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Old 08-14-2011, 08:42 AM   #1
AVANTI R5
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Default Price gap narrows between new and used cars, data shows




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DETROIT (Bloomberg) -- Record-high prices for used luxury automobiles are driving more buyers to new-car lots.

BMW AG's 2011 3-Series compacts and M3 sedans now cost $34 more a month than one-year-old used models, according to Edmunds.com.

General Motors Co.'s Chevrolet Corvette is about $12 a month cheaper to buy new than used, the auto-pricing Web site says.

There is an industrywide shortage of used cars in the U.S., the product of manufacturing cuts amid slumping sales the last three years. That means some people have effectively been priced out of the used-car market and into brand-new models. As many as 500,000 new vehicles by mid-2012 may have been sold to people who would have bought used, said economist Paul Ballew.

"There's a substitution effect going on between new and used," Ballew, chief economist for Nationwide Mutual Insurance Co., said in a phone interview. "When you get those price gaps closing, you get people that are willing to shop new that wouldn't have before."

Two years after U.S. auto sales plunged to their lowest level in almost three decades, the supply of used cars coming off leases or out of rental fleets is at a trickle. With deliveries rebounding slowly, low-mileage used cars will remain so scarce that many shoppers will buy a new vehicle instead of used, said Ballew, a former analyst for GM's predecessor.

'Significant run-up'
The Manheim Used Vehicle Value Index, determined through the largest auto-auction company's more than 5 million annual U.S. sales, reached a record 126.6 this April and rose to 127.8 in May. It held at 125.9 in July.
The luxury segment's index reached a record 109.74 in June. Manheim started its value index in 1995.

Used prices have had "a significant run-up" from late 2008, Tom Webb, Manheim Consulting's chief economist, said in a telephone interview. The shortage of low-mileage used models "will last for some time."

While GM and Ford Motor Co. forecast about a 10 percent boost in U.S. new-vehicle sales this year, deliveries will remain well below the pre-recession pace. GM and Ford are forecasting at least 13 million sales this year, including medium- and heavy-duty trucks. The U.S. averaged annual light-vehicle deliveries of 16.8 million vehicles from 2000 to 2007, according to researcher Autodata Corp.

With Toyota Motor Corp., maker of Lexus luxury cars, losing production after the March earthquake in Japan, BMW and Daimler AG's Mercedes-Benz have taken the lead in high-end new-vehicle sales. U.S. deliveries of BMWs through July rose 13 percent to 135,114, and Mercedes sales increased 7.3 percent to 129,932, while Lexus's fell 19 percent to 102,549.

Corvette cruising
Corvette sales have increased 8.4 percent this year through July to 8,187, outpacing the luxury sports-car segment's 2.9 percent growth, according to Autodata. Sales of Nissan Motor Co.'s Z cars, the second most-popular model in the segment, have dropped 22 percent.

As Toyota and Honda Motor Co. rebuild new-car inventories in the second half, executives at the largest U.S. automakers and retailers expect spending on incentives and marketing to rebound from five-year lows. That would make new vehicles even more affordable compared with used ones.
Sweetened deals for 2011 Tacoma pickups and FJ Cruiser sport-utility vehicles have reduced typical payments for each model to less than $490 a month, Edmunds says. The monthly discount for used Tacomas and FJ Cruisers has narrowed to about $20 for each model.

18 months
"I don't expect any dramatic decreases in used prices for at least 18 months," Joe Spina, an analyst at Edmunds.com, said in an e-mail. More than 70 models are cheaper or nearly the same price new as used, Edmunds said in a July 20 posting on its Web site.

Honda's Acura TL sedan has a monthly payment of $583 new and $601 used, Edmunds said, putting the savings over a 60-month term at $1,080.
Used pricing will show "continued strength" for at least 18 to 24 more months, said Mike Maroone, COO of dealer group AutoNation Inc.

