by David Tarlo
9/8/2006 Flash!!Monday, August 28, 2006, local newspaper front page headline: “Falling Wages, Growing Economy!” Not since World War II has our economy grown with NO increase in real wages for American workers! No wonder used-car sales have increased by 46 percent since 2000, and this year approximately 44 million people will be buying a used car, dwarfing the 17 million who will buy a new car. I will also be buying a used car the next time around.
Other than an economy ‘box-car’, an average midlevel new car has a sticker price of $25,000 and up, but the same car, used, will cost about half.
Although all automobiles have improved in quality and longevity, used cars are still a gamble and can turn into a money pit, the infamous “lemon”. In order to reduce the odds of buying a “lemon” you need to follow a plan, a plan that will save you money and get you the best used car at the same time. Here are the suggestions for buying a used car plan:
Preparing to Buy a Used Car
Yes, you must be prepared. The first step is to choose a car, or two, that you will consider owning. Ideally you want to choose a car that will fit your life style, the type of driving you do, and your practical needs. It could be a pick-up or a sports-car. Regardless, you should consider the safety features, size of engine and fuel efficiency, and dependability. The vehicle you choose will be determined by you, but the sensible advice is for you to aim for what you need, not just for what you want.
The next step is to research your choice or choices. Market value for cars is available online or at the library. Market value is easy to find in publications like Kelley Blue-Book and Edmunds.
These sources are only guidelines. Three values are presented for every car: the dealer trade-in amount, private party sale amount, and retail sale amount. I looked up a 2004 Honda Civic, Lx sedan, 4 door, automatic with 40,000 miles, and found the following suggested values (two different sources):
Trade In Value Private Seller Value Retail Purchase Value
Best: $12,400 $13,945 $15,555
Or
$11,183 $12,313 $13,238
In other words, if you trade the car in, the dealer will give you around $11,183.00, if you buy the same car from an individual you should pay about $12,313.00, and if you buy the car from a dealer, his asking price will be around $13,238.00. These prices represent a car in excellent or best condition. Prices go down if the car is not that nice looking and the mileage is greater. I researched three different sources, and the range I ended up with for the retail value ranged from $13,238.00 to $17,825.00 for the Honda Civic. While this does not represent a definite price, it does, however, reveal the range, and in relation to the trade-in value, it shows the dealer’s mark-up. This is enough to give you a ball-park figure for negotiation. These prices represent cars with standard equipment like air-conditioning, heating/defrosting, stereo (CD or cassette), power steering and brakes, and tilt steering wheel. Other equipment and options may drive the price slightly higher, but are not generally considered to have added value in an older vehicle. So don’t pay more just because the car has a four-way stereo CD player.
Consumer reports lists “good bets” in used cars and “bad bets” in used cars. There are several other sites that allow you to compare different used cars by make, models, and year, and rate them against each other. This allows you to check the same year model sedans, made by three or four different manufacturers, and see which one is the better choice. These resources are tremendously helpful in eliminating the problem cars. The more time and effort you put into researching a vehicle, the easier it will be to choose the right one for you at the right price.
Now you need to work out a budget that will give you some room to maneuver. I suggest allowing an amount of money, $500.00 to $1,000.00 dollars, to remain in reserve for unexpected repairs. Place the money in an interest-bearing account, and you will be prepared for an emergency and enjoy the benefits of compounding interest. Don’t forget to budget insurance costs, estimated fuel costs based on your average miles traveled, and maintenance costs. Once your budget is worked out, stick to it when you start shopping.
Where to Buy a Used Car
The act of buying a used car has become easier to accomplish these days. While the traditional new and used car lots populate certain areas of town, the internet has reduced the footwork to a minimum. We used to have to go and look in several lots, now we can locate, price, compare, and even bid on cars over the internet. You will also find that many of the local dealers have a website, and you can shop their lots without leaving your chair. Besides the traditional lots, there are vehicle auctions (private or municipal) in many major cities, there are classified ads in the paper; nearly every city has an auto-trader publication of some kind; there are car-rental and leasing companies selling used cars, there’s e-bay or lists on the internet like Craig’s List that list cars and trucks for sale locally or nationally, and every kind of broker-middleman site imaginable on the internet. Every variation of local or distant dealer, auctioneer, rental or leasing company, individual, and the car-lot next door has its website with pictures and a description of each car.
