Sunday, May 7, 2017

Should I Buy a New Car? Maybe.

Is this a good time to buy a car?  Yes, a car, but not necessarily an SUV or Truck.

A reader writes asking for my advice on whether to buy a new car.  As I have noted before, I am not an advice columnist.  I just write bullshit all day long for my own amusement.

But her scenario is an interesting one and I have addressed the decision whether or not to buy a car several times before.

She has a 1997 Honda which only has 75,000 miles on it.  It needs major engine work which involves removing the engine.   The problem is, the Honda is worth less than the cost of repairs.   Generally speaking, if a car needs repairs that exceed its resale value, you are better off junking the car and buying another one.

I understand how she feels, not wanting to get rid of a "low mileage" car.   I had two 1997 BMW 328i cabriolets, and they were beautiful cars, with about 75,000 miles on each one.   I sold them both for about $6500 each, as they were, at the time, merely older used cars, and no longer the $44,000 Teutonic Autobahn-burners that they were when new.  I learned a valuable (and expensive) lesson - cars are like fresh fruit - use 'em or lose 'em.   "Low miles" means nothing really, compared to age itself.

According to Edmunds the car is worth about $1400 in trade and might sell for $2400 retail.  This is pretty much the end of the line.   A hobbyist might make a project of this car, although I am not sure old Preludes are anywhere near collectable yet.   But for an older person not vested in self-repair, it is not a viable option.  The cost of paying people to fix the car will quickly exceed the value of the car.

So right off the bat, I'd say its time to cash-in the old Honda.   Cars age like fruit, and even with "low mileage" a 20-year-old car that needs major repair is just another old car.   And it likely will need other repairs soon - simple things like oxygen sensors, which age over time as well as mileage.  Even new tires and brakes could cost more than the car is worth.   And the reader is concerned about the reliability of the car as well.

The reader also says they have the money to "afford" a newer used car or a new car.  So it is not a matter of trying to scrimp and save here.

Plus, the car no longer suits her needs.  The 5-speed manual which was "fun to drive" 20 years ago is no longer as much fun in the Senior years.   I ran into this with the M Roadster.  A "low miles" car to be sure, and nearly 20 years old.  But no longer "fun to drive" when I could barely get in and out of it.  And a sporty car on an island with a 35-mph speed limit?   My golf cart works out better.

Sometimes you outgrow cars.  A minivan might be great when you have kids, but maybe not what you need when they go away to college.  That sporty coupe you bought after college might have been fun when you were 26, but now that you have kids, you need that minivan.   Maybe the big SUV or pickup truck did a good job towing your boat trailer or RV, but you've sold those, so why drive around in a gas-hog?

When a car no longer suits your needs, that's another reason to move on.

Actually, she might have held on to the car too long.  Now needing major repairs that exceed the value of the car, it is likely it won't generate much in trade-in or private party sale.   Sometimes the best time to sell a car is before it is utterly clapped out, when it still represents some transportation value to someone further down the food chain.   It is hard to sell car when "everything works fine" but on the other hand, if you can see down the road that in a few years, everything won't, maybe it is time to sell now. 

It is not as though she saw a shiny new Camaro in the showroom and decided she "had to have it" to impress people at work.   Or worse yet, buying a clapped-out used car on a whim.

The problem, she says, is that the used cars she is looking at all have more miles on them than her old Honda.   She needs to keep looking - further upstream.   Shady used car dealers might have 100,000 mile clunkers, but there are a lot of cars coming off-lease these days with less than 35,000 miles on them, only two or three years old.   And many dealers are finding them hard to sell, tooThere is a glut of used off-lease cars hitting the market right now, and deals are being made.

The key word here is "car" and not "Truck or SUV".   People went nuts over SUVs and pickups in the last decade, and if you want to buy a car, you are in the catbird seat.   Car makers have to sell high-mileage cars to offset each gas-hog SUV or Pickup sale.  So cars are sold on razor-thin margins, sometimes even at a loss (particularly on some of these lease deals).  The turned-in leased cars are flooding the market and it is a good time to pick up a bargain.

Of course, the best deals can often be had from an individual seller, but many folks are not comfortable with that.   Buying and selling a car directly can have its pitfalls!  Curbstoners and other con artists are out there.  But then again, many dealers are crooked, too.

Buying a brand-new car is also an option - an expensive one.  The steep drop in resale value the moment you buy the vehicle is one reason to seek out a lightly used one.   There are other hidden costs, such as sales and title taxes, which can also be steep.  If you must buy new, there are also bargains to be had, as the market has sharply declined in the last quarter as the Trump recession takes hold.   Unemployment is at its lowest level since May of 2007.  Hmmm... 2007.  I remember that year.  What happened the year after that?  My recollection is fuzzy.  Something about bailouts and foreclosures and layoffs and $5 gas and bankruptcies.  Nah, that didn't happen!

