Why buy a used car?
People buy used cars because:
- They are cheaper than new cars
- They do not lose value as quickly as new cars
- The quality of today’s cars is so good that a late model used car can be as pristine as a new car
- People can get to drive a luxury car – with many safety features – they could not normally afford by buying it second hand
What are you buying?
When you buy a used car you are buying the unused life left in the car. This is important to remember.
The older the car and the further it has travelled the less life is has left in it and the less use you will get from it before it starts requiring repairs. Repairs will become more costly as time goes by when more serious failures may occur.
If you want to get a good price for the car when you sell it you need to make sure that you have looked after it and that there is still valuable useable life left in the car when you pass it on to a new owner.
Half-price cars have great appeal to many car buyers
Most cars lose about half their value in the first three years. Cars that sell in large numbers or are used extensively by business fleets lose more value because fleet buyers pay a lower price for their cars in the first place and because of the higher distance travelled.
Used cars from prestige brands also lose significant value in the first three years. This is because well-off prestige car buyers favour new cars and there are not a huge number of people in the rest of the community wanting that type of car. There is also a concern that repairs can be very expensive.
But, if you time it right, you can get yourself into a great used car while minimising the risk of surprise repair bills.
Depreciation v. cost-of-repairs (see chart below)
The key point for used car buyers is that the serious erosion of the value of a car has occurred by three years old and from this point the loss of value slows for a few years.
So it makes sense to buy a used car that is about three years old and keep it for two years if you do a lot of driving or three years if you travel less. (On average Australian drive 17,000km to 20,000km a year).
The idea is to own the car during the time the loss of value has slowed down and then sell it on before the time the repairs may set in.
For added peace of mind – especially with a luxury car – some three-year old cars still have a few years of factory new car warranty attached. And you should always buy extended warranty from your dealer when you buy your car.
Older used cars can serve some people well
People who do not travel far each year (less than around 10,000km, for example) can buy older used cars with higher mileage – say more than 120,000km. The advantage is that they will pay a much lower price. But, by using the car less, they more likely to prolong the time before costly repairs become a factor.
Is an older luxury car safe to buy?
Many buyers are temped to buy low-priced used luxury cars that sold for hundreds of thousands of dollars when new. A Jaguar or Mercedes or BMW luxury saloon that you have found for $25,000 to $30,000 may look really appealing.
What could go wrong? Well, it will be 10–12 years old and most likely have put 100,000km to150,000km under it (luxury cars tend not to travel as far in a year).
The reason the car is at such an alluring price is that it is now entering the danger zone where repairs are more and more likely and they will be expensive. Think thousands and thousands of dollars for failures that could occur at any time and tens of thousands of dollars for something like a gearbox or engine failure.
You can get a clue from car dealers.
The used car managers at franchised car dealerships are very careful not to sell cars that are likely to be unreliable. It can be costly and can hurt the reputation of the business.
So if you have your heart set on a certain used car, look at the age of cars of that model that are being sold by the used car operations of new car dealerships – especially dealerships that specialise in that brand of car.
If they are not stocking the car you like beyond a certain age, they are sending you a message that they are unhappy to sell versions of that car older that they have in stock because they are worried about its reliability and its affects on their reputation if things go wrong.
You will, of course, find older versions of the car you want at independent used car sales yards but, apart from a short warranty insisted on by state governments, you will be more financially exposed in the event of a major failure. You are basically on your own. So it would be a gutsy move.
Buying such a car from a private seller would be unwise unless you are car enthusiast with links to other people who own that brand, such as car clubs etc., and you have knowledge about repairers who can look after the car for you.
But novices should be very careful.
Why buy a used car from a franchise dealer?
Car dealerships represent the brands they sell and car companies are conscious these days that they do not get a bad name for that brand.
Dealers are also measured constantly by car companies on their levels of customer satisfaction. A drop in customer satisfaction ratings can have a negative affect on the dealer’s business relationship with the car company.
It is also costly for dealers to be fielding and dealing with problems customers are having with their cars.
So, these days, dealers tend to be very choosey about the standard of used cars they stock.
Unlike private sellers, dealers are required by law to offer a short warranty on every used car they sell. Many dealers also offer used car warranties at no charge on condition that you always get the car serviced at the dealership where you bought the car. Repairs can be done anywhere in Australia but routine service needs to be done with the dealer to keep the warranty valid.
Because the dealers in these programs pay fees (premiums) to the warranty company to cover repairs on your car, it is in their interests to make sure they sell you a reliable car. Otherwise, if they have more claims against cars that they have sold compared with other dealers, their premiums go up.
Buying from a private seller offers no protection once you have possession of the car.
Vehicle inspections are a must
Many car dealers offer a vehicle inspection report from an independent car club like the RACV and NRMA. You should always be prepared to pay for an inspection yourself if it is not offered.
And never buy a car from a private seller without getting a vehicle inspection first.
Why is buying a used car different from buying a new car?
New cars are pretty much all the same. The same makes and models of new cars are for sale from dealers all over the nation. Yes, there are differences on colours and trims and mechanical details but essentially the new cars on sale from new car dealers are very similar.
But that is not the case with used cars and this affects your ability to negotiate a deal.
The main thing to remember is that no used car is the same.
- Different age
- Different mileage
- Clean paint, good clean body or not
- Pristine interior or well used
- Good tyres or fair tyres
- Nice wheels or standard trims
- Great service history or poor service history
- and is it the colour you really wanted?
So once you have found a car which balances up all the attributes you are after, you are really not in a strong position to bargain too much with the dealer because – unlike a new car – it is unlikely you will find another vehicle that is quite the same.
So you cannot really walk away without starting your search all over again.
Also, dealers select their used car stock for themselves so they buy-in cars that are likely to be in demand and make a good profit.
This is different from new cars where they are often sent many new cars by the car company that is trying to reach sales targets and they discount these cars, often heavily, to clear them from stock as soon as possible.
So, generally speaking, it is much harder to negotiate a discount on a used car than it is on a new car.