little or no meaning unless it is backed by an auto manufacturer program.
Okay, so we have convinced you that a used car might be a cost-effective alternative to buying a new car. After all, the quality of many used cars is very good; buying a used car allows you to escape some pretty hefty depreciation costs; and many car companies are willing to back their used vehicles with new-car-like warranty protection. Now what do you do?
Well, if you think a certified used car is for you, there are a couple ways to proceed. One is as simple as logging onto the manufacturer Web site on your computer. Most manufacturers with certified programs will give you detailed information and a dealer locator right on the Web. Some manufacturers will even list their certified used car vehicle inventory, so you can let your mouse clicks help your shopping process. Of course, another way to proceed is to call local dealers and ask them if they offer manufacturer-certified used cars.
Of course, certified used cars aren't the only good values in used cars. In fact, buyers often pay a premium for certified used cars for the peace of mind value of the warranty and other coverages. But new-car dealers also are good sources of high-quality used cars, even without certification. National chains like CarMax and AutoNation have tried to make their imprint on the used vehicle market. Their results have been mixed so far, but for those who dislike haggling, they can be good choices. In addition, car rental companies operate used car sales lots to dispose of vehicles they buy, and while this formerly was strictly domestic-vehicle territory, today some high quality imports are also showing up on these sales lots. Also, don't forget about private party sales. If you're on a budget and are somewhat astute about mechanics, you can get yourself a good deal buying a car from an individual. Of course, private party purchases are "as-is."
What should you pay for a used car? Well, every used vehicle is an individual entity, but there are good sources on the Web to get close approximate values for most late-model used cars. Of the services available, Kelly Blue Book might be the best, although Edmunds also has its adherents. Do a little research, and you could save yourself hundreds of dollars.
Sure, there's nothing like a strong whiff of new-car smell. But you might be willing to exchange that exhilarating experience for the whiff of several thousand dollars in cold, hard, flip-between-your-fingers cash. If so, good used cars await. Happy hunting.
-- Jack R. Nerad
Nerad is the author of The Complete Idiot's Guide to Buying and Leasing a Car, and he's currently in the market for a sports-utility vehicle.