Mathias Steiner, last updated 26-Oct-03
Follow this link to my (incomplete) page on Makes and Models.
“When you buy a new car, it loses 25% of its value the moment you drive it off the lot."
With Domestics, the situation is even worse. In any event, if your time frame of ownership is 2-3 years, this is not the way to go. Back To Menu
So you buy a used car and, as the saying goes, "let somebody else deal with the deprecitation." The problem with this way of thinking is that used cars aren’t necessarily much better. Suppose that you buy a nice, 2-year-old Corolla for $11k. After all, the dealer will tell you, it’s only got 28k miles and look, it’s depreciated a lot from it’s original $16k price. This makes sense to you and you buy it. Two years later, you have got a 4-year-old Corolla, most likely from a previous body style, with 60k miles and out of warranty, and when you trade that puppy in, you’ll be lucky to see $6k. To be sure, $11 is the going rate for a nice, low-mileage Corolla. If you don’t pay it, the next person will. So this is not a case of the dealer taking advantage of you, it is simply a reflection of market conditions.
On the bright side, you put less money on the line initially, and you'll save money on the sales tax -- currently 6% in MI.. But your depreciation is not that much better than if you had bought new car. And, there is always a certain risk associated with a used car. So what is the answer?
Your choice should be: Buy a high-quality car with low depreciation new, or buy a decent-quality used car that really takes a hit in value. This pretty much means that Toyotas, Hondas, BMW, and VW, to name a few, are not good choices to buy used. Especially the Germans can get VERY expensive once the original warranty has expired.
Here's an example: My good friend R.F. does not believe in buying new cars because that's "too expensive". Here is what he's been doing since 1997 or so: He bought a $3k '92 Accord with a bunch of miles. No payments. A repair here and there, no biggie, and after 2 years, the darned thing blew out all of the coolant and died a quick death on the freeway. Total outlay: $4k or so.
With midsize cars, one can get lucky and buy a nice Toyota Camry or Honda Accord for a decent price, but more often than not, people will be asking the moon for six-year-old cars. On the domestic side, there are plenty of deals available, but unfortunately, a lot of these cars are serious junk.
By this I don’t mean that all Dodge Intrepids are awful cars. The problem with “bad” cars is more the inconsistency. There are plenty of American cars whose owners wish they had given them away at five years old rather than sink money into them $500 at a time. Others drive these cars for years without any undue problems. I don’t think there is a good way to tell the difference.The choice is then to buy the car cheaply enough to be able to walk away from it if something big fails, or to buy an extended warranty, or to trust to luck. It’s not likely that your ’99 Intrepid/Taurus/Lumina is just going to stop running completely. Just make sure you have some $$ on hand to fix the darned thing when the repair bills come.
In my opinion, Chrysler’s large sedans offer some real value (Dodge Intrepid, Eagle Vision, Chrysler Concorde), but many of them are plagued with serious problems while others are just fine. If you can afford the risk, I’d go for the first-generation ones (up to 1997). These are all over the place, and offer great design, a nice highway ride, and tons of room for little money
The Ford Taurus is also a car that one can get rather cheaply. A 1999 with 60k miles should not cost much more than $5k on the retail side, and these are overall very well designed, if a little cheesy on the interior. The first-generation Tauri were plagues with leaking heater cores – cheap part, but $800 for labor because the dash has to come out. Transmissions also went frequently, and the 3.8 liter V6 is prone to head-gasket failure.‘98s and up are better, but not nearly as trouble-free as their Japanese counterparts. Of course, with any Ford, the AC system is also an issue. Nice cars for relatively cheap, but only recommended if you can “steal” one -- i.e. get it really cheap -- and if you can afford the risk of one or two major repairs.
Honorable mention goes to the Ford Contour, a version of the European Ford Mondeo that never caught on in the US. Not a bad car at all, nice road manners, if a bit small in the rear. The real bargains are in the four cylinder versions, especially with manual transmissions.
advice in midsize and bigger sedans is to look for something GM.
