Why Do People Say You Should Buy Used Cars? Because They Haven’t Shopped for One

by JT McGee

I have very few tangible assets that I can reach out and touch. My car makes up the majority of my “touchy-feely” net worth. If I were to add up the present value of everything I own excluding investments and business assets, the total comes to maybe $5,000 on a good day.

With the exception of my car, almost every tangible asset I own is a depreciating asset. True story – my car has gone up in value as I pushed its mileage over 115,000 from 2009 to today.

Even a high speed chase with Rent-A-Cops campus security couldn’t devalue my car – you guys are just lucky that most 20-somethings actually do spend a lot of time caring for their cars to resell. Also, you’re lucky that you won’t have to risk buying a car that used to be mine – I park on a busy street, and people love to make offers on my cars by slamming into them.

You just can’t keep my used car from going up in value. It’s awesome! Every time I add a year and another 1,000 miles to it, it gains value.

But let’s really look at the true price of used cars vs. new cars because I think anyone who hasn’t shopped for a used car lately will have their mind blown. My experience isn’t just anecdotal.

Quantifying this Used Car Nonsense

We’ll begin with the Toyota Camry. A new 2012 Camry starts at $23,000, which is the model you’re most likely to find for sale as a used car. Program and lease cars are almost always on the lower-end of the spectrum for any given model.

So what’s a used Camry cost? Well, for starters, about $19,000 for a 2009 Camry with 50-52,000 miles. Most leases and program cars have a mileage cap, so when you see a 2-3 year old car with 50-52k miles know that it was likely a lease to one or many people, or it was a rental car. Basically, know that it was leased by someone who has no incentive to keep it in good shape for the next owner. That should give you peace of mind.

Anyway, the point is that you can buy a new Camry for $23,000. Or you can pay $19,000 for a 2 year old Camry with 50,000 miles. This essentially prices a mile at 8 cents of depreciation on a car. Not just any mile, though – the very first miles where you can expect ZERO maintenance.

How about another make and model? Let’s go with the lower-end Ford Focus. In my local area, we’re looking at a price of $16,000 for the same kind of off-lease car with 40,000 miles with the exception of age – it’s a 2011. Using the Ford site to build the exact same Focus brand freaking new, I come up with a total price of $19,100. So, for the option to let some other lunatic drive your car for 40,000 miles, you save a whopping $3,100.

Seriously, Don’t Buy Used

The truth is that if you cannot afford to buy a new car, you cannot afford to buy a used car. Plain and simple, really – since $3,100 in the case of the Focus or $4,000 in the case of the Camry isn’t going to suddenly make your budget work perfectly.

And, more importantly, you shouldn’t give up 40-50,000 miles of perfectly good driving (the best you’ll ever get out of a car) just to save $4,000. That’s crazy talk. You let someone else use your future ride for the period of time in which one would expect ZERO major repairs. Hell, they probably didn’t even put new tires on it.

Be Flexible

Personal finance rules like those that say you should always buy cars 2-3 years used are from the old days – the days when we didn’t have shortages of cars. Those were the days when anyone could qualify for any type of financing they wanted in any amount because their home equity was going to make them rich.

Those were the days when we had nearly full employment. Those were the days when we could have never, ever anticipated something like Cash for Clunkers, a government boondoggle that took 690,114 inexpensive cars off American roads.

Where supply meets demand, we have equilibrium. Car supplies are ridiculously low, and demand is ridiculously high. Between car shortages that are both artificial (Cash for Clunkers) and real (Japanese earthquake and parts shortages), there just aren’t that many cars available for sale. And EVERYONE is looking for the inexpensive 2-4 year old car selling for +/- $10,000. That unicorn is dead; you can’t find it.

Do Your Homework

I used Yahoo Autos to find a used car and then found the manufacturers’ site to build a new car to the same specifications. I’d encourage you to do the same – pick any model you want and I will be absolutely flabbergasted if you manage to find a 2-3 year old car with ~50,000 miles that sells for a discount greater than 30% of the current new price for the exact same model. I really don’t think you’ll be able to do it, unless the model you pick is a POS whether you buy used or new.

Of course, all the numbers I used were pre-tax. But, even in a worst case scenario where you pay 10% state sales tax, the total difference between new and used is $4,400 for the Camry, and $3,410 for the Focus – pennies relative to the miles you save. But as Sandy from Yes I Am Cheap pointed out, the cost of debt service on a new car is considerably cheaper than a used car. Well-capitalized buyers can expect 0% interest for 5 years on a new car. Meanwhile, rates on a used car are 4.37% for 48 months, according to BankRate.com.

Anyway, the point is that buying a used car is a terrible mistake, one that could be avoided if you do some real comparison shopping. Used car to used car is not a good comparison; do a used car to new car analysis to really see what your ride is going to cost you.

{ 78 comments… read them below or add one }

PK May 3, 2012 at 09:58

I hear you on this one – but it’s sort of a new normal post “Cash for Clunkers”, when the entire bottom of the market disappeared in one fell swoop. I’ve explained to some people that a lease (dirty word in PF realms, sort of like debt) is a good idea in some situations. Mind. Blown.

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JT McGee May 3, 2012 at 10:29

True. Not sure leases are the way to go right now, though, as from everything I’ve gleaned from Ford’s conference calls/reports is that leases are a source of huge profits for their financing arm. All things considered, if you have the coin, you might as well buy the car rather than lease it. Buy it, drive it for 50k miles, sell it. More cash flow month to month but a better deal at the end.

