The Late-Model Used Myth (Part 1: Domestic)

Chrysler Sebring

Many personal finance “experts” agree that buying a late model (less than two years old) used car is the best car to buy. They say that buying a slightly used car eliminates paying that dreaded depreciation and keeps money in your pocket. I don’t think this issue is as clearcut as they make it out to be.

I will use a 2007 Chrysler Sebring Touring for my example. Both The Millionaire Next Door and The Automatic Millionaire talk about how financially savvy people drive slightly used domestic cars like the Sebring

2007 Chrysler Sebring Touring

Retail KBB Price: $17,120
Trade in KBB Price: $11,500
Private Party Price: $14,260
2007 MSRP (New): $19,645

Suze Orman says ” New cars depreciate 20 percent to 30 percent the second you drive them off the lot.” That statement is definitely true in this case, but notice how the car magically gains this percentage back once it’s in the dealers hands? Doing the “smart thing” and buying the used model at $17,120 will lose you $5620 if you have to trade it back in.

Some will say that you never buy at the dealers asking price. That’s usually true so let’s say you manage to get the dealer down to the private party value of $14,260. This is a better deal as you will only lose $2760 if you have to trade it back in. The thing is most people never pay MSRP for a new car either. The Sebring has never been a hot seller and right now Chrysler is offering a $4500 cash allowance making the new model $15,145. For a thousand dollars more than a used model I would buy the new one. That’s one full year extra warranty and it won’t have been used and abused like many “fleet/rental/lease returns”. Certified models are an option but you usually pay a premium for it. Buying private party is the best option but most people selling a slightly used car are going to have to sell it for more than they owe, which might not be that low of a price.

Other Things To Consider

1. Dealers buy their used cars at factory auctions and usually pay far less than the KBB trade in value. When I worked at a Chrysler dealer we bought used Sebrings at auction for around $8500. They would often make up to $7000 on some deals. For some people the idea of a dealership making that much money off them may make them want to purchase a new model.

2. Dealers might not even end up offering the full trade in value because they can buy them at auctions for so much less, meaning no matter what you buy new or used, you still stand to lose a good chunk of change if you have to trade it in.

3. A new model is usually always going to end up having 10,000 to 12,000 miles less than it’s used counterpart. In a couple of years it may actually be worth more than the used model due to the lower mileage.

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3 Responses to “The Late-Model Used Myth (Part 1: Domestic)”

  1. mycarlady Says:

    I do agree with the current incentives many new models sold at invoice less rebates with full warranty, up to 100k in the case of Hyundai or unlimited miles, in the case of Chrysler/Jeep/Dodge, are better deals than pre-owned, who knows who had them last, cars. Dealers are paying more at the auction these days, to meet the demand for 4cyl. and higher MPG models, especially imports. However, for those not able to make that price point work, there are some tips for buying pre-owned, that can make a huge difference.
    Stay tuned at http://www.everythingcars.wordpress.com
    MYCARLADY.com

  2. The Late Model Used Myth (Part 2: Import) « Says:

    […] « The Late-Model Used Myth (Part 1: Domestic) […]

  3. Mike Says:

    I completely agree with this article. That whole 20-30% is the silliest thing I have ever heard of. If a 2008 ford focus costs 14,000 (MSRP) you will never see a 2007 for 10,000……maybe for 12,000. But then like the article says….it may list for 14,000 MSRP….but by the time you haggle them down 500-1000 and domestics always have big discounts (2,500 for my 2005 ford focus, plus I got 500 for financing through ford credit, plus 500 for being a college student). If they did the figures after haggling and discounts rather than straight MSRP that discount would be about 5-10% off. That gap is closed even more whne you consider in the end (either 2, 5, or even 10 years later)….having a car with one less year and X less miles will get you more money back.

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