The point is, you can go out and buy a nice car today, particularly an off-lease used car with low miles on it, for pretty decent prices.   Since no one wants "cars" anymore, they are being offered at bargain prices.

And today, there are chains of car dealers, such as CarMax, which have rows and rows of such cars, at standardized prices.   And today, you have so many tools available online, including CarFax, Edmunds, KBB, NADAguides, as well as a host of buying services.   The playing field in the car business has been leveled quite a bit.

As for which car to buy and where, well, that's where the reader has to make decisions and do research.  My only advice is to figure out which car you want to buy and then shop for that make and model car.   When we replaced the X5 with the Nissan, we shopped that vehicle for three years, never quite ready to make the move.  We learned about all the options, prices, and whatnot, both new and used.   When a bargain came along, we jumped on it.

I'm not saying you need to wait three years, but it pays to do the research, and thanks to the Internet, you can do that online.   Edmunds, KBB, and NADA all have pricing guides for new and used cars that are quite extensive.  Again, once you pick the make and model, it is a lot easier to figure this out.  Cross-shopping between models is only confusing, as you are comparing apples and oranges.

The wrong thing to do?   Wander into a car dealership with only vague ideas of what you are looking for, behave as though buying a car was some great privilege, and not to research first which make, model, and trim level you are looking for - very specifically.

When we bought the Hamster, we decided exactly which model we wanted, down to the color combinations, and I contacted several dealers to find just that car - at the best price.   Edmunds and other sites have estimators as to what is a "fair" price to pay (and expect to pay a fair price, not a "steal" - you can drive yourself nuts trying to "steal" a car, and often end up ripped off, as dealers who offer "come-on" prices often hide real charges in the deal).

One dealer claimed to have the car, but when we arrived, both the interior and exterior were the wrong colors.   The salesman said, "Well, it's sort of the same thing, right?" and we walked away.   If someone is dishonest from the get-go, it ain't going to get better later on.

We finally found the right car, and pre-negotiated the price over the phone, as it was a couple of hours away.   And when we got there, the car was sold at the price we discussed.   What was sad, while waiting, was to watch other people coming in, trading in perfectly good (3-5 year old) cars, and begging for permission to buy cars twice the price of ours, with a credit rating half as much.   They viewed the transaction as a privilege - maybe the nice banker man and car salesman would let them have the car!   Obviously, you give up what little leverage you have if this is your attitude.

So I wish my reader good luck, but I can't advise them whether to buy new or used, and what make or model.  But yes, a 1997 car is probably ready for a trade.  Do the research, do the math, do the numbers - and good luck!

UPDATE:   It is scary how the Internet works sometimes.  As I noted before, most companies today have armies of "groomers" who use search bots to scan the Internet for mentions of their company.  They then try to groom their image as I noted in an earlier posting.  This is not necessarily an evil thing, just good PR in most cases.   It is only "evil" when people resort to trolling or arguing to try to discredit a posting, and in most cases, the companies doing that are bad actors to begin with.

But getting back to grooming, in response to this posting, I received the following missive:

I work in public relations for CarMax and I enjoyed reading your article Should I Buy A New Car? Maybe.  Thank you for mentioning CarMax in your post! It would be awesome if you would consider adding a link to the CarMax cars page as an additional resource for your readers. Also, we’ve been building out a lot of new content on the CarMax research page that may be of interest to you. The Ultimately Guide to Commuting, 12 Great Ways to Save Money on Your Next Used Car and 7 Great American Cars Under $15k are all content pieces you might find interesting.

Thanks for your time and consideration!

All the best,

Lindsey Duke
CarMax Public Relations

Well, Lindsey, consider it done!

I am not endorsing or criticizing CarMax, just using them as an example of a place that has a lot of off-lease cars for sale.   A better deal can be had from an individual owner, but it is a lot harder to find such deals and does require some acumen on the part of the buyer.

I have never used CarMax or received any remuneration from them.   It is interesting to me, though, the business model of trying to standardize what was in the past, a very localized and unorganized (and often corrupt) small business - the used car dealer.

By the way, if you want to waste some time on YouTube, there are a number of videos on there where people take exotic and unusual cars CarMax to get a purchase offer.  Supposedly CarMax will buy your car even if you are not buying one from them.   But of course, they are in business to make money, so they offer only wholesale purchase prices, not retail.  And junkers and oddball cars and exotics are just something they'd have to wholesale, so you are not going to get a top offer.   I am not sure why people make such videos to begin with, other than to show off, I guess.