Used Cars Rising

It doesn't always make sense to buy a new car.

In the past couple of years, we have seen a huge transformation occurring in many areas where we are used to slow, steady progress. All of our society, it seems is in turmoil. The social order and the political order are returning to a time of things that matter in a well-ordered society, and abandoning some of our mid 20th century excursions into molding of society and culture. In the context of that kind of transition, observations concerning consumer items seem somewhat trivial.

However, cars, trucks, and the forces which shape them make our lives better or worse depending on the direction they take. Changes in the new car market have forced my stodgy attention to focus on radically new automotive technology over the past few months. The new market, as we have pointed out before here, here, and here, is being revealed as an absolute zoo of new technology champing at the bit to rake in our cash.

Carmakers are using all of their considerable expertise and imagination toward the development of new, flashy breakthroughs, many of which are actually new renditions of technology that has been around since the 19th century. That reference, of course, is to the brainchild of Ferdinand Porsche: the hybrid, which came of age with the Prius from Toyota.

In that last "here" listed above there is even a hybrid Bentley. We must face it, the vehicle parked in our driveway is hopelessly behind the times since it must have gasoline for a trip no matter how short. The automotive press, and even the Wall Street Journal, have gone absolutely gaga over new cars with hybrid or electric technology - with or even without a connection to Elon Musk. 

Elon Musk has become the poster boy of all things new and innovative as he leads the pack in the development of desirable electrics, and has spurred the development of electrics and hybrids by all the major manufacturers. In the last two years, every showroom has become dominated by the newly developed electric models, some even priced in the category of 'affordable.'  And a new category of plug-in hybrid has arisen to sort of bridge some gap somewhere.

As to Mr. Musk's Tesla brand, the lowest price advertised is $35,000. Tesla is not shipping any of the low-end of the spectrum, however.

Tesla Model 3 - Starting at $50,200.

The Model 3 is supposed to be Tesla's eco-friendly gift to the motoring masses; so far, however, it's not possible to get a version that comes close to the promised price of $36,000. Currently the least expensive version, which has rear-wheel drive, starts at just over $50,000; with all-wheel drive, it starts at $56,200 and the Performance version starts at $65,200—not our idea of affordable…

Car and Driver - 2018 Tesla Model 3

In the class of electrics, other than Tesla, traditional carmakers are rushing to market with their versions of electrics and of hybrids; some manufacturers will offer electric, hybrid, plug-in hybrid, and every other combination that they can think of. Some of these offerings are supposedly very low-priced. In fact, though, those low-priced electrics are extremely hard to find, and even harder to purchase once found:dealers are selling them before the vehicles are even on the lot, and elevated prices – availability charges – are often required.

But there is a whole tier of vehicles available at far lower prices than the $36,000 cited above: those familiar family sedans that have been transporting us for ages. The vehicles that up the price from the mid-20s to the mid-30s are the "new-desirables," SUVs and  pickups.  To read the industry publications, though, none of those are newsworthy any longer. All the articles are aimed at the new technology that they are wagering will save the planet.

In the face of that, it is not a terrible surprise that many people these days are opting to purchase used cars. New cars are selling for an all-time high average of over $35,000, and many buyers are sensing correctly that their automotive needs can be handled by something less.

Buyers paid an average of $22,489 for a three-year-old used car in the second quarter of 2018, up $865 from the prior-year period, according to Edmunds.com. That is still well under the average $35,828 paid for a new car last quarter.

Wall Street  Journal – 23 September, 2018

The differential in price between new cars and used cars is as great as it has been in years, and according to that article there are a number of factors in all this that is providing used car buyers with a myriad of choices in the market. 

Your humble wordsmith confesses to having been caught up in all the hype that surrounds the new technology that is becoming available. We now have three main choices of cars to buy: fossil-fuel-only powered, hybrid (fossil fuel  + electric), and pure electric. The hybrid and battery vehicles are beginning to show up on the used market, but at substantially higher prices than used fossil fuel vehicles.This is probably a wave of the future.

Used cars have always been a point of owner philosophy. The price differential between showroom-new and week-old cars is phenomenal. The instant that the paperwork is completed for the sale, the car becomes a used car:

You often hear that a car loses 20% of its value as soon as you buy it. Yes, in just one minute, a $30,000 car will lose $6,000 as you gleefully drive off. By the end of the first year, mileage and wear and tear could bring that to 30%, or $9,000.

NerdWallet.com

Detroit wants us to spend our money on their latest, but we have other things to think about: whether the planet needs saving and if there is anything we can do. And as for saving the planet, this is an effort that does not fit well in the attention span of the  millennial adult. They are more interested in where to fly their new hoverboard than they are in serious subjects. It is a cliché, but first things first.

Used cars, depending upon your driving habits, can save a ton of money over buying new. There is, of course, the rationale of buying new which includes a new warranty, and the inertia of the marketplace with more than a century of impetus behind it. Whole industries and whole cities would not exist were it not for the cash infusion brought on by automobile manufacture. It's a tremendously valuable aspect of our current civilization, and will continue to be.

