Buying a used car in a tanking economy

New advice for used cars

If you asked any personal finance pro whether to buy a new or used car, the answer would be a no-brainer: A new car depreciates in value as soon as you drive it off the lot, so go for used. But now, prices for used cars are at historic highsmeaning it’s time for a whole new set of advice.

The stats are shocking: Between January 2005 and July 2010, the average cost of a 1- to 5-year-old pickup truck rose from about $15,000 to $18,000—that’s nearly a 20% increase in just five years. Used car prices rose from $10,500 to $13,200 during that same period. The Manheim Used Vehicle Value Index, which tracks pricing trends, reached the highest point in December since it started keeping track in 1995.

Even more startling, buying a used car is now sometimes more expensive than buying a similar new one. The auto pros at keep an up-to-date list of car models that, if bought new, are cheaper than the used version, or about the same price. Even high-end brands like Audi and BMW made the list.

Why is this happening? A few reasons:

  • The demand for used cars over new cars rose when the economy tanked. Meanwhile, people were holding onto their old cars for longer than usual to save money, so their used cars weren’t entering the market. Both trends resulted in fewer cars on the market, which made them more valuable.
  • New car sales tanked at the beginning of the recession. For the previous decade, 15 to 17 million new cars were sold every year; suddenly, that figure fell to 10 million. If fewer people are buying cars, that means fewer people are trading them in.
  • Cash for Clunkers scrapped used cars. The 2009 program paid used car-owners up to $4,500 to trade in their old gas guzzlers for more fuel-efficient cars. Since the program required the old trade-ins to be scrapped, that removed a large number of used cars from the market, driving up prices.

All this means buying used will take greater skill and planning than in the past. Try broadening your search beyond dealers and private sellers by looking online and at auctions. If that doesn’t work, it may mean holding on to your current used car just a little bit longer.

Have you run into this issue? Any tips or tricks you can share?

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