Demand from price-conscious buyers that was already strong because of the slow economic recovery was exacerbated by Japan's production disruptions and the shortages of new vehicles that followed, he said in an interview.

New lease sales fell to 1.96 million in 2008 and 1.13 million in 2009, according to Manheim. Lease originations that averaged 2.78 million during the previous 10 years dried up as lenders such as GMAC Inc. and Chrysler Financial Corp. withdrew financing offers.

Leased vehicles' input to used-vehicle supply will be 2.08 million units this year, a 40 percent drop from 2002 levels, according to Manheim. Off-lease volumes will keep declining through at least next year, to 1.53 million, Manheim says.

Rental inputs
Sales to rental fleets, which fell to 1.13 million vehicles in 2009 from more than 2 million in 2006, may not exceed 1.5 million until after this year, according to Manheim. The 2011 contribution to used-vehicle supply from rental fleets will be about 1.4 million vehicles, a 30 percent drop from 2005 levels.

"We had two or three years of very suppressed industry levels, which means that the normal availability of used cars is lower than you'd expect," Lewis Booth, Ford's chief financial officer, said in a July 26 interview.

Higher values for used cars make trading in for a new vehicle more attractive and may help boost sales, according to Booth and GM's Don Johnson, vice president of U.S. sales.

Trade-ins
"That's bringing a lot of people into showrooms because they can get a great value on their used vehicle, which helps them get into a new vehicle a lot quicker," Johnson said on a June 1 conference call.

Robert Anckaitis is in the market for a Chevrolet Cruze, Ford Fiesta or Kia Forte, which would be his first purchase of a new vehicle since driving an Oldsmobile station wagon home from a dealer 41 years ago.

A recently retired township manager from Bethlehem, Pa., Anckaitis, 66, said he usually buys bigger, two-or three-year-old Mercedes-Benzes or Cadillacs. Now he sees value in smaller new cars for $5,000 less.
"Used-car prices are pretty high right now," Anckaitis said in a telephone interview. "We'll have a larger car for traveling and the smaller one for skipping around town."
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Old 08-16-2011, 01:03 PM   #2
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I love people who say that used is always better to buy than new. They rarely factor in the cost of replacing brakes, tires, belts, etc that are all new on the new car.

Problem is, new car inventories are low right now. it's a tough market for sellers and buyers.
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Old 08-16-2011, 01:19 PM   #3
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When I bought my Tundra in late 09', it was cheaper to buy a new 2010 than it was for the equivalent used 2008 model. This is the first time in my life that I've seen this sort of phenomenon. Om nom.
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Old 08-16-2011, 01:51 PM   #4
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Originally Posted by Derbagger View Post
I love people who say that used is always better to buy than new. They rarely factor in the cost of replacing brakes, tires, belts, etc that are all new on the new car.

