I’m writing a counter opinion to Eric Peters’ blog entry from March 14, 2016 (Don’t Buy New!). I’m advising people who are considering late model used vehicles (which for the purposes of this discussion are within three model years old) to consider buying new instead. I advise this as a professional new vehicle negotiator who’s been doing this for over 22 years and has negotiated the purchase of more than 7,600 vehicles. Full disclosure: I’ve never bought a new vehicle myself, because (up until now) it made sense for me to buy a late model used vehicle, despite my position as a guy who negotiates new cars for a living and can obviously get a great price on one if I did.
Here’s the thinking: Traditionally, a new vehicle’s depreciation curve was steepest in the first two to three years and then started leveling off over time. So by being the second owner of a vehicle, you could get the benefit of a fairly new vehicle, but save a lot of money off the price of a new vehicle because the first owner already took the depreciation hit.
The thing most people don’t know is that late model used vehicle inventory has been sharply depleted from its traditional levels starting in 2008, raising prices to sky-high levels on a historical basis, causing them to be similar to new vehicle prices. There are several reasons for this. Starting with the recession in 2008, many consumers had to cut back and bought late model used vehicles instead of new.
The 2009 Cash for Clunkers program took many vehicles off the market permanently; they were disposed of in exchange for a government-sponsored rebate toward a new vehicle. Also, the spring 2011 Japanese earthquake halted production of many new vehicles for an extended period, causing car buyers wanting an unavailable new vehicle to purchase the next best thing: a late model used vehicle of the same type.
While late model used vehicle prices have eased off a little bit from their high, they’re still at historically high levels, and it will take years before they normalize. Therefore, the standard reasoning for buying a late model used vehicle may not apply currently because you aren’t getting the savings you would normally receive when taking the risk of buying used vs. new. Furthermore, there are advantages to buying new vs. a late model used vehicle, if pricing is similar. The first is to take advantage of the newest technological benefits, which can yield better mileage, better connectivity and better safety.
In addition, used vehicle loans as a whole are riskier to lenders than new vehicle loans and have to factor in that risk in the form of higher interest rates, regardless of your credit score. Also, new vehicles may have rebates, dealer incentives, and subsidized financing to lower transaction prices and/or monthly payments. Used vehicles do not.
Furthermore, used vehicles have only partial (or no) warranty remaining on them, depending on the mileage/age of the vehicle. New vehicles have the benefit of a full warranty 100 percent of the time. Finally, when buying used, you run the risk of dealing with maintenance and repair issues depending on how well the previous owner cared for the vehicle. New vehicles are always in new car condition, negating this risk. It’s a known quantity.
As I mentioned previously, I’ve always bought used myself, despite successfully negotiating thousands of new vehicle sales professionally for more than 22 years. As long as I could save enough off new car transaction prices by buying used, it was (to me) worth all the additional risks and downsides illustrated above. Since that isn’t currently the case, I would not hesitate to buy new were I in the market at this time.
Mike Rabkin is the owner of From Car to Finish, a national new car negotiating service and information provider. In addition to his 22 years of professional experience, Mike writes a monthly column as an expert automotive contributor for Angie’s List, and is frequently quoted by the press on the subject of car buying.