One would assume that will change when the leases written in 2009/2010 (which likely were not structured around the idea of steady used car values) work their way through.

Also, having been the proud owner of a real clunker back in 2009, I have a bone to pick with my daily driver having official MPG of 19 when 18 or less would have qualified it for Cash for Clunkers. Could have rocked a new car at $4,500 off!

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Tim May 3, 2012 at 10:45

I’m in the market for a new SUV. Thankfully, used SUVs are cheaper now because of gas prices.

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JT McGee May 3, 2012 at 16:59

This makes perfect sense. I can see where a higher operating cost would lead to a lower price for an SUV. What kind are you buying?

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Echo May 3, 2012 at 16:12

Buy used has been beaten into everyone’s head for so long that it’s just an accepted rule of thumb in personal finance. Thanks for doing the analysis to prove that it’s not always the case. I remember when my mom wrote about buying a new car and she took some heat in the comments section for it. But she bought the 2011 for the same price as the outgoing 2010 model, and only paid a few thousand more than the 3-4 year old used car. No brainer.

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JT McGee May 3, 2012 at 17:01

That’s true – everywhere you turn someone wants to sell you a used car. Go figure!

Yeah, a few thousand bucks to save you a few years and tens of thousands of miles is the best deal going. I’m surprised more people haven’t run the numbers on a used car. When I included financing into the price, it almost entirely eroded any potential savings. Well, maybe not almost – but half of it.

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Josh @ Live Well Simply May 3, 2012 at 17:44

Buying used only makes ‘cents’ if you’re buying a 10+ year old vehicle that has a stellar track record like the Honda Accord or Toyota Camry. I paid $3,500 for my Accord 5 years ago and it has been worth every penny (just crossed the 300,000 mile mark).

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JT McGee May 3, 2012 at 19:38

Did the previous owner put a ton of cash into it before you bought it? BTW, that was pre-car shortage, pre- cash for clunkers. I’d agree with you that a Camry or Accord is the best car to buy used, but IDK if you could find an Accord (in any condition) for $3,500 today. That’d be tough, unless you were willing to take a car with 200k+ (maybe 250k?) miles on it.

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Andrew May 4, 2012 at 08:55

Josh touches on a key point I’d like to make: buy older! I’m floored as to why JT is crunching numbers for a 3-yr-old vehicle; people tend to want far too much money for newish cars. Age can give a significant discount. A quick check on Kijiji finds me a 2004 Camry with 50K for $9500; I’d have no qualms investigating that. My current ’99 Corolla had 35K when I bought it in 2006 and it still runs great with just the usual maintenance. It’s a shame people are so unwilling to reuse, especially on imports! Just do your research (to choose a reliable model) and your due diligence (when finding that specific car).

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JT McGee May 6, 2012 at 13:35

I looked for newer cars because once you start getting in the high-mileage, high usage territory the maintenance costs rise precipitously. Either way, I do agree with you that there are bigger discounts at the older-end of the curve; the problem is that you’re going to buy more cars over the long-haul compared to buying one new and driving it for 15 years/whatever length of time.

Net-net, cars still aren’t as discounted as one would believe.

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PeterZeroOne June 5, 2012 at 09:34

Hi JT, I have to disagree with you. I actually have just bought a used camry (a 2009 Camry SE, with 40K km). I bargained a bit, and purchased it for $20,500, including taxes. Granted, it was a standard and I was willing to learn how to drive stick, and it had sat on the lot for a while for that reason.

Just went on the Toyota website to price out a base 2012 Camry SE. Including taxes, delivery, freight, enviro charges and all the other crap (which comes to $5384.95), the total for a 2012 CAMRY SE is $32,335, cash purchase price.

Even the cost of a base Camry isn’t actually $23000 like you say, its’ cash purchase price is $28,662.

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JT McGee June 5, 2012 at 12:49

You presumably live in Canada. I do not. Prices are different for you.

krantcents May 3, 2012 at 18:13

I am in the market for a new car. I noticed exactly what you described with at least one car. The Prius is holding its value better than most. I am still holding off, but I was considering it. One of my friends knows a Toyota executive who may get me a special deal. I am holding off, because I hate payments.

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JT McGee May 3, 2012 at 19:41

I’d have to really think about trading in a hybrid. Not only are people going nuts for them, but hasn’t battery technology improved/your batteries significantly depreciated since you bought it? Seems like a good time to dump it for a new one, and buy some mileage back for cheap.

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20's Finances May 3, 2012 at 19:19

I finally disagree with you. I think the problem with your examples is that you aren’t buying old enough for a used car to illustrate the benefit of buying used (and at a much lower price). Let’s use another example. VW Jetta Wagon (basically my car). A 2005 model with 90k on it is worth about 7-8k. Let’s say $7,500. (quote from NADA.com) A 2012 model MSRP for the same model is 25,960, so 26k. That’s a difference of $18,500. Let’s say you want to keep it for 7 years before selling, buying another car. With this, you can (to keep it simple) suggest that 2012 will be worth about the same as the 2005 is now. So, you sell the 2012 for a loss of 18,500. + maintenance. You can sell the 2005 for somewhere around $1500 (I’m guessing…) That’s a loss of 6k. I highly doubt that over the course of those 7 years the maintenance will be $12,000 more.

