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Vehicle market is changing

The car-buying market has seen drastic changes. Some conventional wisdom, traditional financial advice and automotive truisms are out the window in what has become one of the wackiest car-buying markets in a generation. Some lightly used cars cost almost as much as new cars; some models from Japan are scarce after production was disrupted by the March earthquake and tsunami there; and leases, which virtually went extinct a few years ago, are back with a vengeance. Here is some advice that doesn't necessarily hold true in today's market.

Buy late-model used cars: You can still save a little money buying a 1- or 2-year old model, if you can find one. But used cars are so hot right now, especially fuel-efficient ones, that you're unlikely to save nearly as much money as you used to.

"One of the biggest differences in the market today is the values of late-model used vehicles are really at all-time highs," said Alec Gutierrez, manager of vehicle valuation for Kelley Blue Book.

For example, a year-old Ford Focus in 2010 sold for $9,625. Now, a year-old Focus would sell for $12,825, up 33 percent, according to Kelley Blue Book. Similarly, the Hyundai Elantra is up 36 percent. Most dramatic: a year-old Toyota Prius sold last year for $15,650. Today, a year-old Prius is valued at $21,850, up $6,200, or 40 percent.

Don't trade in your car: Conventional wisdom says you'll get far more for your vehicle if you sell it yourself, rather than accept a dealer's trade-in offer. But today, with used cars in demand, dealers are offering top dollar for trade-ins, especially for desirable models in great condition with low miles. That tightens the dollar gap between trading in a vehicle and selling it yourself, which involves far more hassle.

Higher prices affect used-car dealers too. They must pay higher wholesale prices at car auctions. So they're likely to be a lot more interested in your trade-in.

Don't lease: Leasing vehicles has been slammed by personal finance experts as a wildly expensive way to own transportation. But lease deals today, after nearly disappearing during the Great Recession, generally have improved and are worth a look, especially for people who like to get a new vehicle every few years, car experts said.

"There are some pretty amazing lease deals," said Phil Reed, senior consumer advice editor for vehicle website Edmunds.com. Consumers nowadays will see more short-term leases available, such as 24 months. And leases, once largely the domain of upscale and luxury brands, are now available on less expensive compact cars.

Buy Japanese for quality: For conservative buyers looking for reliability, buying Honda, Toyota or maybe Nissan once was easily the best bet. No more. Korean-made cars, such as Hyundai and Kia, have rocketed in quality in recent years, while domestic makes, such as Ford and General Motors, have improved significantly, Gutierrez said.

"We've seen a leveling of the playing field," he said. "This is certainly something we're not used to seeing. It's been a bit of a shake-up this year."

Don't pay sticker price: Of course, you should always haggle for the best deal you can get on a new car. But nowadays, it's not realistic to expect huge price breaks off the manufacturer's suggested retail price. While there's a shortage of used cars, there's no abundance of new cars, either. So, manufacturers aren't offering the lucrative incentives they have in other years.

"There's still room for negotiation," Wainschel said. "What you don't see are the really very aggressive incentive programs."

That all means the consumer has less bargaining power than in the recent past.

"In some cases you have to pay sticker price. It depends on the car," Reed said.

Turn in the keys on a lease: Don't turn in your leased vehicle until you find the buyout price in your lease contract. Because used-car prices are so high, you might be able to buy your leased car and resell it for a profit. You'll have to decide whether that's worth the hassle, and in some states, including Illinois, your profit will be eroded by paying sales tax.

"Those folks lucky enough to lease two to four years ago are finding themselves in a good spot," Gutierrez said.

Vehicle market is changing 09/01/11 [Last modified: Thursday, September 1, 2011 4:30am]
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