Yeah, the luxury aspect is one part of it, but the other part is reliability. People who buy new cars don’t all care about long-term reliability – some of them are going to trade it in quickly – but people who buy USED cars almost all do. So unreliable cars don’t fetch a good price on the used market.
I haven’t really studied the issue (beyond my own observations), but I think there are a few factors in varying resale values (as a % of MSRP):
Some cars are sold new at deeper discounts to MSRP (due to flatout discounting, or incentives, or whatever). So you should really be comparing used prices to actual new selling prices, not MSRP. But the former is hard to calculate.
Reliability does play a part, but it’s probably more PERCEIVED reliability than actual reliability. Perceptions roughly mirror reliability, but there are errors and lags (it took a while before the public understood Hyundai’s improved quality, but I think now it pretty well does, though you still may be able to buy a new or used Hyundai a little cheaper than a comparably reliable and featured Japanese car).
Differences between new car buyers and used car buyers. Used car buyers are, I would guess, generally younger and poorer. They still want cars that have features, prestige, and reliability, but the perception by a young person of what is prestigious is different from that of an old person. The percentage of, say, 60 year old buyers who will seek out a Lincoln, because the brand is prestigious to them and the features that typical Lincolns have are desired by them, is different than the percentage of 35 year olds shopping for a used car. The latter might lean towards the prestige and features of the Honda brand, or perhaps the coupe/sportscar/SUV packaging.
Cars that tend to hold their value well have a reputation for being highly reliable, cheap to repair, or ideally both. The holding the value bit is a premium because presumably the maintenance costs are going to be lower. Pointing to Honda Accords, an extreme outlier in terms of high reliability reputation, in any general discussion of used car depreciation is misleading at best.
Used cars shouldn’t be viewed as a way to buy more car than one can afford new, but rather an economical way to dodge depreciation and get a nice car while still having money left over in the bank. I would agree that a person who decides that they can afford a $20k car and thus goes out to blow $20k on whatever is not going to do well in the used car market. Frankly, someone being that careless with a financial transaction that large isn’t going to do well period, but the new car is their last damaging move.
For a somewhat savvier buyer with $20k, doing some shopping around to find a good condition 10 year old car for $10k can be a very profitable move. They can bank the other $10k and even after a higher repair budget still be profiting on the deal. Also when the time comes to sell/trade the vehicle the lower depreciation on the deal is a nice bonus. In the long run, on average, the buyer of the used cars comes out ahead.
I was going to recommend the Hyundai as well but I see it’s been covered. Easily best value-for-money proposition going right now.
I agree with a previous poster that reliability is probably more important (or should be), on average, for used car buyers than new buyers, because the used car buyer is likely to own a car deep into the repair timeframe, whereas at least some new car buyers will have already moved on.
Assuming the 10 year old car is in the same class and has comparable features to the new car alternative, and assuming that it is a typical 10 year old car (i.e. with >100K miles), then I think paying half of what a new car costs for a 10 year old car is not very smart.
Cars probably have ~15 years of useful, daily driver lifespan. Maybe less. To pay 50% of new car prices for ~33% or less of new car lifespan, and to be buying the years when the car is most likely to have mechanical issues, seems unwise. Plus, the 10 year old car is likely to be behind on features and the like.
Can’t you save a LOT more than 10k, or 50%, buying something 10 years old? Just browsing craigslist, that yields a lot of cars in the 4 - 6 k range. 10k is more like 6 - 8 years old.
Quaro - yeah I would think so.
I paid a lot less than 50% of new (MSRP anyways) last year for a car that was a little over 6 and a half years old at the time, and low mileage.
Maybe, but they ALWAYS are. Look at this thread: Dude’s got $15K, he doesn’t want to buy a super-small Fit-like car, and so people are recommending used versions of $25K cars.
Nobody’s saying “If you only have $15K, all you can afford is a Fit, so buy a used Fit for $10K and pocket $5K.” Nobody even THINKS like that. When people are buying cars, they have their budget, and then they figure out what they want in their budget.
Used cars are always a way to trade reliability for features. And when you put it like that, they don’t seem so much like the thrifty choice.
OK, to throw my specific example out:
In September, 2010, I bought (private party) an '04 Saab convertible, one owner. The original buyer apparently bought it in February, 2004. The mileage was, I think, a little under 30K.
Original MSRP appears to have been $43,635.
Let’s say the original buyer actually paid $39K.
I paid $12,800 (excluding tax and license), and put $1255 into it within weeks of buying it (combination of some things it needed, some cosmetic stuff, some fru-fru stuff, and the state inspection).
So I was in for about $14,055, pre-tax, or about 36% of the likely original purchase cost.
I’ve had a few other repairs and a little more cosmetic work (plus some accident repair) in the little over a year since, but even if you allocated all of that back to the original purchase (as deferred maintenance or cosmetic or whatever), I’d still be in at a very good %.
