New vs used cars – Car Buying Tips

Last week I worked with a client who was trying to decide between a new or used Nissan Altima. He had done quite a bit of research before he called me, and it appeared that he could a brand new one with leather, Bose and more for over $5500 off the sticker price. That triggered my “too good to be true” sensor, as I knew the cost of the Altima he wanted and its rebates and incentives. It took a bit more digging, but I finally figured out what was going on.

Sure enough, the dealer was quoting him all of the Altima rebates Nissan offered—not just the ones that would actually apply based on if he paid cash, leased, or financed with Nissan, meaning that the deal wasn’t really available. Sadly, I see this quite often, and it makes people angry when they find out the truth. Dealers will group together rebates or incentives which are actually either/or, just to give a price that looks unbeatable and get the customer in the door.

This falls under the category of what we in the business refer to as putting someone “on the bubble.” The idea being that the potential customer wont be able to find a deal that looks better, and the dealer will only “pop” the bubble when the client is finally there in front of them, and the chance of closing the deal is better than online or over the phone.

My first step to help was to get him a “real” price on the car, which was just over $4500 off sticker—still a great deal. Then, with his input, I searched the auctions for a comparable used car.  No matter if you go new or used, there’s no reason to spend to much cash for your car, no matter how much you think you’re in love with it.

We found five that met his needs, being basically older versions of the new one he wanted. Those five were narrowed down from 47 that I started out looking at, before eliminating them based on things like previous paintwork or accident damage, condition, mileage and even color—and these searches covered auctions in the entire country; talk about slim pickings! But that’s the current reality in the used car market, as I describe in this post –

He came in and looked at the inspection reports we get from the auction company, where they check each panel for damage, measure the tires’ tread depth, etc. I showed him how a car could have a clean CARFAX report (like some he had seen in local online ads) but still have been painted; this caused something of an “Aha!” moment: you need an expert to check out a used car.

The interesting factors for him though were that with used inventories so low right now, a 2009 model year Altima like he’d want, with about 35,000 miles on it, would be only $3000 less than the brand new one. A record was set for used car prices last year; 2012 is just about as high so far (as data aren’t available for May or June, usually the highest priced months, we wont know for a bit how this year will compare). Regardless, used cars are comparatively very expensive right now.

Studies show that when late-model used car prices get within 60 percent of new ones, people usually buy new. In this case, it was more like 87 percent, making the case stronger for going new. Finally, his buying history shows that he holds onto cars; his truck is eight years old, his wife’s more than a decade.

Understanding the true cost of ownership is critical to getting the right car for your needs, and it is usually figured based on a Cost Per Mile basis. In his case, since he’d have a new car with basically no miles and a full warranty, his CPM would be same or lower on the it, if he kept it for a similar period of time. That’s because he’d be less likely to have as many out-of-pocket repairs (or routine maintenance) over the same time as a used Altima that started with 35,000 miles or more.

We also discussed whether we should wait a couple months for the all-new Altima. It would likely have a higher actual invoice cost, and the chances of it having the same level of incentives and rebates was slim. One of those on the 2012 model was a $500 “holiday” incentive good for around Memorial Day—this goes to my discussions in the ebook on when are the best times of the month, year, and model year to purchase or lease. It was fun to walk through the whole process with one person; meeting my client’s need has been critical to my success as an auto broker. It is also great that I get to share this with others via this blog.

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