I have a news flash for some of you: Dealers love the people that insist that used cars are always a better buy than new. That might be the case most of the time, but not always, and, in fact, some buyers looking for something that’s only a few years old with low miles are paying too much.
I’ve covered numerous car buying myths in various posts, some of which don’t seem to go away, but the one that still really prevalent is that all used cars are better deals than new cars. The logic for this advice is usually found in someone saying, “Well, cars lose 40 percent of their value as soon as you drive off the lot, so it’s better to have someone else take the depreciation.”
While that argument is sound, the missing piece is that “on average, cars lose 40 percent of their value,” since not all cars depreciate at the same rate. Luxury cars have a much more accelerated depreciation than non-luxury cars, which is why buying a certified pre-owned BMW, Audi, Lexus or whatever can provide a lot of value.
But what happens to some folks looking for mainstream brands is they get so hyper-focused on the savings from a used car, they don’t shop new ones and sometimes miss out on a better deal.
Here are two cases that will illustrate this point.
I had a customer in Seattle who just relocated and was looking for a used Subaru. He liked the Premium trim and wanted something with reasonable miles for under $25,000. A quick cross-section of cars in that market reveals an average price of about $24,000 for a 2016 model, it seemed like an easy fit.
However, with the 2019 Outbacks about to hit the lot, dealers are practically giving away 2018 cars at an almost unprecedented discounts. I was able to get a sale price on an Outback that retailed for $29,854 for a $24,776.
That is a bonkers $5,000 off the sticker price and it brought the new car only $776 above the average price of the used ones that were two-years-old. When you factor in that that sale price can be combined with the low APR financing, it seems almost foolish to buy used.
Now the Subaru situation wasn’t exactly universal due to the fact that I got a massive discount on the new car, but even when you can only get a moderate discount on the new model it closes the gap enough to justify paying a little bit more for new.
I had another client in the LA market looking for a used GTI. While he could have easily gotten a 2015 model with 30,000 or more for under $20,000, he didn’t want something with a lot of miles and wanted to have Apple CarPlay which limited him to 2016 models and higher. A search within 200 miles didn’t reveal a ton of cars, and they were all 2017 S trim models with an average price of around $23,000.
I was seeing some pretty aggressive advertised prices on new ones, so I wanted to see what was possible on a 2018 model. The best I got was a sale price of $24,799.
While that is more expensive than the used car when you consider the 2018 car has some upgraded technology, styling, and a much longer warranty, the $1800 premium seems worth it.
All of this means: The next time you are shopping for a used car that doesn’t take the massive depreciation drop of a luxury brand, consider opening up the net to a new model because the gap may be closer than you think.