Is It Better to Buy a New or Used Car?
Automakers have reported anemic sales so far this year, and the downward sales trend doesn't show signs of stopping. The numbers leave prospective car buyers at an interesting crossroads. Although you can find substantial deals on a new car as manufacturers try to meet their bottom line, you have to be concerned with how depreciation and the cost of maintenance will affect your bottom line. While there are a lot of deals on new cars out there, does it make more sense to buy a used car?
The truth is, it varies by car. A new car can set you back with high insurance premiums, but a used car could need an expensive repair job. Another factor is depreciation. While some new cars represent a good value over time, other cars' values can plummet quickly in the first five years. This could be a crucial factor if you intend to trade in after only a few years.
There's something else to consider. Most manufacturers offer certified pre-owned vehicles that have been inspected to make sure they're mechanically sound. If you do decide to go used, one of these cars (or a car from a retailer like CarMax) can save you considerable money while still being backed by a warranty should something go wrong.
By weighing some of U.S. News' Best and Worst Cars for the Money against IntelliChoice data on ownership costs and Kelley Blue Book data on the estimated retail price for used cars with approximately 30,000 miles, we've come up with a few scenarios that show when you should buy new and when you should check out a used model:
Toyota Corolla
One of our top picks for 2009 Best Cars for the Money among compact cars, the fuel-efficient 2009 Toyota Corolla gets a very good score for its predicted reliability. IntelliChoice, an industry leader in determining new car values and ownership costs, gives the 2009 Corolla either "Above Average" or "Excellent" value ratings, and predicts you'll pay about $10,000 in maintenance fees over five years.
Even though the 2009 Corolla was a redesign, this model generally has a reputation for good value. As a result, the 2008 Corolla's suggested retail price of $12,630 is nearly as high as the new model. Toyota's comprehensive warranty on certified pre-owned Corollas is good for three-years or 3,000 miles.
Verdict: The Corolla's good value keeps its new-car maintenance fees down, but also raises the used model's price. You should buy the new 2009 Corolla as it is a better overall value.
Lexus RX
Selected as the Best Car for the Money in the Luxury Crossover category, the 2009 Lexus RX 350 has a luxurious interior and a quiet but strong V6 engine. IntelliChoice value ratings for the 350's all-wheel drive and front-wheel drive models are "Excellent," and it predicts the RX's total cost of ownership for five years will be reasonable.
Even still, a gently used RX could offer you a similar or better value. According to Kelley Blue Book, the estimated used price for a 2007 Lexus 350 is $31,035, which is over $5,000 less than a brand-new version. In addition, Lexus is currently offering 2.9 percent APR on its RX SUVs, and a certified pre-owned program that provides a three-year or 100,000 total vehicle mile warranty from the day of purchase.
Verdict: The RX's luxury price tag is easier to swallow on a used model with a low financing fee.
Chevy Silverado
You might be nervous to buy a new General Motors car given the company's shifting financial situation, but critics say the award-winning Chevy Silverado is still a great choice if you need a full-size pickup. The '09 Silverado comes in many trims, and its IntelliChoice value ratings range from "Average" to "Excellent."
But the estimated cost of a used Silverado can be almost as high as a new one, and GM's certified warranty is one of the shortest in the class. Not only that, but GM is practically giving away Silverados as it tries to fix its finances. Zero-percent financing is offered on numerous trims, or up to a $4,500 cash allowance.
Verdict: Truck lovers can get a new Silverado with a better warranty for a steal.
Mazda Mazda5
A top pick among Best Compact Crossovers, the Mazda5 has solid cargo and passenger space like a minivan but the dimensions and maneuverability associated with a compact wagon. The total cost of owning a brand new Mazda5 can be a little steep -- IntelliChoice predicts that a brand-new Mazda5 purchased for approximately $21,229 this year could cost over $15,000 more to maintain over five years, but the car still gets high value ratings that range from "Above Average" to "Excellent."
But the Mazda5's last extensive redesign was in 2005, and you can get a very similar version for a great discount. Kelley Blue Book's suggested retail value for the 2006 Mazda5 is $12,880, and the manufacturer offers a seven-year or 100,000-mile limited powertrain warranty on its certified pre-owned vehicles.
Verdict: You can get the Mazda5's flexible qualifications for a fraction of the price if you buy used.
Volvo S60
Rumors of a redesigned Volvo S60 for the 2010 model year could mean several things for car shoppers. One, the S60 is currently in a nine-year old design that has not depreciated as rapidly as some other vehicles. Two, if you purchase a 2009 S60 now, you could see its value deflate quickly once the redesign is officially launched. Not only that, but IntelliChoice gives the S60 a "Below Average" value rating, and the car made our list of the 2009 Worst Cars for the Money.
If you're looking for a great bargain on a used car, these factors could work in your favor with an S60. Kelley Blue Book estimates that a 2005 Volvo S60 has a retail value of $13,585, and Volvo's warranty coverage for certified pre-owned vehicles is good for six-years or 100,000 miles.
Verdict: Get the endangered generation of the S60 on a used car lot and it won't be such a bad buy after all.
Mitsubishi Eclipse
The 2009 Mitsubishi Eclipse made our list of Worst Cars for the Money partly due to its high maintenance costs. IntelliChoice value ratings for the 2009 Mitsubishi Eclipse range from "Below Average" to "Poor." Over five years, a new model could cost you an extra $20,000 in depreciation, fuel and maintenance.
You could offset the high cost of ownership by buying used. A 2008 Eclipse's estimated retail price is nearly $6,000 less than a brand new model, and you'll be treated to one of the lengthiest warranties for pre-owned cars -- 10 years or 100,000 miles for the powertrain, or a 12-month of 12,000 mile new-car warranty.
Verdict: Consider the Eclipse's high cost over time before shelling out for a new model. If you're a fan of the Eclipse sports car, buying a used one will be more worth your while.