To Save BIG, Buy a Used Car

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This week's column is courtesy of two press releases that pinged into my inbox within five days of each other from the smart people at automotive website Edmunds.com. The first said that used car prices are up 10 percent over last year. The second said that the next 30 days are the best time this year to buy a new car. Edmunds is one of my favorite resources, and it would be easy to conclude that we should all go out and buy new cars given these contrasting releases. But I still think used is the way to Save BIG. Let's take a closer look.

Edmunds studies vehicle pricing trends and says 90 percent of new car models will go down in price between now and the end of September as dealers try to get rid of 2010 models. "The next 30 days will be the best time of this year to get a great deal on a car, as there is still sufficient selection of old model year bargains and prices are generally trending downward," Edmunds.com Senior Analyst Jessica Caldwell said. That's pretty heady stuff for car nuts. But what does it really mean for savings nuts?

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Here's an example. One vehicle Edmunds singles out is the 2010 Chevy Suburban. The website believes GM will offer juicy incentives on the Suburban in the next month, based on past experience with what happens to car prices this time of year. The 2010 MSRP on a Chevy Suburban starts at $40,635 and can easily go up to $45,000 or more, depending on the bells and whistles. Let's go with a realistic incentive of 15 percent off that MSRP. So if you are buying the lowest level Suburban new, your final price would be $34,540.

Now let's see what's happening with used Chevy Suburban pricing. They've actually gone UP in the past year. Why? Classic supply and demand. More people are buying used these days because of the rocky economy. That increased demand has driven prices up. Thus, a three-year-old Suburban cost an average of $20,262 in July 2009, but went up to $27,193 in July 2010. Yikes, that's a 34 percent increase! But is it reason to avoid buying used? Not necessarily. Even at $27,193 a three-year-old Suburban still costs much less than a new one which costs $34,540 with the best incentives of the year. Your savings? $7,347 by buying used.

Sure, my analysis is simplistic. For one thing, it doesn't include the shorter life of the used vehicle because of the miles on it. But it's a good reminder that buying used cars is one of the easiest ways in life to save thousands of dollars in a single step. Ideally you would choose a solid but less popular model that hasn't been run up in price the way the Suburban has. And the sweet spot is a 3-year-old car because most have low mileage but they've already been through their steepest depreciation period. (By contrast, Edmunds points out that if you are going to buy a one-year-old Chevy Suburban, you might as well buy a brand new one because at one year in, the price of the used vehicle is less than 5 percent lower than that of the new one!) Personally, I will never buy another brand new vehicle. And I will keep the used cars I buy as long as I can stand 'em to Save BIG!

Next week: Why if you DO get a brand new car, you should buy -- not lease.

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