Am I missing anything??

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JT McGee May 3, 2012 at 19:36

Other than that no self-respecting dude wants to drive a VW Jetta wagon? No. (Kidding!)

I wasn’t assuming that someone drives it and then sells it 7 years later. In that case, the newer car is always going to lose on a total dollar basis. I’m saying from the time you buy to the time it dies. Do you still have the same view – that a used car (or several) is better than a single one for the long haul?

I need to edit the post to reflect that I meant to buy and drive until it’s in pieces, or at least to the point where it gives you a check engine line every few weeks.

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101 Centavos May 4, 2012 at 05:28

Hmm, a TDI Jetta diesel wagon has been on my want list for a long time. Set that aside.

Partial agreement on this one. There’s a large swing in market prices depending on the source: a used car lot, a fixed-priced lot like CarMax, eBay Motors, CraigsList, the local penny classifieds, and just driving around country roads looking for cars with a for-sale sign on them. I bought my now-12-year-old truck with 3 years and 50K miles on it, for exactly $10K on eBay. At the time, new versions were running around 17-18K, car lot prices for equivalent model and mileage from 13 to 14K.

If you say that the availability of vehicles has shrunk, OK w/ me. Don’t know because I haven’t been in the market for another vehicle. My source of information on used-car prices is a picker friend who is constantly scouting out deals with the aforementioned Craigslist and backcountry road methods. Then again, he’s being doing this for a long time.

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JT McGee May 6, 2012 at 13:38

Heh, I can dig the diesel. I think the babes might get the wrong idea when you tell them you have a Jetta (women love Jettas…) and you roll up in a shaggin’ wagon. Anyway…diesel would be awesome.

Yeah, for purposes of comparison I think it’s wise to keep it to dealer and dealer. If you’re a handy person, moving into the individual to individual market may be a better deal. IDK – this does come with risk. It’s quite easy to drive a car without oil for 50k miles, never to be noticed until the engine’s all goofed up later down the line. With auto experience and mechanical skills, I would absolutely favor purchasing a used car from an individual. As it stands – nope, nope, nope.

Your picker friend is a buy and sell type? I bet business is good right now!

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Tracey H May 4, 2012 at 06:41

I don’t think you can make a blanket statement like “only buy new” or “only buy used”. Two years ago, we bought a 2-yr-old Hyundai Elantra (love it!) from the dealership for 1/3 off the price of new. We haven’t had any problems with it and love driving it.

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JT McGee May 4, 2012 at 10:17

How many miles did you have to give up for that 33% discount. Did you give up 33% of the life of the car? More than that including future repairs?

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Jordan May 4, 2012 at 07:41

I guess this may have some truth to it for people who can’t maintain their own car. I drive a 1995 Mazda Mx6, get 35mpg putting on 25,000km’s per year. I paid $2000 bucks for the car 2 years ago and have had no problems with it and do all my own work (I’m doing my first maintenance this weekend – $180 for inner and outer tie rods, lower control arms and end links).

You’re also ignoring financing costs, taxes, freight and all the other crap that comes with buying a new car. Even if you paid cash for you’d be looking at closer to $28,000 for that $23,000 camry. Shopping around you’d find one used for $19,000 taxes in – now your difference is up to $9,000. Let me know if I’m in left field here.

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JT McGee May 4, 2012 at 10:20

The Ford is the all-in price. Transport and freight fees came to $800 to have the Focus sent to my zip code. Maybe freight fees and taxes on cars are considerably higher in Canada?

I think you have a point, though. If you know your way around the “guts” of a car, a used car might be a better deal.

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Steve May 4, 2012 at 09:38

There are definitely examples where buying new makes more sense but not all the time. Your comparisons were done with nearly new cars. Start doing the math on cars that are 4 years old or older and you get a very different picture.

Most cars today easily run reliably for more than 200 000 km. Current I own GM with 220000km and a Jeep with 240000km. The GM was a recent a replacement for a 99 corolla with 375000 KM. Car worked fine but we needed something bigger. I probably saved enough for a house down payment by buying older vehicles.

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JT McGee May 4, 2012 at 10:21

Four year old cars are in the 75k mile range, so 120,000 km. At that point, you’ve exhausted all the free driving you’re going to get. Repairs start adding up, and the cost of maintenance has to be included.

I’ll add a four year old car into the mix, as recommended. We’ll see how that changes the calculus.

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Andrea @SoOverDebt May 6, 2012 at 00:24

I can get onboard with this line of reasoning, but of course there are always exceptions. My first car was a 1991 Honda Accord with 127k miles – paid $5,000 cash for it. I drove it for seven years until it completely died, and it had 305k miles then. Other than routine maintenance, I didn’t pay for a single repair during the time I owned it.

When that car was new, the MSRP was about $17,000. Sure, I gave up a little over 40% of its mileage, but I also shaved about 70% off the cost. 178k miles for $5,000? Um, yes please.

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JT McGee May 6, 2012 at 13:41

I just looked up a 1992 (oldest I could go) Honda Accord in “good” condition with 305,000 miles and it would sell for $1500 in a private party transaction. That’s a stupid amount of money to pay for a car like that…but, again, it shows the insane demand for low priced cars right now.

There has to be some balance between the cars that used to be available on the used car market and those that are around now. Back when you bought that Accord, everyone was buying new. Today, everyone is buying used, it seems.

