Shopping For A Used Car Can Be A Great Value Over New
A recent report from Black Book shows that a fully loaded used car can be a great value over a new car. Even though transaction prices have increased on new cars and trucks thanks to their sophisticated vehicle features, technology, and add-ons, these cars aren’t holding their value when they reach the used-car marketplace.
In fact, the majority of cars and trucks lose roughly 50 percent of their value in the first three years, but features tend to lose roughly 80 percent of their value during the same time frame.
According to Anil Goyal, Vice President of Automotive Valuation and Analytics from Black Book, these fully loaded vehicles are experiencing more depreciation than their base model counterparts. One reason for this is that the typical used-car buyer is still shopping for value rather than technology, which means the fully loaded used model is often found near the similar price of a new base model.
As an example, a fully loaded model may have a new-car premium of $8,000 to the new-car shopper, but three or four years later that premium may only be $1,500 on some vehicles, making them a great value for the used-car shopper.
Three or four years later, these same vehicles are viewed slightly differently by the used-car buyer, who may be interested in specific features but not comprehensive packages. At the same time, certain features carry a premium price when initially launched because they are not widely available. Over time, as many cars also include these same features, those items lose value as well. An example of this would be keyless entry: When it was first introduced, that feature carried a certain premium price. Over time, as the majority of cars also included keyless entry, the feature itself lost more of its value.
According to Black Book, these are the features/technologies that are seeing the most depreciation:
• Power Sunroof
• Oversized wheels (20-inch, Chrome, etc…)
• Power seats and heated seats
• Rear-seat entertainment (DVD) system
• Packages - Technology, Touring, Sport, etc….
• Optional powertrains – diesel, turbo, super charged, etc…
“We’re noticing there’s not as much discrepancy on the resale value of three- to four-year-old cars as compared to base-level new cars, making them a great value for the astute used-car shopper,” says Goyal. Model-Year-2012 luxury cars, small cars, and mid-size cars have the lowest retention value and would be a great buy for a used car buyer.
According to Goyal, the average difference in price Black Book has recently noticed on your typical luxury sedan looks something like this:
Base New: $40,500 / Base Used (3 years): $20,100
Fully Loaded New: $45,000 / Fully Loaded Used (3 years): $21,750
“Pent-up demand has been a large factor since the end of the recession on why used-car prices have remained strong,” said Goyal in an interview with AutoRemarketing.com. However, we can expect those prices to begin dropping over the next year. According to Goyal, “Over a period of time that pent-up demand will start to work through. Now that we have had several strong years of leasing, off-lease volumes will start to chip away at the used-car price strength.” Goyal predicts the industry will begin to feel the majority of these two areas in 2015, which may cause used-car prices to begin dropping later this year.
Because they are able to include so much value for their low lease prices, leased cars are typically equipped with lots of luxury features. On top of this, owners of leased cars must keep their cars in prime condition in order to get their maximum value when they turn in their car at the end of their term. Add in the fact that most leased cars usually have a 10,000 to 15,000 annual mileage cap, and you can see these gently used vehicles are a great alternative to buying new, especially when most cars these days are expected to reach 100,000 and even 200,000 miles in their lifetimes.
Combine this glut of well-cared-for, low-mileage, off-lease vehicles that are often loaded with high-tech features, and you can see that used-car prices will represent great opportunities to the value-focused buyer.