Wednesday, November 21, 2018

Late Model, Low Mileage Used Cars - Too Late, Too Low?

When a car a year old is being sold with only 5,000 miles on the clock, there is a story.  And I hate stories.

Financial gurus usually agree on one thing - the best value in transportation is a late model, low mileage used car.  And in today's market, the word "car" is particularly important.  With America's obsession with SUVs and Trucks, cars are a hard sell, and often sell for very low prices.  But even when it comes to SUVs and Trucks, a used model can be a far greater bargain than a new one, particularly in this era of $50,000+ SUVs and Pickups.

But there are caveats to this advice.  No advice is a blanket prescription, and thus should only be taken as a guideline.  And it is one reason I don't give advice - as often the best course of action is specific to the person, and often the person asking for advice already has made up their mind and just wants validation for what ends up to be a bad decision - so they can later blame others for their misfortune.  Externalizing raises its ugly head yet again.

But I digress.

There are a number of caveats to this blanket advice, or more correctly, blanket suggestion.  The first is, it is entirely possible to pay more for a used car than a new one, particularly at a dealer.   The age-old advice of buying a late model used car with low mileage was usually followed by the phrase, "...from the original owner."   That is where the real bargains are - or can be.   Dealers often mark-up used cars and then load them up with high-interest financing and other shitty ad-ons (loan insurance, "dealer fees" and whatnot) to the point where the buyer is paying more for a used car than a buyer of the same make and model car is paying for a new one.

We saw this firsthand at a Mercedes dealer about 20 years ago, when we thought we needed a Mercedes wagon.  Back then, they were built like tanks.  Today, less so.  A dealer in Arlington was offering to "re-lease" secondhand wagons (turned in on a previous lease) and it seemed like an interesting idea, as Mark or I could have written off the cost as a business expense (if not audit bait).  we went to look at it, and the price (and there is a sales price in a lease) was staggering - $40,000 or so, as I recall.   We went across the street to the dealer and the sticker price on a new wagon was $39,000.   But the people being sucked into this "re-lease" deal were being enticed by the monthly payment, not the overall cost.  And they wrongly assumed, without checking, that the used car was a better bargain than a new one.

And we've seen this in our travels across America this summer, looking at pickup trucks at nearly every Ford dealer from Washington State, to California, to Texas, to Florida.    We stop and look, and the used trucks are often more expensive - or just as expensive - as the new ones.   You can't just assume a used car is cheaper than a new one without doing the research.  But used car dealers don't want you to do research.  They want to slap a set of temp tags on the truck you are standing in front of and "drive it home today" and then come back later to discuss price and terms.   I kid you not, they actually do this.   And people actually fall for it.

Cars for sale by owner are out there, but in this modern era, are getting harder and harder to find. Simply put, cars, and in particular SUVs and Trucks, are so expensive that most folks don't have the cash to buy them, the credit to borrow, or the "expertise" to make such a transaction.  It is like selling their house FSBO to a buyer - sure people try to do this, but in the end, most throw in the towel and deal with a Real Estate Agent.

Most of the cars I've owned I bought directly from owners. And they were for the most part, good bargains.  But it does take time to line up a loan with your credit union, and then there is the matter of getting the car home, getting the title and tags and whatnot.  Not hard to do, but then again, in this day and age, most people are helpless as babies.

Buying a car from a person and not a dealer can also be a better bet for other reasons.  And by person, I don't mean a curbstoner.   Curbstoners are people who may actually have a dealer's license. They go to auctions and pick up the crumbs the new car dealers and larger used car dealers leave behind.  They then list their car on Craigslist or some other venue, posing as an individual selling their own ride.   Or they buy cars from sellers at a low price and flip them to you, without even titling them in their own name.   Curbstoners should generally be avoided, as they are liars (pretending a car is their personal ride, when it is a business or side-business they have selling cars) and any business deal you enter into based on a lie, no matter how trivial, is going to go downhill from there.

Usually, a car from a "real person" may be a few years old, and in the old days, the seller wanted to sell it to buy a new car.  He may be astute and realize that trading the car in is not a good deal for him, as they will give him less money for the car than he could realize in private party sale.  Oh, sure, the dealer will say he is giving you more money, but in reality he is just padding the price of the new car to make the trade-in seem worth more.  It is the old "inflated trade" gag, and it is still in use.  People, particularly men, think their old jalopies are worth billions, and their manhood is offended when a dealer offers them a low-ball (or realistic) trade-in value.  They will sign an odious deal on a new car, provided the dealer attaches a fictitious number to their trade.

But like I said, in this modern era, people don't want to hassle with selling their cars, and they claim they like the "convenience" of trading-in, even if it means they are leaving thousands of dollars on the table, when the deal is said and done.

But assuming you can find a "late model, low mileage" vehicle at a price that is reasonable, there are still pitfalls.   Sometimes a deal seems too good to be true and often that is because it is.   I have seen trucks galore that are nearly new with no miles on them, for sale.  A 2018 pickup truck with 5,000 miles on it - what gives?   Who trades in a car before the year is out?

Or another truck - a 2017 model - that was delivered to the dealer in 2016, sat on the lot for two years and then was sold to a "fleet buyer" and then wholesaled within two months with 5,000 miles on the clock.   Hot-selling pickups rarely sit on the lot for more than 30 days.  Two years means there is a "story" and I hate stories.