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scarr May 6, 2012 at 10:32

I am a life-long used car buyer – but my used cars have always been great deals. I am from a small town and all of my cars, from when I was younger, were $1,500-$2,500 and were 15 or more years old and had relatively low mileage. I usually bought the cars older people drove to church on Sundays (if I could I’d tell you the story of my dream car the 84 Buick Riviera that sadly died a few years ago, but that story is too long and ends in tears :) ) Okay, so despite my affinity for gently-used used cars, I will give you credit for making a case for buying new instead of old. What I have witnessed with my friends and co-workers over the years has been that they financed cars that were $30,000+. I personally don’t believe these people could really afford that pricey of a car, but you presented an argument for the lower priced range and I really can’t argue with what you said.

Great post, I will remember this the next time I look for a car, maybe I’ll finally buy a new one :)

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JT McGee May 6, 2012 at 13:45

I think if you stay at the lower end of the price range you’re going to do better than people who do not. Both the Camry and Focus are excellent cars with wide parts availability and a history of consistent quality improvements.

I don’t think people should overextend themselves to buy a car, used or new. I’m assuming that whatever car someone buys, they do so with first considering their budget and financial resources. People can make bad decisions independent of used or new cars.

And hey – we sound a lot alike on our pickings for used cars. I agree that there’s a lot of merit to buying cars that have aged far more than they have been used. Older sedans driven by seniors are a great choice; well maintained and you know they have never been pushed past 80 miles per hour. My first car was a grandpa mobile – it was actually my grandpa’s – and it was a killer car. The front seats felt like recliners. Heh.

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Rosie May 7, 2012 at 07:50

One thing you didn’t touch on was the cost savings potential on a new car if you are financing the vehicle. Toyota, for example, is notorious for offering 1.9% rates on new cars for a 60 month term or less. Go to a 36 month, and you may be able to score a 0.9%. Buy used, and that incentive rate goes away, and their standard rates kick in, probably closer to the 6% mark or so, depending on where in the credit spectrum you hit. Honda does the same, on occasion.

To get the new car rate, all you have to do is hit over a 650 credit score with Toyota, and you get the lowest incentive rate. Buying used, your score will determine what rate bracket you fall into.

The cost savings on interest alone , assuming paying only the minimum payments over the 60 months (pshaw! do people still pay only the minimum payments and not accelerate payoff if they HAVE to take out a loan????), saved a cool 3.5k or so on interest alone. So that difference in price? Gone. Add in free maintenance for 2 years that some manufacturers toss in, and cheaper extended warrantees (if you so choose), starting at 0 and not having to do the expensive maintenance (tires, brakes, etc) as soon, and you end up saving tons by buying new over used.

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Sandy May 7, 2012 at 11:27

I worked in the industry for five years as an analyst specifically pertaining to this area and believe me, what JT has written here is the God’s honest truth. I’ll be writing about it soon.

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JT McGee May 8, 2012 at 13:07

Please do write about it! Your perspective will add a lot to the discussion, since I don’t have access to nearly the same information that you do.

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jlcollinsnh May 8, 2012 at 08:11

Nice contrarian perspective here, JT.

rather than accepting an advice formula it always pays to run the numbers.

right now we are in a shortage of 2-4 year-old used cars since not many were sold new these past few years. that drives prices up. at the same time car companies are eager to grab market share and to keep their factories running full tilt. that’s keeping new car prices down.

net result, the spread is very close. a few years out, with all these new cars now being sold, that may change.

I tend to buy my cars new because…..

….as you point out, the first years and miles are the best and I’m willing to pay a modest premium for them.

…..I like know how my car has been treated since day one.

….I can now easily afford to.

….I keep them a long time. If I like them that is. My ’06 Camry I dumped after 18 months. awful car to drive….

Back in 1993 we bought a new Accord. Drove it for 150,000 miles and 13 years. Gifted it to a pal of mine and he drove it another 50k/ 5-years. right at 200k the engine blew. Good car, but still only a machine and machines with 200k/18 years are near the end.

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JT McGee May 8, 2012 at 13:05

I think it makes sense to pay a premium for new cars, as well. In general, I see a common problem in that people often do not account for unseen expenses or risks in purchasing a used car, and therefore never price this into the decision. Say 1/5 used cars end up to be a total dud, you essentially have to add 20% of the price to any used car you buy, as this risk is there.

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Linda May 8, 2012 at 11:20

I linked over here from 101 Centavos’ blog. It’s an interesting discussion and one that I’ve recently had some experience with. I bought a 2009 Prius from a Toyota dealer in March. I feel like I got an excellent deal. The car had 44K miles on it, but these cars are known for needing very little maintenance until you hit 100K. Considering how I drive, I’ve got many, many years to go until I hit that mark.

The 2009 model I bought cost $19,900. I added a maintenance package for $1,500 that will cover everything but tires until I hit 100K miles or 7 yrs, whichever comes first. (For me, likely the 7 years!) The car was certfied Toyota used, meaning that all systems were checked, common things needing replacement were addressed (like wiper blades, etc.), fluids changed, etc. before I bought. It also had brand new tires.

If I go to the Toyota website now and build a 2012 Prius with all the features this car has, it prices out to $35,159. That’s a difference of over $15,000 for a three year old car. Yes, it does have 44,000 miles on it, but I don’t see how that matters with a car that basically needs oil changes only until it hits 60K miles. At that point the brakes will need work, but I’ve got that covered with my maintenance plan. The next big maintenance point is 100K, so I’ll need to come up with a plan for that, but I’ve got many years to save for it.

