When should you not buy a used car? Try right now. From mid-February thru early-June, the auto industry goes through an event called tax season. Folks receive their refund checks from the IRS, which in turn creates a nice little bubble of activity in the used car industry. Which is a good thing. Except that bubbles always have nasty repercussions down the road.
Used car prices are now soaring into the heavens of ‘stupid money’ at the dealer auctions.
For example, these were a few of the returns at a recent Carmax sale.
2001 Honda Civic, 170k, 5-speed, LX: $4100
2002 Ford Escape, 214k, Cloth, XLT, $4000
2002 Buick Rendevouz CX, 129k, Leather $4100
1997 Honda CR-V, 207k Cloth, 4WD $3700
2000 Ford Expedition Eddie Bauer, Leather, 2WD, 156k $5100
1998 Mercury Sable GS, Auto, Cloth, 93k, $3500
Compared to only three months ago, I would estimate these cars sold between $700 and $1500 higher than what was then the market price. The difference is customers, and perhaps a bit of faith. A lot of the buy-here pay here- lots are pushing for a $1000+ down payment on these types of vehicles, and during tax season a lot of folks have the means to pay that type of money.
Even with a $70 to $85 weekly payment, these used cars will usually take anywhere between six to nine months to break even for the dealer. Up to a few years ago, the break-even point would have come several months beforehand and it was fairly easy to sell the note to a finance company free and clear. Not anymore. If you want to have a decent return you have to ‘tote the note’ and consider putting a GPS tracker on it.
The bad news comes for the cash buyer. Dealerships that used to be cash only are now migrating to the buy-here pay-here model, which means that price competition at the wholesale level is stronger than ever. Used car prices are now among the highest in the past decade in the United States. The supply of good cars has gone down considerably because consumers (who read Hammer Time) are keeping their vehicles longer.
New car dealerships are also retailing most of their trade-in’s instead of bringing them to the sales. Even the ones with salvage histories and prior owners who considered oil changes ‘inconvenient’, are given the retail ready thumbs up by the used car managers . That means a lot of dealers without a strong trade-in business are picking up a lot of bad vehicles at the auctions and trying to turn it over to you as quickly as possible.
What about the prior owner? A lot of the resourceful ones are getting their vehicles repaired instead of traded-in. If a 10 year old car blows an engine, installing a new one for $1300 seems to be a lot more reasonable than financing any of the vehicles mentioned above for the $5500 to $7000 range. Other folks who want less hassle are opting for leases, which compete directly with the buy-here pay-here dealerships during this time of year for the monthly payment.
You can get a good deal at this time. But it’s not so easy. A friend of mine recently had to travel two states north to find a 2003 Honda Element that fit his bill. Even with 170k miles, he paid nearly 8 grand for it. I have found decent deals at this time too. But usually it’s because I like older cars and keep up with enthusiast sites that focus on cheap fixes for seemingly major problems.
Knowledge is always the best weapon in the marketplace. Unfortunately this is the time of year when a lot of dealers come to the auctions with their sharpened knives of greed and avarice. Fine with me. This is the time of year I also sell my bad cars and let these enlightened souls carve up those turkeys.
Perhaps is a good thing for USA as more folks are living within their means of spending.
Buy new does look good, but comes with the payment where hard to live up to after 6 mths when all the krazy incentives were exhausted.
Just like those toxic mortgages, u pay interests only fist little while, after that your payment would exceed all your earnings, is only for a short good time not long time.
Economic model like this cannot be sustain for any period.
If this was kept up, Middle Kingdom would own most of anything here, it had been doing that slowly, they have bought up all the good useful resources.
All the White folks will get to live with the Indigenous people inside the Reserve. Just the total different meaning when u’re shown to a table with a Reserve sign on at a very posh fine French restaurant.
Ah yes: the interest fist.
Buy new does look good, but comes with the payment
There is always buying new with cash. If you set aside a car payment-sized chunk of money every month in a savings account that is paying you interest, in 5-7 years you’ll have plenty of money for a new car with no need for a loan.
Good info at what’s happening at wholesale. I stopped by a dealer a year ago to get an idea for trade-in, for my 03 Jetta turbo with 155k. At that point they said they won’t touch it, with the high miles, but would put-out a ‘courtesy’ call to a wholesaler to ascertain their pricing. The answer was $1,200. (thanks, I guess I’ll keep it). SEems like the market conditions could be more favorable today, given Steven’s writeup — good stuff.
vbofw:
That is almost elementary…
The miles would kill anyone.
Perfect example.
My 00 Accord with 230k, with a new timing belt, still couldn’t fetch more than 1500. The body is perfect no issues, no rust, no paint problems, perfect interior. Remove HALF of the mileage and I’m down to 115k. That alone prob puts the car back into 4-5g area.
However..
If you look at any Accord with 90-120 selling for 10-12g, ya can knock at least 1g off for the labor its GOING to need like timing belt issues. Biggest and most stupid problem is.. ya got s solid car at the very start of its life.. and ya cant put 6-800 into the vehicle for every 100k.. pretty stupid.
I need to pass this article on. Thanks, Steve.
I always feel like an insider after reading a Hammer Time article. I think these are some of the best posts on TTAC and they are one of the main reasons I keep coming back.
Thanks for the info!
I noticed the same thing at the trade in auctions near me. Fewer cars, and whatever is at the lot has either a ton of miles, or major problems.
I’ve never seen so many cars with 200k miles or more in one place. This is also the place where you’ll find the rare Corolla or Civic that has issues.
