When It Comes to Cars, Don't Buy New

by Gary North

When you buy used, you buy from someone who has made mistakes. He does not know how to buy used, or why. So, he bought new. Big mistake.

There are three factors with new cars that most people forget to consider in their budgeting: (1) property taxes, (2) collision insurance costs, (3) new car digital complexity. Eric Peters, a car guru, talks about these factors here.

People get in over their heads. Then they get into financial troubles. They lose their cars to repossession. This clogs the supply line with late-model used cars.

There is a fourth factor: the likelihood of a recession over the next two years. Recessions always push down used car prices. People who lose their jobs have their recent model cars repossessed. Also, people need cash. Finally, people put off buying a car. They fix their existing cars. New car dealerships face bankruptcy. They have to move trade-in used cars off the lot, fast. They are ready to make deals.

I don't think we will see another version of cash-for-clunkers next time. That ridiculous federal program has kept used car prices high.

Peters makes a good point: it's better to lease than to buy new with a car loan. That is because the leased car stays under warranty. The high cost of digital repairs is borne by the auto company. Because most buyers take six-year loans, they buy again after six years. This is really leasing.

The advantage of buying a used leased car is that the dealer has kept it in repair.

If you buy used, use the Consumer Reports assessment for car repairs. You can see which brands and models do well here. This changes from time to time. Toyotas are always high. But Subaru has moved way up in recent years.

You need negotiating techniques if you do not buy from Carmax. I discuss these here.

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