The best part of this deal for me was that I was able to pay cash for the car at that price. I would have had to save for another 2 years to purchased a $35,000 vehicle with cash, at which point the price would have been higher than $35,000, too. Maybe this approach worked for me because I don’t drive a lot. http://awindycitygal.wordpress.com/2012/03/24/my-march-madness/

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JT McGee May 8, 2012 at 13:06

I’ve always thought that hybrids make less sense to buy used, since the batteries deterioriate substantially with each additional cycle. I suppose if you don’t drive all that much it wouldn’t be a concern – but in that case, why buy a hybrid?

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Linda May 8, 2012 at 21:59

But the batteries don’t deteriorate. They last at least 100k mile. If the battery dies earlier than that then it is defective. Since my car was driven so many miles, if the battery was defective that would have manifested by now. Even if there was an issue with the battery my warranty and service agreement covers replacement.

As for reasons to buy a hybrid if I don’t drive much, well I’m still saving money on gas no matter what! Also It is a moral decision for me about conserving resources.

I’ve been driving much more than usual lately and put some gas in the tank last weekend. I still had a couple gallons, but I was in an area with cheaper gas so I decided to fill it up. I purchased just over 7 gallons of gas to top off the tank; my first gas purchase since I bought the car on March 22. I had driven over 300 miles on 7 gallons. :)

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Invest It Wisely May 11, 2012 at 20:48

Didn’t the whole market get upset by the cash for clunkers thing? I knew there had to be a catch, though; markets in aggregate are usually somewhat rational. ;)

I personally see it as either a top or bottom thing. If you’re going to get almost new, just spend the extra 10% or so and get new, with less worries and customized the way you want it. I agree that used cars can be a great value, but I don’t think of almost-new cars here. Otherwise, go for old, used value that will only cost a few thousand total.

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DCO May 15, 2012 at 01:26

Buying our car was the best deal that we have. It’s not that old but the owner decided to let go of it because he’s buying a new one. The price was about 1/2 the price if the same car is placed in used car dealer store. It’s still in a very good condition.

Here’s what I suggest. Buying a car greatly depends on your capacity. If you can buy brand new- then that’s the best option. You wont’ get hassled with repairs in the next 5 years. If you are in a tight budget- then maximize your research and find the best deal in town.

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Trevor June 5, 2012 at 08:09

I bought a loaded 2004 Solara (Camry) in 2008 with 30k for $16k ($17.5 with Tax) and it’s almost at 90k now without any issues except for brakes (needed all new this year).

Another 60k and I will probably trade it in on another used car.

Best pieces of advice is to buy from an established dealer and check the VIN to make sure the car has not been in an accident.

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jeff June 5, 2012 at 08:33

interesting…and I agree that new used prices are crazy especially when you hear about how much value they lose once the new car is driven off the lot. I was looking for something and i couldn’t believe what prices people were asking. I wound up buying a 1978 Mercedes 300 D (a treat for me since the idea of owning a MB classic was a treat) for 1100 canadian. I put 2k into it and love the looks people give me as I drive this classic but it isn’t a highway car and it sure isnt a winter car…but my problem is that I am out of the country for 5 months of the year so dont want to pay monthly fees on something that will just sit there. I also dont like having to add in the 15% tax we have up here in Canada (not to mention the fact that cars are more expensive here than in the US). One time I went with a 8 month lease take over which worked out perfectly for me (because then I was out of the country and could just return the car) . Why do people think they can get more for their older car than the car cost new for example (not a far stretch in some cases)? And thoughts about lease take overs? thanks!

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JT McGee June 5, 2012 at 12:51

It’s a supply and demand problem. Honda Fits, for example, sell for more used than the MSRP price from the dealer, just because of demand.

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Norm platt June 5, 2012 at 09:08

Mr. McGee this is a well researched article that is pure common sense. I was in the business years ago and trust me a dealership makes the most profit both on the purchase and finance of a used vehicle. Unfortunately buyers only look at payment or the end cost rather than future costs of a vehicle. I can’t tell you how many times I tried to dissuade buyers from buying their vehicle when their lease ended.
Unfortunately people fall in love with their vehicles and don’t factor in depreciation, maintenance or insurance or finance costs. The mantra in the car business is: “move metal” and ” don’t fall in love with your car”. I left the business because in the end my principals did not line up with the dealers. Ironically I always tried to help people buy the best vehicle for their money. I used to get so frustrated with 0% financing and the terms. Buyers could rarely wrap their heads around zero financing and the huge cost savings. Still in the end it was always about the monthly payment and if they could carry the costs.

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JT McGee June 5, 2012 at 14:53

Good to get some perspective from people who have worked in the car business. So far, the two commenters (including you) who have experience in auto sales have agreed that new is a much better deal than used.