Problem is, new car inventories are low right now. it's a tough market for sellers and buyers.
If you buy a CPO car a lot of that will already be replaced for you. Buying a 3 year old CPO car is always cheaper than buying new. You can get very similar finance rates, still have a warranty, and it's already taken the brunt of depreciation. Buying a 1-2 year old car can be iffy since most leases are still in effect which means the supply is limited. If you buy older than that the car will be much cheaper than new in most cases so unless you are buying gold plated brakes it doesn't matter much if it needs some maintenance.
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Old 08-16-2011, 02:07 PM   #5
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Even though this article is talking more specifically about used luxury cars, I have seen this for all used cars in general. For example the $500 used car is now $700.
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Old 08-17-2011, 05:55 PM   #6
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Originally Posted by JC View Post
If you buy a CPO car a lot of that will already be replaced for you. Buying a 3 year old CPO car is always cheaper than buying new. You can get very similar finance rates, still have a warranty, and it's already taken the brunt of depreciation. Buying a 1-2 year old car can be iffy since most leases are still in effect which means the supply is limited. If you buy older than that the car will be much cheaper than new in most cases so unless you are buying gold plated brakes it doesn't matter much if it needs some maintenance.
My point is it's not always true. It's a good guide, but people look just at purchase price, not the whole picture.
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Old 08-17-2011, 06:10 PM   #7
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Originally Posted by JC View Post
If you buy a CPO car a lot of that will already be replaced for you. Buying a 3 year old CPO car is always cheaper than buying new. You can get very similar finance rates, still have a warranty, and it's already taken the brunt of depreciation. Buying a 1-2 year old car can be iffy since most leases are still in effect which means the supply is limited. If you buy older than that the car will be much cheaper than new in most cases so unless you are buying gold plated brakes it doesn't matter much if it needs some maintenance.
I think it also depends on how long you tend to keep your car. If you keep it for only 3~4 years, buying new will cost you dearly. If you keep it for 7~8 years or longer though, then buying new might actually make more sense when you factor in the maintenance cost of a 10 year old car.
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Old 08-17-2011, 07:59 PM   #8
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Depends on the car and how you are buying it. A cash buyer has a plethora of great deals on high-end lightly used cars, but a customer that needs financing for a <=50K car is paying top dollar.
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Old 08-17-2011, 09:00 PM   #9
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Originally Posted by Derbagger View Post
My point is it's not always true. It's a good guide, but people look just at purchase price, not the whole picture.
Buying used is always better financially than buying new. That doesn't mean that any used car is a better deal than new, it means that there is always a better used deal out there than buying a new car. (Unless you are buying a specialty/limited edition car) People buy new cars for a host of reasons which is fine but because it's cheaper is never a valid one no matter how much people try to justify it.

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Originally Posted by Len View Post
I think it also depends on how long you tend to keep your car. If you keep it for only 3~4 years, buying new will cost you dearly. If you keep it for 7~8 years or longer though, then buying new might actually make more sense when you factor in the maintenance cost of a 10 year old car.
For most cars you are talking a $10k+ savings for a lightly used model. Unless you blow your motor and tranny you aren't making that up in maintenance costs.

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Old 08-18-2011, 08:41 AM   #10
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Originally Posted by JC View Post
Buying used is always better financially than buying new. That doesn't mean that any used car is a better deal than new, it means that there is always a better used deal out there than buying a new car. (Unless you are buying a specialty/limited edition car) People buy new cars for a host of reasons which is fine but because it's cheaper is never a valid one no matter how much people try to justify it.



For most cars you are talking a $10k+ savings for a lightly used model. Unless you blow your motor and tranny you aren't making that up in maintenance costs.

JC
Well when GM was going bankrupt my brother got a Vibe new for less than people were trying to sell the same vehicle used. It was a pretty good deal though.
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Old 08-21-2011, 06:58 PM   #11
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Quote:
Originally Posted by JC View Post
Buying used is always better financially than buying new. That doesn't mean that any used car is a better deal than new, it means that there is always a better used deal out there than buying a new car. (Unless you are buying a specialty/limited edition car) People buy new cars for a host of reasons which is fine but because it's cheaper is never a valid one no matter how much people try to justify it.



For most cars you are talking a $10k+ savings for a lightly used model. Unless you blow your motor and tranny you aren't making that up in maintenance costs.

JC
Yes, on average, buying used is better financially than buying used. My point is that most people take purchase price on face value and say "oh look I saved $X over the same car new".

Now, how many cars are cash deals? I'd say most people finance, and used financing is higher cost than new.

Most CPO program cars are @20-30% less $ than new with 3 years and @40k on them. The fact is that the used cars have less wiggle room on price, and most new cars sell below msrp. so now we are 15-20% difference on price.

New cars come with....new tires, new brakes, new timing belts, new clutches, etc. Used, even CPO have old wear items. They likely work fine and won't fall off tomorrow, but they will need replacement sooner.

And cars on average have a 150k life span, which is 1/3 gone buying used.

I'm not saying don't buy used. I've bought more used cars in my life than new. I'm saying that new is not "irresponsible". And that the difference is less than used car price vs. MSRP.
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