I believe buying a used car is best done locally. Buying a used car locally minimizes the risk of a rip-off or a “lemon” and maximizes the chances of getting a good car at a good price. This also enables you to interact with the person selling especially when encountering problems or misunderstandings. Buying a used car locally is also good for the local economy, and will indirectly benefit you too. All the other options can be used for comparison shopping and car pricing. The internet can also be valuable in locating the car you want at various local dealers and then going to look at the actual car, on the lot.
About the Car
Program cars – these cars are newer cars, generally well cared for, with less mileage and regular maintenance, and usually still under warranty or the warranty is renewed. Program cars may have been used by company executives or sales people. These cars are sold at dealerships only, and represent a slightly more economical value than a brand new car, but are pricy!
Lease or rental cars – these cars tend to have more mileage and a reputation for more wear and tear, but are known to be well maintained and, within a regional market, can be a good buy.
Used cars on lots – these cars were trade-ins, or auction buys, or off the street purchases that are prepared by the dealer and sold in the used car lot. New car dealers are most likely to have trade-ins and late model auction cars. Stand alone, used car lots tend to have auction cars and cars bought off the street from individuals, or, in a worst case scenario, cars repaired and reconditioned from the junk yard.
Private owner cars – these cars are sold by individuals on the street or through classified ads. Some private sellers are actually dealers, so exercise some caution and some skepticism until you are sure who you are dealing with. The ideal used car is a single-owner car because the repair records were probably kept and the owner can tell you a lot about the car. These cars are generally the best purchase for the right price. When the used vehicle is a second-owner car, and so on, the odds of having all the information goes down. Private owners tend to be more honest, and will usually, tell you what is wrong with the car.
Auction cars - I do not recommend this option to anyone who is not a mechanic that is willing to assume a “project car”. Auctioned cars are sold ‘as is’, with little opportunity for inspection prior to the auction, unless you are in the business. My observation at a couple of public auctions was that the prices were not significantly lower than street prices. At a city equipment auction I spoke with a car dealer about that, and he agreed, saying that market value means nothing at an auction. It’s the demand that matters! Auctioneers often seed the crowd with employees to bid up the prices. So if you dare to go and bid, set your limit in advance and don’t bid any higher.
Online cars - I know people do this, but I don’t recommend this either, unless the car is local and can be looked at personally or have a mechanic check it. If you insist, an online auction should be your best bet, especially with the purchase of a program that will “snipe” your bid in the last few closing seconds of the auction. Look for a “no reserve” auction, make your bid and walk away. You should check in advance on the seller’s feedback section for rating, and you can call or e-mail the seller. It is best if a cancellation after inspection guarantee is offered for long distance purchases and you can contact a mechanic in that area to inspect the car. Finally, you have to assume the added cost and insurance of shipping the car to you. I stress again that I do not recommend auctions for someone who needs a dependable used car.
Buying a used car can be risky. The most secure purchase is a dealer purchase with a warranty. That will also cost you the most.
CARFAX! For a small fee, Carfax will produce a car history for any VIN number. The VIN stands for the vehicle identification number that every vehicle has, and can usually be found easily on the driver’s side, between the console and the windshield. If you are at a dealer you can just ask for the VIN number, otherwise, locate it yourself and write it down. This information will show any wrecks or repairs, with dates and mileage, for cars repaired through warranties or insurance, or major shops using credit agencies. It will also show you who owned the car and whose name the title is in. That could be important! Some repairs may not show up, for instance, if the car was repaired at a small neighborhood shop for cash. This car history will also allow you to check for odometer roll-back, which is illegal, by allowing you to trace the mileage at various repair dates and comparing it to the current mileage on the car.
CAUTION! Look out for a “salvaged title”. That means the car has been wrecked beyond repair and “totaled” by an insurance company at some time. This car is extremely risky, do not buy it! Look out for titles from another state that may be a scam known as “title washing”. These cars may be vehicles that are illegal or below state regulations for one reason or another, like being under water for weeks in New Orleans or being unsafe, and you may not be able to transfer the title to your name in your state. Both salvage or out of state titled vehicles should be avoided completely.