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Chris June 5, 2012 at 09:29

This article is nonsense! Also it only compares used cars that are only a couple years old. If you compare cars that are slightly older, the price goes down substantially. Also, if you have some mechanical skill and can change brakes, and a few other things yourself, there is no sense of taking the depreciation that a new car buyer will take in the long run. It might be true that certain cars in the US are not readily available for a good price anywhere. Examples of the “good cars” are brands such as Toyota, Honda. However, many of these cars are very available in abundance and in a used condition in Canada. One popular car that is generally available as a rental in Canada is the Toyota Yaris, 4-door sedan and hatchback. These are sold off before they reach 50,000 km by rental agencies, and because of their abundance, they can be had at a very competitive price. Being a Toyota, they will probably provide years of trouble-free driving. They are also the second or third most economical cars on the market after the all-time winner, the Toyota Prius. At $1.45/ litre of regular gas in the Vancouver, BC area, this is an important point! There are other such reliable models available in Canada, in abundance.

Perhaps this article has truth only within its context, in the US, only 2-3 year old cars, directly after the Japanese Tsunami, etc. But buyer beware, it is nonsense for any other situation and especially outside of the USA such as in Canada where prices are much steeper for new cars.

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JT McGee June 5, 2012 at 12:53

I’m willing to wager that this article will be just as true in the US 5 years from today as it is right now – especially if the economy rebounds and people come out in swarms to buy used cars.

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roko June 5, 2012 at 09:29

Somebody has to buy my 2-3 years old car so I can buy a new one … Hold on, scratch that, I have my car in lease :)

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Cameron June 5, 2012 at 10:14

Oh come on now, this is the largest crock I’ve ever seen. Let me give you a few examples:

My first car, a 1997 pontiac sunfire I bought with 180,000km’s for $1200 in 2008. I put a grand total of $300 into it other than standard maintenance (Oil changes, air filter, spark plugs, as required per the owners manual, etc) in the ~3 years and 120,000km I put on it. All you need to do is pay the oh, $150 or so up front and have a reputable mechanic look at it for you if you’re not capable of inspecting it yourself. I’ve since retired it as I wanted something nicer.

I moved up to a 1999 mazda miata, which is my daily driver, and I purchased last summer. It has required no expensive repairs other than standard maintenance (only oil changes at this point) which may have totaled 200$ in the year or so I’ve had it. A new one costs ~30K up here (Canada) and

You need to factor in maintenance costs for the new vehicle too. A surprising number of vehicles wind up requiring major service right near the end of the warranty period. Often, these problems don’t show up until a few years in. By doing your research and buying used, you can either avoid models where major repair requirements are common, or find one where the issue has already been addressed.

Never mind that the only cars you looked at were economy cars – I’d call them driving appliances more than cars. Once you start looking at something with a little bit of performance (BMW, Audi, Subaru, etc) or luxury (BWM, Merc, Audi, Acura, Infinity, Lexus, etc) buying used becomes a much more attractive option. Yes, maintinance costs will be higher, but you’ll be driving a much better car.

Personally, I would never finance or lease a vehicle, unless I could write it off as a business expense. Unless you’re looking at a classic, (and even then it’s iffy) it will be a depreciating asset. There is no way around this – if your intent is to drive it until it dies, by the time its dead it’s only worth a few hundred bucks in scrap.

You simply can’t say either buying new or buying used is always better. You need to look specifically at the situation you’re in, the car you want, and what is affordable on your budget.

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JT McGee June 5, 2012 at 12:54

I agree that luxury cars are a better buy on the used end, since its the higher-end features that have the least amount of value to the kinds of people in the used car market.

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Tony Gatt June 5, 2012 at 10:28

I guess like everything else out there it depends on what you are looking for. In 2008 I was looking for a SUV and found exactly what I was looking for at a cost that I knew was reasonable. Today I see that same 2006 Dodge SUV having asking prices only a few thousand less than I paid. I happened to be in the market when it was depressed and took advantage. Lately I have been looking to replace my car, and again as you mentioned, some prices for a car only a few years old are very close to new. Since I am flexible in the make and model I have been looking around to find those that are much lower in cost and still a good deal based on the history of the car. There are some out there that are newer and are 30 or more percent cheaper than new that is only 3-4 years old.

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dark soilder June 5, 2012 at 10:33

I’m sorry – but the story compares buying brand new vs. 1-3 years old. Also, who’s going to pay $19,000 for a used car when a new one is $100 more? Yes you can use the dealer build price because if you want new because you HAVE to buy that price. But for comparisons sake you should be using “sold” used car prices, not listed as we know too many people list their used cars for way too high.

We bought an 09 Ford Escape for $14,000. New 2012 was $34,000. $20,000 for 60,000 km’s. We can likely sell that car for $12-$14k in the next 12 months.

Also, and I saw it already mentioned, “new for life” c’mon. Who buys a new car and drives it for life?

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JT McGee June 5, 2012 at 12:55

Why wouldn’t you buy a new car and drive it to the end of its life?

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dark soilder June 5, 2012 at 20:45

What’s the life of a brand new car? Who wants to committ to that and pay $30+K to do so? It’s a terrible idea. Regardless, I never questioned why woudln’t someone want to do this, I questioned the writers assessement in comparing buying a used car vs. buying a new car and driving until end of life. I can’t imagine there’s many people out there that buy new and drive until the cars usefull life has expired. Most people who buy new cars do so every 4-7 years. Hardly a “life time” and these people might be MUCH MUCH better off buying something a few years older.

