Find bargains in used cars Posted on October 29th
With a gallon of gas still bouncing around the $4 mark, many drivers are reacting by unceremoniously dumping their inefficient SUVs and pickup trucks. After all, keeping the fuel tank filled is an owner’s biggest automotive outlay, right?
Wrong. The largest ownership expense with most any new car, truck or SUV is its depreciation - the amount in which its value as a used vehicle falls over time.
According to the October 2008 issue of Consumer Reports magazine, “on average, depreciation accounts for a whopping 45 percent of a new vehicle’s ownership costs over the first five years.” That’s an amazing number and often amounts to far more than the cost of the fuel going into a vehicle’s tank.
Consumer Reports analyzed ownership costs for new and used versions of the same vehicles. Comparing the five-year ownership costs involved in buying a three-year-old car or truck, versus a comparable brand-new model, the magazine found a difference that varied from a low of $8,250 for a compact Ford Escort sedan to a high of $25,500 for a full-size Chevrolet Tahoe SUV. Choosing a used vehicle instead of a new one can save buyers a considerable amount of money and, according to the magazine, will be nearly as reliable in most cases.
What are currently the best deals out there among the current inventory of used models? Since there are no “sticker” prices for pre-owned cars and trucks, the forces of supply and demand dictate what the market will bear for a given make, model or vehicle type. Not surprisingly, smaller and more fuel-efficient models are in the greatest demand these days and are selling at a premium on used-car lots. Meanwhile, the values of used trucks and SUVs are plummeting at an increasing pace.
Fuel prices are having a direct and profound affect on resale prices at both ends of the spectrum. “We estimate that for every one dollar increase in gas, large pickups decline in value by $2,200, on average,” says Terrence W. Wynne, director of editorial and data services for the National Automobile Dealers Association Used Car Guide. “By contrast, for intermediate and compact cars, a one dollar increase in fuel costs lifts resale prices by an estimated $980.”
As fuel prices rose during the first quarter of 2008, the average wholesale price of used vehicles sold at auctions declined among SUVs, pickup trucks, CUVs (crossover utility vehicles) and vans. Used pickup truck and SUV prices fell 11.2 and 9.6 percent, respectively, on one- to five-year-old vehicles, according to NADA data.
For those who still require a pickup or SUV for purposeful needs like hauling, towing and carrying passengers comfortably, that just means it is now bargain-hunting season. This is particularly true as we head into winter when the peak buying period winds down. “A large inventory overhang of aging pre-owned trucks and SUVs in dealer stocks threatens potential major wholesale losses,” according to analysis of nearly 200,000 vehicles in a study by FirstLook Analytics, a firm offering analysis software to auto dealerships.
Those blindly following the crowd and looking to trade-in a gas-guzzler for a more fuel-efficient car without first running the numbers can easily fall into the oxymoronic trap of “saving money at any cost,” especially given the low trade-in values most trucks and SUVs currently command. “While it might be tempting to trade-in your big SUV after spending $100 to fill its gas tank, it is important you take everything into consideration before you decide to change vehicles or you may end up spending thousands of dollars to save hundreds,” says Jack R. Nerad, executive editorial director and executive market analyst for the car-pricing service Kelley Blue Book.
Along those lines, buying a used vehicle that’s in less demand, and thus has a depressed resale value - even a large and thirsty SUV - might save a motorist enough on the initial purchase to pay for several years’ worth of fuel. By comparison, having to pay a premium to drive a trendy, high-demand used car that has a low rate of depreciation - Consumer Reports cites the Toyota Prius and MINI Cooper in this regard - might negate any advantages of buying used versus new. And it’s no bargain to trade-in a vehicle that’s already paid for and assume a monthly car payment, just to save what might wind up being only a nominal amount of money on gasoline.
And be aware that while depreciation is the biggest cost element, maintenance and insurance can vary widely among vehicles. Newer, more expensive models tend to cost more to insure than older ones, for example, and sporty cars are generally the costliest to cover, overall. Maintenance costs are generally higher for older cars, but not by much. Late-model used cars tend to be far more reliable than they once were, according to Consumer Reports. “When properly maintained, many vehicles can now reach 200,000 miles or more without a major problem,” according to the magazine.