Saab still sells (or tries to anyways), basically this same car (no major overhaul, but minor tweaks), and I think with incentives, you could probably get it new in the low 30s now. But I’m happy with the purchase. I don’t put many miles on - if I wanted to, I could probably keep this car until it was 15+ years old without too much maintenance, but I’ll probably get bored with it long before then. But I won’t take a big depreciation hit on it - I don’t have all that much into it, and so long as the car is reasonably cosmetically and mechanically sound, I think I can get a reasonable price on it for several more years to come…
Note that the pricing does not include my time spent researching, driving to look at various vehicles, dealing with various aspects after buying it, and so on. But it was kind of a fun process anyways, so, eh…
I disagree with your assumptions. There’s a big difference between a typical 10 year old car and a 10 year old car nice enough that a reputable dealership will try and sell it. The selectivity of the dealerships is going to weed out a lot of the abused vehicles.
It is quite possible to find used cars for sale that have been owned 7-10 years by a single person and have less than 100k miles on them. I’ve personally done it twice in the last three months without a ton of effort. I replaced both my car and my wife’s car and found quality used vehicles both times. I got my wife a 2003 minivan with 80k miles and we are the second owners. I got myself a 2002 sedan with 75k and we are the second owners.
Keep in mind that things like carfax reports really change the game on used car buying. Being able to verify that a vehicle really is a locally owned one-owner vehicle, has no accidents, has had proper dealer services through the warranty period, and had any recall issues properly addressed makes it a LOT easier for a non-mechanic to find a quality used vehicle.
I don’t think that a 7 year old car from a dealer is going to necessarily be significantly better than one from a private party. Perhaps a touch better on average, but it’s not really the average that matters, but the specific vehicle you find.
I agree that nice, older vehicles can be found. I posted in fairly substantial detail about the car that was just a hair over six and a half years old that I bought. I just don’t think that one should typically go in expecting to pay ~50% of new car price for a 10 year old car. Even for an above average 10 year old car, I would want a bigger discount to new.
So I’m seriously looking at the Kia Sorrento as my top option for a new vehicle. Anyone own one and care to share their impressions?
I would agree that anyone turning to used cars with their full budget because they can’t afford the car they want new with their full budget is going to get burned. Anyone silly enough to do that probably deserves to get burned. That doesn’t make used cars a bad value, that makes silly buyers dangerous to themselves.
- I don’t think that a 7 year old car from a dealer is going to necessarily be significantly better than one from a private party.
This depends heavily on the dealer. My experience with Carmax (trying to sell a car) made me have a good impression because they didn’t buy the car since there was unmatched paint in a section – they couldn’t tell what it was masking and what damage had occurred, and even though to the average person the paint was the same, they didn’t want to get something that might leave them open later.
My understanding is that most used cards have a top down filtering process, where the best condition ones are sold by reputable dealers (manufacturer dealers, Carmax, etc.) and then as they sift through the various barriers end up either at salvage, auction, private sale, or Uncle Bob’s Honest Used Cars.
So buying from a reputable dealer doesn’t guarantee a good condition car, but it greatly shifts the odds in your favor.
(Er, what Tortilla said)
In my experience, most private sellers are selling it themselves because they don’t want to take the wholesale price from a dealer. Buying private is a way for you and the seller to split the spread that’s normally taken by the dealer, not a last resort after the seller couldn’t trade it in.
The dealership is being selective about which vehicles to offer for sale. They get a lot of trade ins all the time and only keep the best ones. While they probably aren’t giving the vehicles full thorough mechanical inspections, they are at least being vetted by car knowledgeable people when it’s time to decide which vehicles to ship off to auction and which to keep for resale. That will impose a price premium on the vehicle of course, private party prices are generally cheaper, but for a buyer who doesn’t want to put as much time into searching out a quality used vehicle a dealership will offer better odds for a slight premium.
EDIT: (Er, what BTG said)
That’s a fair point, I was using 50% and ten years as nice round numbers for conversations sake, and because I was sure that if I said a more realistic 60% or 70% someone would nitpick. Looks like by erring the other way I still got nitpicked, so I freely concede it was a very rough approximation. Real numbers will vary from vehicle to vehicle.
If you want specific cases, I bought my wife’s minivan for 25% of original MSRP and my sedan for 27% of original MSRP. And those cars were 8 and 9 years old respectively.
Well, you’re basically saying that SOME dealers have significantly better than average cars. Sure, I accept that.
The Lexus dealer that receives, in trade, a 2 year old, excellent condition Cadillac, is likely to put it out on the used car lot. The 8 year old Ford is likely to be shipped off to some other dealer (perhaps via auction).
But then that other dealer is going to sell (or try to) that 8 year old Ford.
i.e. The average upscale dealer will likely have better than average used cars. But the average car among all dealers (including the down-market ones) is going to be reasonably similar to the average private party car (at least, for similar model years not much more than 10 ish years old.)
It doesn’t need to be upscale dealers, just dealerships that are selling new vehicles of any sort. They will be taking trades on used vehicles and keeping the cream of the crop for their own pre-owned inventory. Dealerships that only sell used cars get second pick since they have to get their inventory at auction because they get significantly fewer nice trade-ins.
I agree that new car dealer are likely to have better vehicles on average than used car dealers.
Not sure if your typical 3-8 year old car at a new car dealer is better than a typical private party vehicle of the same age. In any case, if you’re reasonably savvy, I think you can find good specific cars via either channel, but you’re likely to find something at a better price via private party.