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Steve Fleck June 5, 2012 at 10:33

Good blog. I agree with you that the numbers need to be crunched and looked at carefully. Last year I bought a used car and I think that I made the right choice. It’s new list price was $21,000 if I was buying the same car new.. The used car was the loaded, version of the vehicle and it was a manual transmission( something I wanted) – which together made it rather rare. I was able to negotiate the price down to $12,500 on a two year old vehicle that had 45,000 kilometers on it. It looked, smelled and drove like it was brand new. I was able to put some cash towards it, and took out the extra money I needed on a low interest line of credit that I have, which in a year, I have already paid off! I tend to keep cars for a long time – my last one 11 years for a Toyota Corolla, that other than the usual replacement parts for wear and tear cost me very little to run over the course of it’s life. My plan is the same for this vehicle – this will be my car for the next 10 years all going well!

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JT McGee June 5, 2012 at 14:52

Sounds like a good deal. You can definitely get a bigger discount on loaded cars used than you can the base models.

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daniel June 5, 2012 at 11:06

yes – take financial advice from some one whose net worth is less than $5,000 (excluding investments and business assets – maybe he’s otherwise a billionaire)

simplistic comparatives – why not evaluate buy a higher quality used car with a few more miles that depreciates quickly vs. a low end/low quality new car.

why not discuss total costs of ownership including insurance and cash flow availability

why not discuss length of intended ownership and liquidity requirements

there still is a case for not driving depreciation – not a blanket case – just as there is not a blanket case for driving new only

I just picked up a 6 year old Jag with only 30K miles for half of what it costs for a new Camry – is that not a case for driving used

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JT McGee June 5, 2012 at 12:56

Should we only take financial advice from people who own a lot of stuff?

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Chad June 5, 2012 at 11:40

Someone did not do their research or isn’t being realistic. The economic reality for those in lower earning brackets is to buy a used car that is 4 or 5 years old and is an upgrade on one that they have which can be more than 10 years old.

Yes, I hear your reluctance that someone may have driven it for a few years but reality in that many cars. Particularly, those made post 2005, have a much better hold up. Cars are lasting longer and with less repair… if you’re careful about the model and do your research on the former owners you should be fine.

I suggest you stop scaring people with easy math.

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JT McGee June 5, 2012 at 12:57

I’m not scaring people, I just don’t want to see people give up 50k miles for a paltry 10-20% discount on their car purchase.

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Bobber June 5, 2012 at 11:44

Well really depends on how much you drive.

If you’re not a big driver, used cars could be perfect as they will be cheaper than buying a new car that is barely used. Just ensure the car isn’t a rebuilt wreck etc., and look over the reviews of the vehicle before buying.

New car buying is fine, if you intend to drive it into the ground. I mean squeezing 8-10 years out of it. When our family had cars, we literally had transmissions and engines replaced…still cheaper than buying new. Then…you finally upgrade.

Also, don’t go with friends to look at cars, and don’t believe those open roads ads where people are whisking down the road in that sweet roadster. Picture it stuck in traffic (where you are going to be) and it will make your car choice more sensible.

The only suckers in my opinion, with all due respect, are the people who think leasing (non biz) is sensible. It’s terrible no if/ands/buts.

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jeff June 5, 2012 at 13:35

OK, i hear you on the price of 2-3 year old cars compared to the price of new cars. But new cars also come with those #*@% frieght, delivery and inspection charges of $1-2000. Where I live, sales tax is charged by dealers on new or used, but no tax is due if you buy from a private seller.

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JT McGee June 5, 2012 at 14:50

Where I live, sales tax is charged on new and used cars. Also, freight, delivery, and inspection is not nearly that high. Sorry to hear you live in Canada.

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Del June 5, 2012 at 13:38

Thanks for the information.

I live in Canada and came to the same conclusion when I went looking for a subaru forester. It seems that the discount for a vehicle that was 3-4 years old was not worth the difference in price when compared to a new vehicle.

Especially since I plan to drive this car until it falls apart.

Thanks
Del

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JT McGee June 5, 2012 at 14:49

Glad to see that you can make an informed decision and drop conventional wisdom in times when convention makes little sense.

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breen June 5, 2012 at 14:22

This is utter nonsense.

First of all a car is not an assest its a depreciating liability.

Your prices may make sense in the US only, but you have picked cars that retian their resale due to stupid consumer loyalty to offshore vendors.

Look at a popular car like the Impala or Focus and your comparison would show an overwhelming advantage to used. And buying American will actually stop your real investments from depreciating …

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JT McGee June 5, 2012 at 14:49

I write for an American audience. By the way, I’m seeing roughly $2,000 in cost savings on a used focus with 40k miles compared to a new one. So, no, the difference is even smaller.

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breen June 5, 2012 at 15:09

I bought a 1 year old 2010 Impala LT last year for $15K, new it was $34K. Not US prices. It had 2 years warranty left and under 16,000 miles, from a dealer.

There is no way I would buy new any more.

Thanks for replying.

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Gerry L June 5, 2012 at 15:51

The article would be right if you could buy a Camry for $23,000 but you can’t. A standard package is $28,219 including freight, taxes and other miscellaneous levies.

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Deacon Brodie June 5, 2012 at 16:41

Sure, with the numbers that you quote, what you say makes sense, but I don’t agree with the numbers.

I stopped buying new years ago when I discovered that a new car that sold for 23k could be had for 16k with 12k miles on it.

I just bought a 2009 sports car with 3k on it from a dealer that sold for 40k new for 22k with a 2 year warranty.

I am not sure where your numbers come from, but I’d find a different dealer if I was you.

