A large percentage of the used cars on the market come from returned leases, with the largest part of those being three year leases. CNN Money cites a poll by R.R. Polk and Company that shows why we may see used car prices shifting into overdrive in the next year or two. Between June and November of 2008 automobile leases fell by 58% across the board they say. Since that's just exactly three years ago, that's the period that would be feeding returned lease cars into the used car market right about now.
For those looking to buy a used car, that could spell bad news. The lower supply means that you'll either spend more for the car you want or buy a car with higher mileage or more wear and tear than you would have expected for the money just two years ago. Some high demand used vehicles may be hard to find at all.
Even as used car prices head upward, they are already higher than they have been in several years. That leads to an interesting phenomenon says automotive information website Edmunds.com, some used cars may actually cost more than a new version of the same model. Don't misunderstand, the new car will have a bigger number of the sticker than the used version, but when you look at the total purchase costs, the equation changes.
Edmunds uses what they call the True Market Value of the vehicles as a basis for comparison. Quite simply, that's what an informed buyer should expect to pay for the car after negotiating with the dealer, including incentives like reduced financing rates (which are pretty good right now for new vehicles). Using this base figure they added in transaction fees, and then they calculate the expected interest you'll pay over a five year financing period. For comparison, they used one-year-old used cars.
Not every model will save you money by buying the new version in place of the one-year-old version. The bottom line is that they found that for cars and trucks in the following list, you'd actually save more than $1000 by buying a brand new vehicle instead of a 1 year old used model.
- Volkswagen Jetta SE PZEV 4dr Sedan
- Mazda MAZDA31 Touring 4dr Sedan
- Suzuki Kizashi Sport SLS 4dr Sedan
- Mazda CX-7 i Sport 4dr SUV
- Dodge Dakota ST 4dr Extended Cab SB
In all, 29 new model vehicles were either cheaper or equal in total purchase costs to their year-old counterparts, but you have to be careful, because 86 of the 120 new models Edmunds examined were still more expensive than the year old versions. Some, like the Chevrolet Camaro 2SS 2dr Coupe by just a few dollars, but others like the BMW 7 Series 760Li 4dr Sedan, carried nearly $6,000 in extra costs for a new model compared to a certified pre-owned vehicle one-year older.
For some buyers, the extra cost is worth it to get a brand new car or truck in these cases, but when it's actually cheaper over the life of the financing (and that means lower monthly payments) to buy the new car, few buyers who actually do the math are going to be insisting on getting the used car.
For some buyers, the extra cost is worth it to get a brand new car or truck in these cases, but when it's actually cheaper over the life of the financing (and that means lower monthly payments) to buy the new car, few buyers who actually do the math are going to be insisting on getting the used car.