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Why You Should Always Buy A Used Car

The North American International Auto Show opens to the public on Jan. 19 in Detroit, showcasing luxury sedans, shiny sports cars, and roomy SUVs that rival some of the city’s single-family homes in price.

But while there’s nothing like being the first to nestle in a new car’s supple leather seats and inhale that fresh-from-the-assembly-line perfume, it’s an expensive romance.

If the idea of saving thousands of dollars is more thrilling to you than that new-car smell, you’ll find your heart’s desire in the used car market. A wider pool of quality used cars, and progress in Internet search functionality, have vastly changed the buying experience.

In 2007, roughly one in four buyers of late-model used vehicles relied on an Internet vehicle locator or online classified ad service to find the auto they purchased. That’s a 44 percent jump over the previous year, according to a study by J.D. Power and Associates.

And there’s no beating the price. “People don’t think of depreciation as an out-of-pocket cost, but it is,” says Philip Reed, senior consumer advice editor at Edmunds.com and author of “Strategies for Smart Car Buyers.” “There’s a steep drop off in [value] in the first year, and 30 percent depreciation by the end of the third year.”

For example, Edmunds looked at the Lexus GS 430 and GS 450. “The first-year depreciation on the new car is $14,000; if you bought a two-year-old model, the depreciation is $3,000 in the first year of ownership,” says Reed.

Before you begin your search, get the Kelley Blue Book value on the make, model, and year of the car you’re considering. Edmunds offers two appraisal tools: the True Market Value guide and the True Cost to Own calculator, which considers ownership costs like maintenance, repairs, depreciation, and fuel.

If you don’t have a specific vehicle in mind, the $10 “Consumer Reports Used Car Buying Guide 2008,” which comes out on Jan. 22, is a good place to start. Quality is widespread, experts say, so look beyond the popular brand names. “I worked as a mechanic 30 years ago, and it wasn’t unusual to overhaul the engine at 75,000 to 80,000 miles,” says John Paul, AAA’s southern New England “car doctor.” “They don’t make them like they used to — and that’s a good thing. The line between best and worst is pretty thin these days.” (See my blog for specific model recommendations.)

Also get a one-month subscription to CARFAX, the oldest of several services that offer reports on a vehicle’s history through its vehicle identification number (VIN). The report tells you how many owners the vehicle has had, when it was serviced, and whether there was an odometer rollback or a salvage report — indicating that the car was stolen, in a serious accident, or flooded.

“The VIN can also let you know any outstanding recalls that need to be taken care of,” says Paul, “Thirty to forty percent of recalls announced never actually get fulfilled.”

Next, head to the Internet. The sheer volume of listings, ease of use, ability to refine a search, and forums with advice from other buyers has mushroomed in recent years. Some 72 percent of Internet shoppers in 2007 visited consumer forums to get opinions from real car buyers, and 94 percent found it helpful, according to the J.D. Power and Associates study.

If you’re someone who worries about buying a lemon, go to the individual automaker’s home page and click on “certified pre-owned vehicles.” These models are usually no more than five years old, and undergo an inspection based on the manufacturer’s certification standards. Most important, you get a warranty. (Be sure to get the real deal from the manufacturer, rather than an extended service contract issued by a third party.)

All that reassurance can be costly, though. “You don’t get the bargains in certified shopping, because they try to turn used-car buying into a new-car experience,” says Reed. “You don’t need a mechanical inspection of a vehicle, and they give you a guarantee. That makes it simple, but you will pay extra.”

CarMax.com is another fast-growing seller that offers warranty protection. (Warren Buffett’s Berkshire Hathaway bought a 6 percent stake in the company last November.) CarMax operates 86 used car stores in 39 U.S. markets, where it buys, reconditions, and resells vehicles. You can search its entire network through the web site and have the car shipped to you for a fee. The company touts its no-haggle pricing and five-day money-back guarantee. (Even with a warranty, it may be worthwhile to pay an extra $100 or so to have a vehicle inspected by an independent mechanic.)

Then there are the online auto classified ad sites, offering vehicles from both dealers and private sellers. You can search by make, model, year, price, mileage, location, and more than a dozen specific features, from engine to upholstery. The biggest players include AutoTrader.com, with 3 million cars for sale; Cars.com; and eBay Motors, which had $18 billion in sales last year.

According to Reed, “eBay is a very active source, and it’s my estimation that [non-specialty] cars sell at wholesale prices on eBay” He adds, “There’s quite a bit of flexibility to search for local cars, and work with a seller in terms of inspecting it beforehand. People are also buying cars and having them shipped without a whole lot of fuss. There are usually provisions if [the vehicle] doesn’t live up to the description.” (See this post for buying tips.)

As for safety, experts say most late-model used cars offer the critical features. First, examine the crash test data from both the government and the Insurance Institute for Highway Safety. Then put these top safety features on your shopping list:

-Airbags: Frontal airbags have been required since 1998 in passenger cars and 1999 in SUVs and trucks, but side- and rear-impact air bags are still optional, and may be difficult to find in used cars, says Reed.

-Antilock brake systems (ABS): When you slam on your brakes in a panic, you often lose steering ability. “If the wheels aren’t turning, you’re on a platform skidding forward,” says Reed. “With ABS, you can continue to steer — it’s a huge development in safety.” ABS can be found on two-thirds of new cars.

-Electronic Stability Control (ESC): This feature allows the car to sense when the wheels are losing traction on a turn, and independently brakes the wheels to keep you in the direction you need to go without rolling over. It’s estimated to save between 5,000 and 10,000 lives a year. ESC was standard in half of new cars last year, and the government is requiring it in almost all vehicles by 2012.

-Tire pressure systems: “It’s appalling how little attention people pay to the pressure in tires,” says Reed, adding that these systems will become mandatory in new vehicles in 2008. “You begin to compromise safety at 5 percent below recommended pressure, fuel economy is compromised immediately, and the tire wear is increased.”

What you won’t find in the used market are the features like airbags for the legs and knees, lane departure warning systems, and rear back-up cameras, with a screen to show what’s behind the vehicle when you put it in reverse. “There are going to be tradeoffs when you buy used,” says Reed, “but you can find everything you need. And far and away the most important safety factor is the driver.”

(Adapted from my Yahoo!Finance column)

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One Response to “Why You Should Always Buy A Used Car”

  1. Jon Says:

    Absolutely true that used cars are a much better deal! Thought that you might take an interest in another take on the topic of cars and being frugal…

    As a car fanatic and a life long cheapskate, I have always struggled with how much to spend on a car. So, here is my take on the topic of how much to spend on a car – the car vs house calculator

    The general principle is that the annual cost of your car versus the annual cost of your house should be proportionate to the amount of time you spend in each.

    http://www.befrugal.com/tools/how-much-to-spend-on-a-car/

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