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Darin June 5, 2012 at 16:47

Might I remind people, when you purchase new, you must pay the Taxes, Freight, P.D.I., Air Tax, Gas guzzler tax, Admin Fee. Some or all of these must be added. When you purchase used you only need to pay the State/Provincial Tax. I have purchased used all along, and I picked up some awesome deals. How about $25,000 for a 4 year old fully loaded luxury vehicle that was worth $72,000 brand new. Taxes would have been $9,360 new vs $3,250 used (savings of $6,110). NO Freight, P.D.I., air tax, gas guzzler tax. Sorry you can’t beat that kind of deal. I have had the vehicle 2 years + with no problems.

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ML June 6, 2012 at 04:28

I agree that new should always be investigated when buying a vehicle. The sticker price is not always the price you pay, especially if you can pay cash and you don’t mind dickering. In 98 we bought a brand new loaded mini van for less than what the 97 models were selling for. Our teens are still driving it (and hating it, but hey, it’s free!) We bought a new Ford Edge Sport in 2009 and they came down so much from the sticker price we were blown away. Along with an incentive coupon the dealership had mailed and a thousand off for being a Costco member, we saved nearly $10,000 off the sticker price! Again, used ones were selling for more. We buy vehicles and keep them for a long time, so buying new makes sense to us too. Although recently our daughter was looking at the new(and beautifully re-designed) 2012 Ford Focus but the dealership wouldn’t move much on the new price. She lucked out and found one in a private deal, fully loaded, 8 months old, 14000km for $9000 less than new. No tax and came with winter tires too! But even though she got a great deal, I think it’s smart to first see if the dealership has incentives to sell new and then compare to used.

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Waterloo Resident June 6, 2012 at 09:29

I’m in Ontario, Canada, and in 2010 I bought a 2006 Toyota Corolla for only $8,000 because it was in perfect condition and to me it seemed like a deal for a 4-year old car. But today in 2012 a 4-year Corolla with the same features now are going for $13,000 and a brand new Corolla costs $19,000 so I would buy NEW instead of used, the huge discounts for buying used are temporarily gone right now. Maybe in 4 to 6 years it will be smart to buy used again, but for the next 5 years ONLY BUY NEW, don’t buy used, as you will be getting creamed if you do.

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Rush June 6, 2012 at 14:18

Can someone elaborate on this statement:
“You just can’t keep my used car from going up in value. It’s awesome! Every time I add a year and another 1,000 miles to it, it gains value.”

How can a car gain value?

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JT McGee June 7, 2012 at 20:56

Used car shortage.

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LESS June 7, 2012 at 16:36

As a seller of used cars for 25 years, specializing in Hondas, you right & wrong. The key is depreciation -your friend or enemy! If you want recent Honda or Toyota buy new as used prices are ludicrous. But an off lease 3 yearold North American car could be a great deal -still on warranty, full maintenace & 30-40% off. Over 5 years is where the bargains are: A 10year old Lincoln is same price as a Civic (with same mileage) & has had TLC rather than cheapo maintenance. And Honda repairs are not cheap, regardless of reputation!: I sell Hondas & buy NA. Most recnt was ’95 Cougar -toys & V8 -Ii bought 10years oldwith 175k, drove 75,000km more & loved it. Dead reliable & low & cheap maintenance. Cost $800/year. (Purchase & refurb $2000, maintenance 4-500/yr, for 5 years, scrap 300) Beat that with Honda. Replaced it with ’02 Taurus S/W for $2000 -miss the V8, but …

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Dman June 7, 2012 at 23:06

I would disagree with this. I understand imports being higher priced, since imports are supposedly “better”. Any car breaks down really no matter if you buy it brand new or used, just new breakdowns are a much bigger headache. So parts come from Europe? There’s the mark up. To expect black book value on your used car happens rarely. Used in my opinion is the way to go.

Used trucks are a much better deal. Do some research on trucks and then post. I bought my truck for half the price of black book, and have yet to have a problem.

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Douglas Tompson June 10, 2012 at 10:08

Buying a low mileage vehicle is no assurance that it has been looked after. I bought a new Toyota Tundra and have looked after it very carefully with oil changes and other maintenance. I just got to 168,000 km without any problems. I decided to spend a couple of hours cleaning it and it looks and feels brand new. I’m confident that I can get another 4-6 years of solid use from the truck. I believe that buying new is only a mistake if you buy new every couple of years. But and hold spreads the depreciation over a longer term and ensures a rigorous and well enforced maintenance schedule….if you believe that oil changes are a good thing. Oil is cheap! Engines are expensive!

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James June 12, 2012 at 10:13

To add a Canadian Perspective, I am looking at a Malibu. I know that I will be buying used.
New: $26,000 (base model)
Used: $13,500 (3yrs old, 40,000km) or $15,500 (4yrs old, 60,000km, Loaded)

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mitsu July 3, 2012 at 00:37

I have 2 cars, both used, and pre 98. They are both in excellent shape and I maintain them regularly. When something brakes I go to the scrap yard, get a part, and fix my problem. My insurance is nothing, I bought both cars in cash upfront for 3k each. For repairs I average less than 250 a month. The same amount of problems occur in many new cars but you are covered under a warranty (which you pay for). If you are able, save your money – buy a used car with dirt cheap and readily available replacement parts, take a bit of free time, learn about your car and fix it yourself.

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