The Lumina, which was discontinued a couple of years ago, was GMs most
reliable vehicle after the Prizm. It is also ugly and generally unloved,
so it’s cheap. 2001s are advertised for $7k or so, at least the ones
with a few miles. They are powered by a reasonably reliable old-tech
3.1 liter engine, and the transmissions and AC systems are better than
the other domestics. I’d expect plenty of aggravation with trim pieces
coming off and electrical glitches in the power windows etc. The
car itself will likely last a long time without major failures.
Speaking of old-tech engines: Probably the best GM engine available is the ancient 3.8-liter V6 found in cars like the Chevy Impala – not a bad choice either – the Buick Regal, Olds 88 and Intrigue, and the Pontiac Bonneville. These puppies typically wear out around 200k miles and provide good torque along with 30mpg highway mileage. The transmissions behind them are up to the job; GM builds some great automatics. The fact that the BMW 745 has a GM transmission speaks for itself.
There are many more good used cars out there; I’ve tried to keep it simple. Lansing is a weird town, though, and perfectly good Japanese brands, such as Nissan or Mitsubishi, can almost be considered niche vehicles here. I’d just as soon have a car that my mechanic has seen over and over again than some really cool car – say, a Subaru SVX – of which there are maybe three in the greater Lansing area.This can get really expensive in a hurry.
One word of caution: It can be very difficult to find parts for certain older cars. One person I know once waited six weeks to obtain an engine-control module for her 1992 Nissan – this was in 1998. During that time, the car was not driveable. For that reason alone, I would stay away from anything not mainstream. German cars are nice in that parts tend to be readily available. Still, when my 1987 Audi 4000 [Audi 80 to you Germans] needed new fuel lines in 1997, the dealer wouldn’t even guess at how long it might take to order the parts and get them through customs.Cars that sell by the hundreds of thousands are the way to go. Back To Menu
There are some key dates in automobile safety and emissions regulations that one should keep in mind when looking for a used car.
Safety Belts: For 1990, Congress meant to require all new cars (but
not minivans and trucks) to have dual airbags.In the end, the legislation
got watered down to also allow “passive” safety belts. This abomination
consists of a lap belt that one has to buckle manually, and a motorized
shoulder belt that runs on a track atop the front windows on the car. These
are the most stupid things known to man, on top of being less safe than
regular seatbelts because their attachment points are too far forward.
Most if not all small cars had them from 1990 onward, and they typically
were replaced with dual airbags when the next generation debuted. For Prizm
and Corolla, that was 1993; Camry, 1992; Honda Civic, 1992 [I think]; Accord,
1993. Domestic cars often had seatbelts permanently attached to the
door (early 90s Lumina, for instance), which is not much better.
Adding insult to injury, some manufacturers cut cost even after dual air bags were mandatory in 1995 [?] by keeping the idiot belts around. Ford Escort and Saturns are prime offenders here.
CFC-free Refrigerants: In and around 1994, manufacturers switched from ozone-depleting R-12 Freon to the newer R134a refrigerant. Freon is now seriously expensive at $40 or so per pound, but experience has shown that older systems can be switched over to R134a relatively cheaply and painlessly. Still, on any ‘93/4/5 car, I’d look for the underhood sticker that specifies the type of refrigerant used.R134a is preferable.
Emission Controls: For 1996, the law requires the used of On-Board Diagnostics, Level-II (OBD-II). This was a step-up in the diagnostic systems that have been required since the 70s. Long before the Europeans gave a hoot about car emissions, I might add.What it means is that a vast array of parameters have to be continuously monitored by a car’s computer. This is bad because it increases complexity. And it is good, because the car will tell you what is wrong with it. Also, because the system is standardized, most car parts stores will read out your computer codes for you and tell you why the “check-engine light” is on and what’s wrong with your car. Great system, if it works. Because it was a big change, I would stay away from cars made during the first two years of these requirements; that means 1996 and ’97 for most manufacturers. Some cars –and all GM trucks – adopted OBD-II in 1995, so here the 1997 models are probably okay to buy. The nice thing about the system is that it’s hard for anything to be seriously wrong with the car without the light being on. I will add a section on checking out a used car later, but on any car, turn the ignition to ON and watch for all the warning lights to come on – we wouldn’t want a car where the check-engine light has been disabled, no precious. Then the lights had better go off once the engine starts.