But the glitzy differential design of this year's model over last year's has gone from the swoop of horizontal tailfins replacing vertical ones, as in the model year changes of the 20th century, to subtle changes in the placement of lights or other refinements in the appearance of sheet metal that manufacturers do now. Manufacturers have decided that their visual design changes will follow a longer timescale than yearly. Detroit's perception of marketplace demands for ALL NEW has been tempered by the reality of retooling costs, and new model changes have devolved to minor refinements that that only owners and appraisers can keep up with.

The current 3 to 5 year cycle for major design change actually works in the used car buyer's favor. When a buyer is evaluating a car, the year is very high on the list of characteristics for estimating value, but the design may be very much like a three year old car of the same model. Thus, a 2013 Cadillac may look very similar to a 2016, but the price may be less than half of the newer model. A well-kept three-year-old car can be a major bargain.

Carmakers have learned how to differentiate model years without altering sheet-metal, though, by changing bolt-on items like taillight lenses and bumper shrouds that can be radically different from year to year but still fit into the same body recess. New designs can fool the eye without making expensive changes to the body work.

We all drive used cars: the second the new car is handed over to its buyer, it is a used car. For dealers, used cars have a higher profit margin than the new cars that they sell because pricing and margins on new cars are Internet published, and savvy buyers know all about that market.

The Manheim 2014 Used Car Market Report, citing CNW Marketing Research, says U.S. franchised new-vehicle dealers sold 15.6 million used vehicles in 2013, about the same as their new-vehicle sales. But industrywide, used-vehicle sales totaled almost 42 million last year, including sales by independent used-car dealers and individuals.

Automotive News – May 26, 2014

Used vehicles will always sell more than new ones, for the obvious reason that the new market feeds the used market and the used market feeds the used market. Do you want to buy your used car new, or do you want to buy it used?

We need good luck, but we also need good judgment in our transition from not-so-new to new. The electric revolution in transportation will happen– is happening.

I don't mind living on a leading edge, and that is where I will put myself, but there is no point in insisting on being on the bleeding edge.  It may be awhile before I actually shell out for an electric car - and, when I do, it may be for a used one.

Thomas Anderson is a multi-state registered architect and an ex-Air Force electronic technician, who is a keen observer of the human condition.  Read other Scragged.com articles by Thomas Anderson or other articles on Business.
Reader Comments

In computer programming, there's a joke. How can you tell who the pioneers are? They're the folks with arrows in their backs.

Tesla is a company built on hype and government subsidies. Electric cars and hybrids make no economic sense for owners unless gasoline prices are very high. The only reason major manufacturers are rushing electric and hybrid cars to market is government fleet milage regulations in the US and similar regulations or high fuel taxes in other countries. The battery life is limited to about 10-12 years. Replacement batteries can cost $6,000 and up.

October 11, 2018 12:04 PM

I'm not an American, so forgive my ignorance. The high price of used cars is surely due to limiting the size of the car park.

In the UK for example the MoT test makes it prohibitively expensive to keep a car that is older than five years. There may be similar restrictions in the US.

In my country, the "Roadworthy Test" is not unreasonably strict and it makes financial sense to buy a twenty-year old car and fix it up to pass the test. The fixed-up car would still cost only a quarter the price of the smallest new car on the market, albeit without airbags and ABS brakes.

October 12, 2018 5:26 AM

I'm not sure where you get your information about the high resale value of electrics and hybrids, but with the exception of Tesla and perhaps the Prius you are wrong. All other hybrids and electrics have terrible resale value, which makes them excellent used buys if you can accept the drawbacks of limited range (EVs) or reduced trunk space and added weight (hybrids).

October 12, 2018 9:57 AM

There is not one right answer. Do spend LESS than you can afford.

When the new car market is saturated, deep discounts become available. In a few cases, a carmaker miscalculates and produces more of some niche model than the market will absorb, and eventually offers dealers substantial incentives to move the out after their model year has expired. In short, sometimes you can get a new vehicle for considerably less than usual.

If you're going to keep a car for its full economic life, until it gets so worn that the annual cost of ownership goes up to exceed that of a newer, more reliable set of wheels, then buying new makes sense. You're not buying from the jackweed who left it out is the sun all day, goosed the accelerator when starting it because her/his grandma did, drove a ton of short, slow trips but changed the oil only once per year, etc etc. You also can get the color and, with patience, exact option set you want. Over a dozen years the extra cost of buying new is a small part of the total.

It also depends on if you just want beige transportation, in which case you have tons of options and you can get something 3 years old for half MSRP. Sedans in particular drop in value, especially unglamorous brands. A Malibu, for example, is more than competent transportation (it's related to the European Opel midsizer) but since it's bought by fleets it has a downscale image and 2nd prices reflect that. That's a car to buy used.

OTOH, consider something a little bit fun, like a Civic Si with a manual transmission. That isn't a commodity and won't be that cheap 2nd hand. You're also going to care about stuff the that wore out or broke on your fun car than a grannymobile. It's worth buying that Civic stick shift new.

October 17, 2018 12:44 AM
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