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In car buying, new sometimes a better deal than used

Used-car prices in the United States are soaring, creating a wacky situation for many models in which buying new costs about the same or even cheaper than buying used. • Credit the prolonged recession with prompting more Americans to buy used, sending the average price of a 3-year-old car up 11.1 percent from last year and triple the usual annual increase, according to Edmunds.com, an auto research site.

Combine that with the fact that automakers continue to offer cash back and financing as low as zero percent, and shopping on the showroom floor comes out about the same or even less than visiting a used-car lot, according to a new study by Edmunds.

"The lesson is definitely do research," said Jessica Caldwell, senior analyst at Edmunds.com. "Just because you want to buy a car and don't want to pay that much, don't necessarily assume that used is cheaper. You have to really do the math."

Edmunds' study identified 41 vehicle models that were cheaper to buy new compared with a year-old vehicle, if both were financed for five years. It found 73 more models that cost about the same new or used.

Examples include a premium version of the Audi S4, which was $3,780 cheaper new over the term of the loan; Cadillac CTS, which was $3,180 cheaper; and Volks- wagen Beetle, $3,000 cheaper.

Edmunds also identified 93 models that were cheaper or about the same new as buying a year-old "certified pre-owned" version, which comes with a manufacturer warranty.

The small gap between new- and used-car prices — steadily narrowing for about 18 months — is likely to continue for "at least another year," said Paul Taylor, chief economist of the National Automobile Dealers Association. That's particularly true of truck-based SUVs, which have surged in the used-car market, he said.

While other automobile price experts are seeing the price difference shrink between new and used vehicles, they don't see it as pervasive as the Edmunds study suggests.

For example, Kelley Blue Book has noted a rise in used-car prices, but not to the point where they're surpassing new-car prices, said Juan Flores, director of vehicle valuation for Kelley.

"I'm sure there are opportunities out there or instances (where it's true), but I'm comfortable saying it's probably going to be the exception rather than the norm," he said. Reliable, high-demand vehicles such as the Toyota Tacoma, Chevrolet Camaro SS, Mini Cooper and Dodge Challenger are among those whose new and late-model prices might be close, he said.

A vehicle with a lower price new than used would be an anomaly, Taylor said. The real question for consumers is whether there's enough price difference to justify buying used. "Typically, a used car would be less, but maybe it's not enough less," he said.

This isn't the first time new- and used-car prices have converged. During the July 4 weekend a year ago, Consumer Reports found deals on Honda Accords and Odysseys that made new models less expensive than year-old used ones.

It's important to note that the Edmunds report assumed auto financing for five years, which is typical, and no down payment. Customers who pay cash will almost always find used cars less expensive, and those who finance used cars will generally find the interest rates to be higher.

The study also compares prices of new cars with only year-old counterparts. Buying a 2- or 3-year-old vehicle is far more likely to be cheaper than buying new.

And the study considered monthly payments only and did not include typical repair and maintenance costs, which are generally lower on new vehicles.

In car buying, new sometimes a better deal than used 07/29/10 [Last modified: Wednesday, July 28, 2010 2:24pm]
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