The Gap Between New Car and Used Car Costs Shrinks

Personally, I prefer to buy new cars (then keep them for years.) The numbers argue for a different option -- to buy used instead because you'll save a TON of money. That said, the gap of what you'll save by buying used versus new is shrinking. Here's what CNN Money says about the cost relationship:

For example, a new Toyota Prius costs just 24% more than a two-year-old used one; a year ago, that gap was 48%, according to AutoTrader.com. A new Acura TL is 37% more than a used model, vs. 56% more last year.

The reason the gap is narrowing boils down to two main reasons:

1. Trade-in values for used cars are up.

2. New-car deals up as well, lowering the cost of new cars.

If you work these two factors along with negotiating your best possible price on the new car and selling the old car yourself (making even more on it), the gap gets very small indeed.

For those of you thinking of a new car purchase, here are some posts that will likely be helpful:

• Buying a Car Using the Web


• My Simple Car Email


• My Recent New Car Purchase


• How to Save 20% OFF MSRP on a Brand New Car Purchase


• How to Buy a Car the Same Way You Would Buy a Big Screen TV 

Comments

[Apex]

Frankly the numbers listed in this article for 2 year old cars 1 year ago at 48% and 56% below new sound way too large to me. In fact I know they are. I have no idea where they got those numbers but it would be extremely rare to ever be able to buy a 2 year old car for half price. The numbers being reported as the difference now in the 25-35% range seem much closer to reality but still seem like a little too much to me. I have never found that a 1 or 2 year old used car was much of a deal at any time. I have looked and I have typically found them saving you less than 20% because the dealer marks them back up after trade in. I have also heard others say that used doesn't save you that much but I latter find out that they too are thinking 1 or 2 year old used car.

In my experience If you want to get real savings you should start in the 4-6 year old car with mileage approaching 100,000. That's when you save 70-75% and that's where the real savings come in. A good 5 year old car with 100k miles on it has 10 years and 150K left in it. For 1/4 the price, that's how you save money on used cars.

Buying a 1 or 2 year old car is not really a used car in my mind. Someone else drove it a little but it's basically new.

[MB]

There is another issue at work - though it doesn't affect the prius or acura. My SUV had increased in trade-in value versus 2008 (checked last year - I have been thinking about buying a new car for a while but haven't yet). Cash for clunkers took a bunch of SUVs off the market, and the recession has caused more people to buy used according to the sales guy. Thanks to Obama my car appreciated - don't think I will ever see that happen again - it might hold its value in a recession - but not increase.

[SB]

@Apex

I think you have it backwards. It doesn't say that it is half the price, it says the new one is 50% more than the old one. That would mean the old one is 2/3 the price of the new one, more in line with your experience.

If it was half I would go buy a 2 year old car right now, as the value of my 5 year old car is about that much.

[Apex]

@SB.

You are totally correct. I did the math backwards and that is embarrassing. Thanks for the correction. That makes the numbers seem much closer to reality.

I still stand by my belief that the real saved money in used cars is not in 2 year old cars.

[Bad_Brad]

Reasons one and two are both driven by our federal government. Essentially, our government artificially reduced the supply of used cars via cash-for-clunkers. At the same time, our federal government artificially increases the supply of new cars by bailing out automakers. I guess they're just "protecting" their investment.

[SB]

@Apex

I completely agree. I was actually just looking at 1-2 year old car prices (not that I plan on buying a new car anytime soon, just nice to look) and depending on where you go and what deals are being offered, 1-2 year old cars ended up being about the same price as a new one. Not to mention that you could get better financing on new cars. At that point, you might as well just buy new.

[Lurker Carl]

About 12 years ago I bought a 1988 Suburban with very low mileage for several thousand dollars. Four reasons for it being cheap - estate auction, two wheel drive, no bells and whistles, age. We've driven it almost 300k miles since without major repairs and everything still works, even the AC is ice cold. I can sell it for a few hundred less than I paid for it. Try that with a two year old car.

[Bill]

Cash for clunkers had a small affect on used car resales values but it was only a marginal effect. You are forgetting the depth and suddenness of the recent recession.

In February of 2008 the annualized rate of new car sales was 15.6 million. In February of 2009 it was 9.3 million. A 40% drop in car sales in a single year is gargantuan and we are now roughly 3 years past those anemic sales numbers. The last time we dipped that low in annual car sales was December of 1981, 30 years ago. That obviously means the supply of 2-3 year old cars is going to be at it's lowest level in decades which is the dominant factor in used/new price compression.

[crashdamage1957]

I found this to be the case when i last car shopped back in 2008, to replace the 19 year old car that i was driving. I found that used 2204 - 2006 Subaru Imprezzas were in the 13,500 k to 15 k range, while a new 2008 model ( which was much nicer than the already nice previous generation anyway) was $19,242, not enough of a difference for me to risk buying someone elses problem. I have confidence in the brand, not so much so in the way the last owner maintained and drove it. Like FMF, i prefer to buy new, maintain them well, and drive them for 15+ years before replacing them.That 19 year old car cost me about $1500 a year to drive (not including gas and insurance) so I think i get very good value for my car money by buying new, keeping it nice, and keeping it close to forever.

[Kurt]

24% (about $6k?) is still a lot in my world! Insurance may be less too on a used car, and some states assess annual taxes based on a car's value. So it's not just about the purchase price!

We've all got different priorities. For me, I'l buy used and devote part of the savings to a nice trip or other experience.

[jim]

I made the same initial conclusion Apex did. The way they stated the prices and % differences is contrary to how auto depreciation is usually discussed.

I also agree with Apex that the better savings are in the 4-5 year old cars with higher mileage.

In my area the Prius has always held its value pretty well. When they say that a year ago a new prius was 48% more than a 2 year old one then that would mean the 2 year old Prius was about $16k versus $22k for new. I'm pretty sure that 2 year old Prius in my area have been more like $18k range for a while.

[Darin H]

Last year we got an unsolicited offer to buy our 2006 Pilot from the local Honda dealer (we bought it 2 years prior, used and fully loaded for about 20K - a decent deal) for the same as we paid for it, with the extra 2 years and 30K miles on it. We didn't do it, but it did make us stop and think about trading up (we'll likely have it for another 10+ years).

If we were in the market for a vehicle now, we'd seriously consider new.

Additionally, thanks to everyone telling everyone else that leasing is a bad option, leasing is becoming more in line with owning. My father in law, who used to always lease, bought after 9/11 (Caddy with 0% interest!!) is looking at leasing again now.

[Mark]

I'm back in the buy new and hold category due to the lifetime non-transferable power-train warranty. Had to have the transmission rebuilt at 46K! Of course if I didn't buy Dodge I might not have had an issue to being with.