Where To Look For A Good Used Car
First, we’ll look at Car Dealers. With the exception of politicians, there is no group in America that is so universally reviled and mistrusted as the used-car salesman. From my personal experience, I have indeed met people that made my skin crawl. But by and large, I have rarely had a problem finding a straightforward person to talk to. I’ve met just as many bad apples in other sales situations, whether it’s insurance, mortgage lending, or lawyers. I’ve “met” many automobile professionals online, and have learned a lot from them. They are truly professionals who have seen it all, and many of them really do look out for their customers. In any case, there is no need to be afraid or to play games. As long as you are an informed customer, there is really nothing to worry about.
One thing I learned over the years is this: Mostly, these guys are not out to stick you on purpose with a bad car. But at the same time, they don’t know any more than you do about that shiny little Civic sitting in front of you. They sell cars, they don’t fix ‘em. They may know the previous owner, but the car may well have come from an auction. The honest ones will tell you that they don’t know, the other guys will make up some story about the little old lady from Pasadena who drove the car to Church and back. By and large, it doesn’t matter what they think or know. Check the car out carefully, than have it inspected by a competent mechanic. That’s all you need to know. Back To Menu
Dealerships. The easiest place to find a good used car is
the lot of a new-car dealership. Unfortunately, they are also a lot more
expensive than the cars one can buy from private owners. The advantage
is that one is dealing with professionals who KNOW what their car is worth,
which saves time and hassle.
Where does a new-car dealership’s profit come from? Not from new car sales. Unless it’s a BMW or Lexus store, chances are the new-car department is just about breaking even. The real money comes from the service and parts department, and largely from the used-car operation. This sounds like a bunch of baloney, but I believe it’s true. This is what happens in a really tight market when there is about 20% overcapacity in the car business worldwide. This is one of the things that makes it so tempting to buy, say, a Toyota Camry. The profit margins are paper-thin; there is tremendous pressure on dealers to sell large numbers of cars as Toyota wants to increase market share; and the cars hold their value rather well.
Here is how it works: Someone buys a new Camry LE for $19k, then the store will make about $500 profit on it – which is just about enough to keep the lights on.
But if they trade in a three-year-old Camry at fair market value, it will bring $10k or so. Then the car will go into the shop and get looked at carefully. If it looks to be in good shape and has less than 60,000 miles on it, it will be considered for the “certified pre-owned” program. This means a 100-point inspection, a warranty out to 100k, and presumably a trouble-free experience.
In the real world, the dealership will make sure there’s nothing obviously wrong with the car, it’ll get an oil change, be driven around the block, and get a really thorough cleaning and detail job. The extended warranty will cost the store approximately $300, and will increase the asking price on the car by at least three times that. The car will go to the used-car lot for $13,495. At that point, a savvy shopper might get it for $12,500, and if it hasn’t sold in a few weeks, maybe $11,900 will take it. Either way, the store has made $1,000, or more likely $2,000+ on the transaction.
If, however, the car is not in good shape initially, or the mileage is beyond what the store policy allows, it will be sold to a wholesaler – usually one of the used-car operations in town – or be taken to the auction. In either case, they “should” see their $10k back, and maybe a little more, but if the used-car manager missed a “biggie”, like repairs from an accident, they will lose money on the deal.
What does all this mean to you? It means that a Toyota or Honda store is not a good place to get a good deal on a relatively new car. Selling fairly new cars of the same brand is a huge profit center for these dealerships, and there are plenty of people willing to pay these prices. In the end, they often wind up with good deals, but they still face the fundamental problem that there car loses $2-3,000 the moment they drive it over the curb. Keeping in mind that you will need to ditch your car within a couple years, this is not a good start.
