The Best Way to Buy a Used Car
Look for two- to three-year-old used vehicles because they’ve already lost the lion’s share of their initial value.
Most used car shoppers will find plenty of bargains in 2018. A record number of vehicles are coming off lease, increasing dealer supply and lowering prices–or at least keeping them flat. Plus, the vehicles finding their way to dealers' lots better reflect what today's customers want: crossovers, SUVs and trucks. But if you're looking for an older used car, you are going to have a harder time finding what you want, and you might have to pay more than you were expecting.
What's going on here? It boils down to supply and demand. As Jonathan Smoke, chief economist for Cox Automotive (whose properties include KBB.com and Autotrader), points out, "New vehicles are the source of tomorrow's used vehicles." And in the early part of this decade, there was less supply.
Missing generation. In 2011, when vehicle sales were just starting to recover after the Great Recession, dealers sold only about 13 million new cars, compared with 17.2 million in 2017. "That hole in the market continues to have an effect," says Smoke. "Today, we have 20 million fewer vehicles that are five to eight years old."
We've seen the effects of this "missing generation" before. Around 2012, the shortage of lightly used cars was so acute that in some cases, it made more sense to buy a new car–especially with manufacturers offering big discounts.
No more, though. Even with generous incentives available on new cars, smart shoppers are going to find the best values among two- to three-year-old used vehicles because they've already lost the lion's share of their initial value.
That said, if you've been out of the market for a while, you might be taken aback when you peruse the used car listings. The average transaction price of a new car has been rising steadily (and faster than inflation), and what people are paying for used cars has gone up as well. What's more, leases that sharply restrict mileage (often to as little as 10,000 miles per year) are also driving up the prices of late-model used cars, as cars with low miles command a premium.
If those prices make you flinch, how about a vehicle that has more miles yet is newer than an off-lease option? We're talking about vehicles that have likely been in fleet service, such as used rental cars. Yes, we know such cars come with a stigma, but we think it's overdone (they're carefully maintained by the agencies), and it translates into lower prices. Plus, your choices aren't just white Chevy Impalas and red Chrysler 200s anymore. Rental agencies are thinking more about resale when they populate their fleets. When you rent these days, you're more likely to find yourself in something like a well-optioned Toyota RAV-4, and those are the vehicles heading to the used car lots. The best way to get a high-quality fleet car is to buy it directly from the rental company, rather than buying one that has gone to auction and into the used car world at large.
Still, most of those vehicles are going to cost five figures. If you're looking for more-basic wheels, the current dearth of older models is going to be an issue. One suggestion: Skip the used car lot (and its potentially perilous subprime credit offers) and scour Craigslist and other websites for a car 10 years old or older, but with relatively low mileage.
Ivan Drury, a senior analyst for Edmunds.com, says such cars are rare but worthy. "If someone kept it up and it has low miles on it, you have a diamond in the rough. It could go forever." Be sure to have an independent mechanic look over the car. Although these older models may have plenty of miles ahead of them, lack of use can pose some problems of its own (dried-out seals or rotted rubber, for example) that a trained inspector can spot.