As new cars are sold, used cars enter the market. But over the past few years, new-car sales fell off a cliff -- and so did the number of used cars for sale. Add higher demand for used cars ever since the recession turned many new-car buyers into used-car buyers, and you have a classic case study for Economics 101: High demand and tight supply have boosted average transaction prices to their highest level in six years. And the used-car supply will stay tight for another two years, says Tom Kontos, chief economist for Adesa, a vehicle-auction company.
If you're in the market for a used car, you'll need to shop smarter to get a bargain. Our strategies will help you find the values and negotiate a good deal.
Where the deals are
With gas prices on the rise again, the higher the fuel economy, the higher the markup. That means smaller vehicles, hybrids and even small crossovers are hot. The disaster in Japan is also limiting supplies and pushing up prices. Even so, there are more gas-sippers to choose from than there were when gas prices spiked in 2008 -- the number of hybrids alone has nearly doubled. And increased competition for small cars in the new-car market is helping to set a ceiling on used-car prices. (In a few cases, buying new may beat buying used.)
If you value space over fuel economy, it's likely you can find a good deal on a full-size car, says Keith Griffin, who writes the guide to used cars at About.com. Ditto for medium to large SUVs and crossovers. But note that you won't see the bargain-basement prices of 2008, when consumers rushed to dump their big SUVs.
Manufacturers cut back on production, so there are fewer available now. Automakers heavily curtailed truck production, too. Prices for used full-size trucks are up 15% from last year, according to Joe Spina, senior manager of remarketing at Edmunds.com. "There are enough people who really need these vehicles, and that's keeping prices high," he says.
No matter what type of vehicle you're shopping for, a few tips may help you score a better deal. Mark Scott, of AutoTrader.com, recommends looking at models that were recently redesigned, such as the Honda Civic. If the used model doesn't look the same as the new model, prices are likely to be a bit lower. If you're shopping for a hybrid that has a gas-engine counterpart, shoot for a four- or five-year-old model; these hybrids tend to hold their value for the first three years and then fall off.
Check out used Toyotas, suggests Griffin. "People are still irrationally afraid of them," he says. In J.D. Power's latest Vehicle Dependability Survey of three-year-old vehicles, Toyota scored the best of all the nonluxury brands. Just be sure that any recall issues are fixed. If a private seller hasn't had recall work done yet, you should be able to negotiate a lower price.
And don't ignore used rental cars. Most have logged a lot of miles, but the drivers are typically business-people well over the age of 25 who are likely to drive conservatively. Plus, the vehicles are well maintained by the rental companies. Rental vehicles for sale are typically just one year old, and they're often sold in the fall, when the new models arrive. Check rental Web sites, such as Enterprise and Hertz, for listings.
Start your search online. Two of the biggest sites are AutoTrader.com and Cars.com. When Gillian and Ben Baxter found out that they were having twins -- the day after Ben's car was totaled -- their prospective replacement car shifted from a small wagon or crossover to a family mobile with good fuel economy and plenty of space. Gillian read reviews from Edmunds.com, Consumer Reports and MotherProof.com to home in on a vehicle with high safety ratings, decent mileage, and enough room for two car seats, a twin stroller and all the other gear that comes along with kids.
They narrowed their choices to the Toyota Highlander Hybrid and Honda Odyssey, then searched listings at Cars.com. After test-driving both cars, the Baxters picked the Highlander Hybrid and found a fully loaded 2008 model at CarMax. To be sure the price was fair, they checked the appraisal tool at Edmunds.com; at $33,998, it was listed for $700 less than the dealer retail price (an average of what consumers in your area are paying at dealerships). They bought it the next day.
You can also find out how the price stacks up by logging on to CarGurus.com. The site was created by the co-founder of TripAdvisor.com to increase pricing transparency for used cars. It includes listings from Cars.com, Autobytel, Vehix and other sites and analyzes a used car's price based on listings in your area for the same make and model with the same features. Each listing is rated with a "Good Price," "Fair Price" or "Poor Price" and the amount the price is over or under CarGurus' average price. Click on a vehicle to see how long it's been on the market and whether there have been any price reductions. A recent survey by the company showed that the majority of used cars listed for more than 30 days had had at least one price drop -- so it often pays to look for a car that's been on the lot for a while.
Haggling is de rigueur, so introduce competition. If you can find a model that's similar in features and mileage but has a lower asking price, show it to the seller. And don't think you can't get a lower price just because it's an "Internet special."
If you hate to haggle, let someone else do it for you. Carsala, a used-car buying service, does all the dirty work and may save you money. Enter the make and model you're looking for on the site, and it will send you listings. You can select up to 20 among those or among listings you find on your own for Carsala's professionals to bargain on for you. You'll get a report with the negotiated deals. Then you can pick which models you want to test-drive and complete the transaction. The cost is 20% of the biggest discount Carsala negotiates, capped at $399, and there's no obligation to buy any of the cars. So if the best deal is $1,500 off the asking price, you pay Carsala $300.
Expanding your search beyond a 25- or 50-mile radius may also turn up less-expensive cars. Sometimes you can save several thousand dollars by buying long distance -- even after delivery charges, which typically run $700 to $1,200. Hopping on a plane to pick up the car yourself may cut costs and relieve the uncertainty of a long-distance transaction.
Before you sign
Unless you're purchasing a certified preowned vehicle with an additional warranty, do a little legwork to make sure the car checks out. The first step is to run a vehicle history report on either Carfax.com or AutoCheck.com using the VIN (vehicle identification number). You'll pay $30 to $35 for a single report or $45 for several, and each report will list ownership history, odometer readings and any accident reports, flood damage or title fraud. Dealers may offer these reports free, but Griffin recommends that you double-check the report on your own if a seller hands you a printout.
Next, get the vehicle inspected. Your local mechanic may charge $50 to $100 to give it a once-over. Another option -- especially if you don't have a mechanic you absolutely trust -- is to hire AiM Mobile Inspections. It offers 150-point inspections nationwide for $129. The inspectors test-drive the vehicle, inspect it inside and out, and photograph it, documenting the VIN, odometer reading and any damage. AiM's team works with the seller to arrange the inspection and sends you the report once it's finished. Before you head to the lot, ask your bank or credit union to preapprove you for a loan. Credit is flowing more freely than it did a few years ago, and good credit will earn you a rate of 6%, or even less at some institutions. Be prepared to come up with a 20% down payment, too.
When you're ready to make a deal, separate the transactions -- the purchase, trade-in and financing. Otherwise, a dealer can make up for a lower sales price by offering you a lower trade-in value or by charging a higher interest rate. Start by negotiating the price of the car. Don't mention a car you're trading in, if you have one, until you've nailed down a sales price; only then should you move on to the price of your trade-in. Finally, negotiate the rate. Get every number in writing.
You'll likely be pushed to buy an extended warranty, but be aware that most owners never get back what they pay for the policy. If you decide to buy one, haggle on the price -- dealers can charge what they want.