Likely these are vehicles that were wrecked and repaired, and thus were difficult to sell as "new" vehicles.   Or, if used, were wrecked by the original owner (or lessee) and sold or totaled out by the insurance company and then offered at auction.  A used car dealer buys it and sells it to you, hoping that you don't do a CarFax on it and realize it was a wrecked car.

There may be nothing wrong with buying a wrecked car, provided it was fixed properly.  Our 2002 X5 was in a front-end collision early in its life and it served us well for over 100,000 miles (having 160K on the clock when we sold it).   The only anomaly I ever saw that may have been related to the wreck was after I replaced the struts and had it aligned - the camber adjust was just a little off.  But it drove straight and never had any odd tire wear problems.

But I did a CarFax on it before I bought it, and I could tell it was in a wreck by inspecting it.   And it was priced accordingly and was a good bargain.   Not all cars are such a bargain.   In some States, a car with a "salvage title" needs to be inspected before it can be registered - and the salvage title notation follows the car to the grave.  A fellow in Florida fixes up cars this way and has a loaded F150 for sale.  He has gotten it to pass Florida inspection.   I would have to have it re-inspected in Georgia, and if I ever sold it out of state, the buyer might have to have it inspected as well.  A hassle that is only worth it, if the price is low.  And while his price is low, it isn't that low to make it worthwhile.

Some wrecked or damaged cars can have problems.   In the South we have hurricanes, and cars do get flooded - with salt water.   The car may run fine for now, but salt getting into electrical connectors can cause corrosion down the road which leads to all sorts of trouble.  As I noted in an early posting, often connectors are the source of "electrical gremlins" that seem unsolvable.   Often, this means having to unplug every electrical connector on the car, clean it with an emery board, and than slather it with dielectric grease, in order to insure you have good connections.  Many mechanics, on the other hand, will merely plug the car into a service computer and start replacing modules that are listed as defective, when in fact, it is merely a flaky connection which is at fault.

So people buy a hurricane car or truck, and a few months down the road, every light on the dashboard is lit up.   Or a wrecked vehicle, if not repaired right, can cause problems down the road.  A typical problem - if you buy from a sleazy used car dealer - is that the car was wrecked and the airbags deployed.   The dealer or his repair guy merely removes or disables the airbag light on the dashboard and stuffs a rag or coke can where the airbag was supposed to go.   You don't find out the car doesn't have airbags until it is too late.   If you put the key in the "on" position and don't see the airbag light, walk away!

Airbags are expensive to replace, which is why there is a rash of thefts of airbags from popular model cars these days.

But the main issue is that a wrecked car is worth less.  Not worthless, but worth less.   Dealers can buy them cheaper and if they are unscrupulous (which is a requirement of becoming a used car dealer) they try to sell them as "like new" vehicles and don't disclose their storied history.   You can make a lot of money this way.   But it is unethical and in fact, criminal.   Act shocked.

The weird thing is, a lot of people prefer buying a used car from a dealer, citing "peace of mind" or some such nonsense.   They prefer an anonymous car to one where the knew the owner.   I think they do this because they can pretend the car is theirs, and not a hand-me-down from some real person.  Such folks are ripe for ripoff, though, as they may end up with a car with a "story" attached to it.

As I noted in an earlier post, I was set to buy a truck "for sale by owner" from a guy in Florida, when I found out it had been wrecked.   I would have bought the truck - for a couple of grand less than the price I initially offered him - but for the fact he lied to me about the accident.   A wrecked vehicle can be a good ride - provided it is priced right.  He wanted to sell it for the price of a non-wrecked vehicle, and thought he was clever by not mentioning this to prospective buyers.   Walk away from folks like that.

Are there good used vehicles out there for sale?  Sure.  But you have to look hard to find them.  In Florida, a lot of retirees sell their cars to downsize (as the fellow I talked to was doing) to one car.  Or the children want to sell Grandma's old Buick, after she has passed away (and often sell for cheap, as they have a flight to catch back to Iowa, the next day).   Mark's Dad offered Mark his Grandma's old Buick, and he turned it down, because he felt it wasn't something he wanted to drive.  In retrospect, we could have sold it, or I could have used it to commute to work for a few years.   It would have saved us a lot of money.  But I digress yet again.

Vehicle sales are down.  You Google this online and you see articles from March of this year saying that sales are flat, to articles last month saying they are declining sharply. Carmakers of course dispute this, qualifying slow showroon traffic with assertions that "fleet sales" will make up the shortfall.  But the reality is, higher interest rates mean the monthly payment crowd can afford a lot less.  And a lot of vehicles are coming off-lease, flooding the secondary market.   At this point, time is on our side, as a recession will mean fewer sales and perhaps lower prices or more "incentives" to move even new cars off the showroom floor.

So it pays to keep looking and not be enticed to "close the deal today" as we were exhorted to do today.   Many car dealers worth that way - not wanting to sell cars to anyone except people who want to impulse purchase the same day.  You should walk away from dealers like that - it isn't worth it.  But more on that in another posting.

UPDATE:  We found yet another truck for sale that had sat on a dealer lot for over a year, until it was "sold" in September of 2018, and then wholesaled in October of 2018, with 13,000 miles on the clock (all in one month!).   Something weird is going on here - how can a vehicle sit for a year on the dealer lot without being sold?  How can it accumulate 13K miles in a month?   Very odd.  Nice truck, too.  Diesel, but no towing bling.