6/03/2008

How To: Buy A Used Car: Episode 1

We've gone of the ins and outs of conducting your own private party sale, but now you need some wheels. In these fabulous economic times, it's likely that more of us wish we could walk, bike, or utilize public transport for our daily commutes. If you have one of those options available, then by all means give it a go. Public transport is not nearly as scary as some make it out to be. Mrs. NtJS did it for a couple years in a large metro area, and typically found the bus to be full of professionals and college professors. Definitely not scary and much less stressful than sitting in traffic alone.

New or Used
On the other hand, some of us need a vehicle, for whatever reason - econobox commuter car, daily driver, occasional use pick-up. Most financial folks will tell you that whatever your reason, you should be buying used. Dave Ramsey Show callers are usually surprised to hear him say that they should not buy a new car unless they have a million dollars net worth. His reasoning is that until you reach that milestone, you can't afford the beating you'll take on a new car's value. Now, car manufacturers will brag that their vehicles have the 'highest resale value'. But is buying the best of the worst really what you want? They all lose value, thousands just by driving it off the lot.

No matter what anyone tells you, with very few rare exceptions, all new cars go down in value. A new car is not an investment. An investment should go up in value. According to the Motley Fool, new cars on average lose 20% of their value in the first year, with some losing as much as 40%! Second year average depreciation is around 15%. Ug. Can you afford that kind of hit on a $20,000, $30,000 or $40,000 vehicle? Likely not. This kind of year over year losses are not acceptable anywhere else in your financial life, so why accept it here?

According to this USA Toady article, in 2004, the vehicle with the best resale value retained just 62% of the original cost after 3 years. Why take the loss? For the thousands that you'll save by buying a 2 or 3-year old vehicle, you can self-insure through a lot of repairs. Even if you are a big warranty freak, many vehicles are coming with longer and longer warranties these days, and those can usually be transferred between individuals. And that 'new-car smell'? It's a combination of chemicals, adhesives and off-gassing plastics. People like it because they are getting a buzz from all of the fumes they are huffin' while sealed inside their ride. We'll pass.

Convinced to buy used? Ok, good. Now lets go.

Budget
You need to know what you are willing to spend before you even start looking at cars. There's no need to go through the heartache of falling in love with a vehicle, just to find out that it's $4000 more than you can afford. If you just sold your car, then maybe your budget is set - ie the proceeds from that sale. Don't forget to withhold some money for the taxes you'll incur. Maybe you've been saving a few hundred per month, and finally have enough to pay cash for a car. If so, then way to go! That's really awesome. There's few better feelings than paying cash for a car, and knowing you'll never make a monthly payment and never owe interest on you car.

Research
Now that we've gotten that out of our systems. What to buy? Just like selling a car, our advice is going to be research-heavy. Knowledge is power, right?
  • Spend some time accessing and discussing your needs of your specific situation. We'll assume that you have no idea what you want and work our way down from there. List our your top five features of your ideal vehicle - seating, towing, fuel economy, styling, interior features. Then compare. You need to be on the same page with your spouse before you even start looking at vehicles, or else you will waste a lot of time. If seating for 6 is a must-have for her, but you want 30+ mpg, then you'll find that you have few, if any, options. Try and come to a consensus together on this first, before tying them to a specific vehicle, platform, make or model. You may find some options that you didn't know existed. Don't assume that seating for 6 = mini-van, for instance.
  • Narrow down the field. CarMax has a great website searching vehicles on the used market. Note that they are a nation-wide, used-car retailer. For that reason, it is a great place to look at cars and see what you won't pay once you get serious about a specific model. I have no doubt that CarMax is decent company with quality product, but we have no desire to pay their markup. We got a much better deal when buying from an individual. At the same time, this is a great place to visit for test driving different vehicles. Not sure how a mini-van handles? Wonder if the engine is underpowered? Concerned about blind spots? Spend some time with a CarMax rep and sit in a few different models. This is a great way to see the difference between brands and platforms.
  • Let's go shopping! Hopefully by now, you are ready to shop. Craigslist and cars.com were very helpful for us. I also recently discovered that googling "car for sale" will bring up a little search box on the results page asking for your zip code and the make you prefer. Searching here will yield results from tons of sites, yet the results are from your area. once you get into that Google Base results page, you'll have many more search criteria and viewing options including map view. Very cool!
By now you should know what is available in your are and what prices people are asking for them. Once you start finding some vehicles that you are interested in, start looking them up on Kelly Blue Book to see if they have the price right or not. Do the best you can with what you know. Does it look like it's in excellent condition? Very few vehicles actually fall into that caregory, yet so many get priced as though they are.

If they give the VIN and you have your Carfax login, then look it up. Been in an accident? Been through the auctions? How many owners has it had? Mileage accurate? Scrutinize everything before you go to even look at it. It helps to have this information before going to see the vehicle. That way, you can ask questions and already know the answers. Huh? Why? If you know the truth, then you can see how readily the person selling the vehicle will lie to you or try to hide the truth. If they lie about the vehicle being hit (which can be quite obvious), then what else are they not telling you? We're not so sure we want to find out.

Take some time doing this. Next week, we'll tell you how to proceed from here.


How To: Sell a Used Car: Episode 1

How To: Sell a Used Car: Episode 2

From Salesman to Buyer

How To: Buy a Used Car: Episode 1 (here)

How To: Sell a Used Car: Episode 2 (COMING SOON)



2 comments:

CarMaxChris said...

Hi! My name is Chris and I am the social media PR guy at the CarMax home office in Richmond, VA. Google Alerts notified me of your blog post mentioning carmax.com. I just wanted to say thanks for the recommendation to visit carmax.com, which recently relaunched with a new, easier to use design. Thanks also for the great hyperlink. Best of luck to you and your readers!

Anonymous said...

Chris -

Thanks for visiting, and thanks for being honest about who you work for. I do think that CarMax is a good company, and this only reinforces that.

-cheers

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