As Auto Prices Rise, Used Cars Are Looking Shinier – NRToday.com
Dennis McNabb had just started thinking about buying a roomier car last year when he suddenly had no choice. A heavy storm rolled across Texas and dropped golf-ball-size hail that pummeled his 2013 Hyundai Genesis and punched holes in the sedan’s windows.
Another shock came when McNabb, a firefighter from San Antonio, saw the sticker prices of new cars. The Toyota 4Runner SUV had caught his eye, but 2016 models were more than $40,000 when loaded up with the heated seats, touch screen and other options that he wanted.
McNabb quickly found a solution: a used 2014 4Runner with 38,000 miles that cost him just $29,750 and came with a one-year warranty.
“The new ones are fairly expensive, and you lose about a third of the value as soon as you drive it off the lot,” he said. “The 2014 is pretty much fully loaded, and it’s practically the same car as the 2016, but way less. Kind of a no-brainer.”
Over the past several years, as the U.S. economy has gained steam and consumers have rushed out to buy new cars, the average price of a new automobile has edged higher and higher. Last year, new vehicles on average sold for a record $34,077, according to Edmunds.com, an auto-information website. That’s a 2.7 percent increase from 2015 and a 13 percent jump since 2011.
That’s also more than many consumers can or want to pay. The result is that used cars, especially the nearly new models that were leased or turned in by their original buyers, represent increasingly enticing deals.
“It’s very hard to beat the value of a late-model used car,” said Jessica Caldwell, a senior analyst at Edmunds.com. Depreciation is one of the biggest costs of owning a car, she noted. “If you buy a used car with low mileage, someone else has already taken the depreciation hit, so it’s a very smart way to get a car.”
New-car prices are rising as automakers add more technology. Features like rear cameras, radar sensors, collision-preventing automatic braking systems and Bluetooth are now standard in most new cars and trucks. Americans’ preference for SUVs and other larger vehicles is also pushing prices higher compared with the days when less expensive small cars were more in vogue.
Consumers aren’t the only ones seeing opportunities in used vehicles. In Jackson, Michigan, 80 miles west of Detroit, Wes Lutz has just built a 5,000-square-foot addition to his Chrysler Dodge Jeep franchise to accommodate his expanding used-car sales.
“We’ve hired salespeople and managers because there’s a lot of demand for used cars,” Lutz said. “If you’re looking at a $33,000 price for new, you can get a similar car for half the price. That’s a great deal, especially for people who don’t drive that much, or first-time car buyers.”
Lutz estimates that he’ll soon be selling 200 or more used cars a month, up from the 130 he typically sold per month last year.
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Other, bigger car dealers are making similar bets. AutoNation, a chain of 371 new-car franchises, is spending up to $500 million to set up a chain of used-only outlets. The first opens in Corpus Christi, Texas, in May. The company is also trying to take some of the anxiety out of buying used cars. Its new-car franchises now offer pre-owned models with uniform, no-haggle pricing, and promise to fix or disclose any recall issues a used car has.
“More people will look at used if they’ve got peace of mind that you’re getting a fair price,” said Marc Cannon, AutoNation’s vice president of marketing. “There’s a lot of potential in the used business, and we think this is what consumers want.”
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Americans purchased 38.5 million used cars in 2016, about the same as in 2015. That includes all used cars, from 20-year-old rust buckets to former demonstration models that dealers sell as “used” even though they may have fewer than 100 miles on the odometer.
Sales of certified pre-owned cars rose 4 percent from 2015, to a record 2.6 million vehicles in 2016, according to Edmunds.com. Those are cars that are less than 3 years old, generally have under 50,000 miles, and have been inspected and serviced by a franchise dealer. They usually come with an extension to the original warranty. That’s the type of deal McNabb got on his 4Runner.
Like new-car prices, used prices have also been rising, to an average of $19,189 in 2016, according to Edmunds.com. But analysts think used prices will ease because inventories are rising. This year, about 3.5 million cars that were leased for two or three years will be returned and sold as gently used cars, Caldwell, the Edmunds.com analyst, said.
One caveat about buying pre-owned cars is that they are usually not subject to the rebates and discounts manufacturers typically offer on new cars. Also, even cars that are only a year or two old may not have the latest technology. So it pays to shop carefully.
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Joe Codiroli, a Defense Department consultant in Richmond, Virginia, discovered that last month when he looked for a bargain on a slightly used Subaru Forester. He wanted to get a model with EyeSight, Subaru’s safety electronics system, which includes advanced cruise control with automatic braking and blind-spot warning technology. The used Foresters he found didn’t have those features.
On top of that, he found that Subaru was offering zero-percent financing on the 2017 Forester. He picked out a reddish one — a color Subaru calls “Venetian pearl.”
“It came down to a few thousand dollars’ difference between new and used,” Codiroli said. “So the value for the extra features and the zero-percent swayed me to go with new.”
And he’s glad he opted for the latest safety electronics. “If a car cuts in front of me on the highway, it just slows down nice and easy,” he said. “It’s phenomenal. It’s easier to drive, and I feel a lot safer.”