Checking the Car
Always test drive the car you intend to buy. If a test drive is not allowed, walk away and go to your next appointment. Some authorities recommend being hard on the car when you test drive. Accelerating quickly, braking suddenly, taking corners sharply, going up hills and driving down dirt roads, going to empty parking lots and pushing the car to its limits. Well, if you can get away with it, and you are insured… I can’t recommend it. More realistically, you want to reproduce the type of driving that you will do. You want to use the same terrain and go for the same kind of drive that you will be making. If you drive with four kids in the car, bring them with you for the test drive. I also like following the car for a short drive just to see how it lines up. Does it look like it is going sideways? If it is, that means the car’s frame is bent. I suggest driving a few cars so that you can compare one to another.
Pay attention to acceleration, hill climbing and passing cars on the freeway, visibility, braking, cornering, engine noises, rattles, squeaks, whistles and groans, the way the car handles (suspension), and the condition of the transmission. Inspect the car. If mechanically inclined you know what to do, otherwise, visually inspect the engine compartment for anything unusual, look for oil leaks or wires patched together or loose hoses, look under the car for oil or transmission leaks, check the body for dents and rust, check the tires for tread and kick them like you know what you’re doing. Test the doors, the lights, and the air conditioning. Do your best, and if it looks and feels good (no visible leaks or rust, the doors and lights work, etc…), ask to have a mechanic inspect the car. If the seller doesn’t agree to allow a mechanic to check the car, walk away! Buying a used car is risky, so unless you are a mechanic, or a gambler, do not buy a car from an individual without a professional inspection. Often, used car dealers will let your mechanic inspect the car, but will not allow the car off their lot, which means it will cost you more to get someone to go to the lot. It is a wise investment, nonetheless, when you consider the consequences of buying a serious problem.
Negotiating
Some refer to this as haggling! Buying a used car can be made into a challenge rather than a painful experience. Negotiating or haggling, this is the time to use all the preparation and investigation that brought you to this car and this owner or dealer. If you are dealing with a pro, it will require more fortitude to negotiate the price to fit your budget. If you are dealing with an individual owner, there is usually less pressure to the negotiation process. In both cases it is most important that you remain relaxed and don’t take the process personally.
Don’t show a great deal of enthusiasm for the car… ever! If you’ve decided this is the car, be matter of fact, and even if you love the car, don’t ever say so! Have your target price in mind and begin to negotiate from somewhere below your price and then negotiate up to it, hopefully ending at or very near your target price. When dealing with an individual, offering cash may seal the deal for you. When dealing with a car dealer/salesperson, be persistent even if you have to leave and return a few times. Limit your comments to the car and if the negotiation becomes personal, or the other party becomes abusive, leave and don’t return. Be willing to compromise and always leave on good terms, and come back to ask if the dealer has re-considered your offer. Some say, if you’re married, bring your wife with you. Compare this car to other dealer’s cars. There is a greater profit margin in selling used cars than in selling new cars. The salesperson is interested in turning over his stock of vehicles as quickly as possible, and you have an idea of what the dealer paid for the car, both these factors can be used to negotiate the price to your range. Finally, don’t come to agreement and sign anything until you know all the fees, costs or hidden charges. Read, re-read, or ask to take a contract home to study before you sign. If you don’t understand any part of the contract, do not sign until it is explained to your satisfaction.
Summing Up
More people are buying used cars today than ever before. The market for used cars has grown, and the opportunities to save money and buy a fairly dependable car are better than ever in most major markets. However, buying a used car without a plan of action and preparation can result in financial loss. When ready, you can find your car and what it should cost you… saving you hundreds, if not more. Careful preparation can mean that you will reduce the risks of buying a used car to almost none. There are a variety of used cars on the market, and depending on your budget, you can buy a nearly new program-car that is still under warranty, or
a ten-year old Toyota with a 140,000 miles, and still come out ahead. Whatever you decide to buy, always negotiate to get your price, not the sellers price. I should caution and remind you that all vehicles are constructed from parts that are welded and bolted together, parts that are glued and stitched together, and parts that move and rub against each other every time the car is used. With age and use, these parts will wear down, or drift apart, or come unglued. That is a fact. Even with the maintenance and repairs required, buying a used car can be more economical than the cost of a new car. Follow the steps outlined in this article and you can save yourself money and headaches.
|
FAST FACT
Digg It
Stumble it
Del.icio.us