I’ll digress briefly for another slant on new-car dealerhips: These guys take in LOTS of cars that they don’t really want. They have to, just to get the deal done, and then they have all these rejects sitting on the back lot ready to go to a wholesaler six or eight cars together for one price. Sometimes, you can get a good deal on one of those cars, but it depends on the dealership. I tried to sweet-talk my way into a deal on a ’98 Subaru Legacy with 135k miles recently at William’s Autoworld and was told nothing doing. But some years ago, I went to buy a car with T.N. from Japan, and Sawyer’s was going to let us have a pretty decent 4-year-old Chevy Cavalier with 50k miles for $5,300. We had it checked out and the silly thing had an engine problem, so the deal fell through. But when we sent a grad student to Sawyer’s a day later to see if they would again try to sell the Cavalier, they told him they didn’t have any available. This leads me to believe that they really didn’t know there was a problem with the car, and once they found out, they just wholesaled it off. A new-car dealership really lives by its reputation, so I would be inclined to give most new-car dealers the benefit of the doubt. To end the story on a positive note: T.N. went across the street to Story Nissan, bought a 1995 Prizm for $7k, drove it for two years and then sold it for $5,500 in a few days. There is always a market for nice, clean low-mileage cars that have been taken care of. Back To Menu
(ii) Used-Car Dealerships. If the aforementioned 3-year-old Camry had a few too many miles on it, you’d be likely to find it at one of the used lots in town. And the price you can buy it for will be lower than at the new-car operation, in part because the used-car dealer has lower overhead. The asking price, however, might be just as high, and that has several reasons. For one thing, the used-car dealer typically has a less-sophisticated clientele than the new-car dealer. This means that there always will be people who are easy to take advantage of, but that is only part of the picture. A lot of the customers will come in with credit problems of one kind or another. Typically, they will be driving an older car that they owe more money on than the car is worth. This unhappy situation is called being “upside-down”, “flipped”, or “in the bucket” and is extremely common – my friends in the business tell me that most people who come to a dealership to buy a car are in fact upside down. This means that they either have to come up with cash out-of-pocket to pay someone to take their car and cover the negative equity. Or that they will be “rolling over” that negative equity into the next car. This is a very bad idea, but a lot of people do it. Used-car dealers know this, so they sometimes put comically high prices on their used cars in order to give themselves some room to pay off people’s trades.
I realize I’m being long-winded about this subject, but I believe it is very important for a buyer, especially a foreigner, to understand how the automobile market works. I’ve been dabbling in this for over a decade, and there are some aspects of it that I’m just now beginning to understand.
this means for you is that you should not pay too much attention to the
prevailing asking price of a car at a used-car dealer. These people
are trying to make a living, and they have to work with what they’ve got.
Not everyone asking $12,000 for an $8,000 car is necessarily a crook.
They may have to sell that car at $12k so they can pay off a customer’s
$6k loan on a $3k car. Just make sure you don’t pay $11k cash for
the thing. If it’s worth $8k real money, just try to buy it for $8,600
– if it’s nice, go $9k – and don’t lose it over $100. This is not
life and death, folks, it’s just a car. Just make sure you get the
Finally, do understand that many of the smaller dealers are NOT in the business of selling cars. They are in the business of selling loans to people with bad credit at sometimes outrageous rates, and the car is merely a means to that end. Many of those so-called “buy here – pay here” lots will not be interested in a serious cash offer for one of their older cars, and you may just be wasting your time there. Back To Menu
(iii) Private Sellers. There are many ways to find a car sold privately. My favorite source of used cars is the Usenet group “msu.for-sale”, where MSU people offer things for sale.While it’s mostly computer hardware, hardly a week goes by that someone doesn’t have a car to unload… and every once in a while, a really good deal comes along. Memorable examples include B. B.’s purchase of a high-mileage 6-year-old Voyager minivan with freshly repaired transmission for $1k. Fixed up for $800, driven for a year, and sold on the street for $1200. Not bad at all. Or H.P.’s 1993 Toyota Tercel with 38k miles – bought for $3,800 “firm”, driven for two years, sold in the S.F. bay area following a cross country trip for $2,500 with no major expenses inbetween.