WOW! 4K wholesale for a car with 200K miles. That means almost 5K at retail. Things certainly have changed.
Steven,
So a bad time to attempt to sell (private party, more than likely) my 2006 Ford Fusion SE (5 speed, sunroof, 106k) for anything approaching KBB?? Guess that ’07 Miata will have to wait…
No, it’s a good time to sell. However KBB tends to be wildly inaccurate for older vehicles. I would look at the asking prices on Autotrader and price accordingly.
I would keep that Tercel of yours and put the rest in oil futures ;)
Trust me, the Tercel isn’t going anywhere! Matter of fact, after washing/waxing the much-newer Fusion over the weekend, I promptly put it back in the garage and pulled the Tercel out!
I’m just concerned that attempting to sell a five year old car with 106k (and a stick shift, no less) will be a tad problematic…not many manual shift Fusions out there to base a comparison on!
Another fine Hammer Time! Guess it’s time to pimp out the driveway queen and put her on the market.
I’ve noticed the pricing on 1995 Explorers seems to have crept upward in the DFW sales rags. I’ve been eyeing them as I have a 280,000 mile example that is nearly showroom fresh, and have seen much more abused examples with similar milage going for $2500 to $3500. Last year it was hovering around $1000-1500.
It’s sad that so many people fail to adjust their withholding so as to keep money in their pockets thru the year instead of setting up a no-interest saving acct with the govt. And it’s even sadder that they then go out and overpay for cars by buying when demand is at its highest.
Tax Refund = Poor Man’s Bank Account.
It’s not just cars… In a former life (in a galaxy far,far away), I was a bail bondsman.We eagerly looked forward to tax refund season because that’s when people that had sat in jail since,oh , I don’t know , Christmas, had enough money to pay for bail. Big bonds- The kind that could make or break a month. The overwhelming majority of my customers had a “tote the note” car and usually, a couple of payday loans or a title pawn. For almost all of them,it was the most money that they would ever see in one place ,at one time.
The mentality of celebrating the return of withheld income as some sort of windfall, after the stooge has lent it to the govt interest free for a year, is a persistent problem.
Same mind set as the false notion that the govt actually hands over a net payment when it “gives” tax refunds or adjusts downward the tax rate for the rich.
Poor man spends $20 on cheap head phones at Best Buy and gets an instant 10% rebate. He is happy with his product and $2.
Then he see Mr. Rich in the next checkout lane just spent $2,000 on a flat TV and got $200 back.
Poor man seethes with anger at the Big Corporation handing 100 times the rebate amount to Mr. Rich.
Cue NY Times, TTAC posters, et al and the odd Marxist notion that since rich people have better lives overall, they have to pay a penance to the govt for the privilege of their existence. That someone can be low income and healthier and happier than an old rich person doesn’t figure in.
It really is more work to be poor (and stupid). It’s like people that screw up their credit end up paying the most in interest. But then that is why banks and car dealers have such pretty buildings.
Up here in Canada, the market is a little different. Gas is at $1.15 litre { $ 4.12 US a gallon} With todays news out of the middle east ,who knows? Nice small cars are going for top dollar, and the dealers are not dickering.
I spotted a nice clean low klm 2007 G5 Coupe on the GM dealers lot. “$10,500” says the salesman. “With the gas prices this baby will be gone in a couple of days” “So”, says I, “you wouldn’t be offering top dollar for my very clean, low klm Jimmy would you”?…..”Well sir we should be able to do something, keep in mind Jimmys arn’t noted for thier fuel economy” “Come on in out of the cold, and we will work it out.
40 years of buying,selling, and trading, cars and trucks. My inner voice is screaming at me…Mikey…..”your buying high, and selling low, get back into your thirsty Jimmy and get to f— out of here” I did, just that.
With tax, it would of kicked the crap out 12 K..for a 4yr old G5. They might get it out of somebody,but not this guy.
Stopped at a dealer here in Florida this past weekend to look at a VW New Beetle with 55k on it, no unusual equipment but has leather. They have it listed at “an internet price” for $10900 and offer me $5000 for my PT Cruiser Touring with 72000 miles. I start talking to the guy about my trade in value and a lower price on the Beetle. His answer? “Not this time of year, if you’re not interested I’m sure I’ll have another buyer soon”. Well, this guy ain’t a buyer with that attitude. Interestingly, I do some asking around and find out the Beetle has been on the lot for close to 45 days to boot.
I discussed this article over breakfast with my wife this morning, telling her how I sent this article to my son who is nearing the market for a different car and how he should wait as Steve advises until after tax season to buy. She then said: “…and when did we buy all three of our cars?” I replied after a dramatic pause: “In May!” Duh! 2002 CR-V – May, 2002; 2004 Impala – May, 2004; 2007 MX5 – May, 2010! ‘Nuff said! I’ll go sit in a corner and sob awhile, now…
Stopped at a dealer here in Florida this past weekend to look at a 2007 VW New Beetle with 55k on it, no unusual equipment but has leather. They have it listed at “an internet price” for $10900 and offer me $5000 for my 2007 PT Cruiser Touring with 72000 miles. I start talking to the guy about my trade in value and a lower price on the Beetle. His answer? “Not this time of year, if you’re not interested I’m sure I’ll have another buyer soon”. Well, this I’m no buyer with that attitude. Interestingly, I do some asking around and find out the Beetle has been on the lot for close to 45 days to boot.
What attitude? Sounds like he’s giving it to you straight. It’s a bad time to be trying to get a good deal on a used car.