A more predictable source is the Lansing State Journal’s classified advertising section (Available online from www.lsj.com or through www.cars.com . People there tend to be motivated sellers, as it costs about $30 to advertise a car for couple of weeks. Another set of classifieds is the “Wheeler-Deeler” (www.wheelerdeeler.com), which is available for free at most supermarkets and Coffee Shops. Unfortunately, there is no charge for listing a car, so this publication is full of people “fishing” for a buyer without real motivation. This can be a huge waste of time and requires careful screening over the telephone. Back To Menu
The Problem With Private Sellers. The problem with newer cars is almost always this: People are upside down. And many of them believe the car MUST be worth what they owe on it… I’ve had people tell me “I’m not looking to make a profit on it”, as if profit had anything to do with what someone owes on a car. If the car is older, most people will own it outright, but they still may have some crazy idea of what it might be worth. Usually, some nice lady at their bank or credit union looked it up in a little book, forgot to deduct for miles, never heard about the scratches down the passenger side, and gave them a “retail” figure that rivals the window stickers at Buy Here – Pay Here lots. The only thing to do is move on and call them back every once in a while to see if reality has set in yet. I believe that what usually happens is that these people just get tired of the whole thing and trade in their car at a dealership, thus depriving themselves – and you – of a great opportunity to save some serious money. Back To Menu
Chevy Prizm LSi 1999 auto. 45k mi. silver, one owner, maintained, records, $5,500. Call 123-4567 That would be a pretty good ad to respond to. Great car, low miles, service history, a reasonable price, no fluff.
are no hard and fast rules about automobile ads. But here are some examples
of ads I would ignore:
we come to the heart of the matter. How to figure out what a car
is worth? Easy, most people say. Call your bank or Credit Union,
or go online to www.edmunds.com,
or any number of sites that purport to tell you what your car should fetch
at trade-in time. What could be easier?
The ugly fact is that all of these sources are full of beans.
At best, they’re months behind what the market is doing, and without exception, they fail to properly account for the effect of mileage on a vehicle. Typically, they value vehicles too highly, but occasionally, they miss in the other direction.
I wish I had a dollar for every time I wanted to buy some ten-year old car with scratches, dirty floor mats, and a tear in the dash, and the owner tells me “No, I won’t take $1,200, I know it’s worth $2,000, the Credit Union told me”. Too bad the Credit Union won’t cut them a check for it.
Of course, you should still go to these sources to collect information. At a minimum, you will see what the seller sees and be able to understand where they’re coming from.
Here’s a few points you need to know:
The “retail prices” in all the guides are hopelessly inflated. Kbb states outright that their retail values represent “asking” prices. They all assume a car that is in excellent condition, good rubber, all service up to date, low in miles, etc.
There is no such thing as a 90k mile car in “excellent” condition. “Average” is more like it.Even if the car is truly in great shape – mileage in and of itself is part of the “condition” of the car. The guides don’t indicate that.
The mileage penalty is much higher than the guides indicate. That said, 100k Toyotas and Hondas still have a market. High-mileage domestics are worth very little.
yourself a favor and compare the invoice price of a few new cars
with their “Book” values at one year old with 10k miles. Figure in
incentive money – and average of $3,800 on GM vehicles for ’03 – and you’ll
see that “book” on a 2002 Impala in good shape is more than you can buy
one new for. Case in point: In late 1997, we bought a ’97 Nissan
pickup, $14k sticker price, heavily discounted for $10,500.
It was two years before the “retail” value of that truck fell below what
we had paid for it.
So how do you figure out what it’s worth to *you*? Here are a few points:
Any car is worth $1k if it runs OK and doesn’t have a million miles or a ton of rust.
If it runs well and looks good, it’s worth $2k.
If it is a truck, it’s closer to $3k.
If it’s a 4x4, make that $3-4k.
This defines the low end of the market. Much money is lost by people getting $1,200 ’94 Escorts that will require $1k+ in repairs in the first 6 months of ownership. Be careful, there is LOTS of junk out there.
The high end of the used market – to me, anyway -- is defined by what you can buy cars new for: ’03 Corolla, equipped, automatic: $14k or so. Camry LE: $17k + TTL. Just for that reason, I would not spend more than $10k for a used car. Much better to shell out the extra dollars, get a popular NEW car in a nice color, and sell it when it’s still “like new”.
At the top of the page, I mentioned $5k as a psychological barrier. Here's a case in point:
My neigbors just now (Oct03) sold a 1997 Accord with the "Value Package" with manual locks and windows that was not a very popular car. Plus it had 108k miles. They put an ad in the paper and kept dropping the price every week or so. The whole ordeal took over a month, and it went something like this:
Asking $7,000 -- A few calls, no interest when people heard about manual windows