Great Deals on Used Cars

As the new-car industry slides deeper into misery, the used-car market is holding rock-steady. In fact, the forces that have sunk sales of new vehicles-tight credit and a shaky job outlook-have helped buoy used-car sales. At the same time, used-car dealers are flush with vehicles that they have to price low enough to undercut fire-sale prices on new cars.

Ben and Wendy McCurdy of Farmington, Minn., near Minneapolis, found a 2008 Ford Taurus at the nearby Apple Valley dealership for just $18,000. That's a couple thousand dollars less than prices they found elsewhere-and way below the $27,000-plus they would have paid for a 2009 Taurus after a recent $4,000 rebate. Originally in the market for another Honda Accord to replace their 1997 trade-in, the McCurdys were swayed by the price on the fully loaded Taurus, the low mileage (just 10,000 miles on the odometer) and the "certified" designation. As a certified used vehicle, it was inspected by factory technicians and sold with an extended warranty. Plus, the original basic warranty for three years or 36,000 miles was still in effect. "We knew we wanted a recent-model used car so that it would have some warranty left and low mileage," says Wendy. "It could act like a new car and we could really get the value out of it." It didn't hurt that the car had leather seats and Microsoft's Sync technology for seamless cell-phone calls and MP3 playback.

Where The Deals Are

Don't spring for a late-model used car without first checking prices for the brand-new model. According to a recent Edmunds.com survey, many new cars are actually cheaper than the year-old model when you factor in low-rate financing.

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Some of the sweetest deals are for three- or four-year-old luxury vehicles. Three years ago, leasing was going gangbusters, so the used-car market has plenty of freshly off-lease vehicles. Because luxury vehicles are leased more often than nonluxury models, supply is up and the pricing is pretty favorable, says Tom Kontos, chief economist for Adesa, a vehicle-auction company.

Another segment in which you can score a deal is SUVs. Last summer's soaring gas prices led a lot of owners to dump their vehicles-and resale values plummeted. Although SUV prices have started to inch up as sales of gas guzzlers improve, prices overall are still about 10% less than they were a year ago. Even among nonluxury sedans, there are good buys to be had, notes Mark Scott, of AutoTrader.com. Because the market didn't fluctuate as much for these cars, the savings are less. But prices are still down about 5% to 8% from early 2008.

Don't expect the deals to be around forever. Dealers aren't getting as many used cars as trade-ins, rental com-panies are hanging on to vehicles longer, and leasing has slowed-all of which will reduce the number of used models flowing into the market. As supply tightens, prices will go up.

Narrowing Your Options

Visiting a dealer is now your last step instead of your first. Perusing online auto listings at sites such as AutoTrader.com and Cars.com, you can glean almost all the information you need without setting foot on a lot. In addition to pictures and prices, online listings include options, mileage and the vehicle identification number, which you'll need to check the vehicle history.

Once you've narrowed your choices to a specific make and model, log on to Edmunds.com to get current transaction prices. Its dealer retail price is the average of what consumers are paying at dealerships, and the private party price tracks deals between individuals. Edmunds also has average prices for certified used vehicles. Kelley Blue Book (www.kbb.com) and NADA Guides (www.nadaguides.com) are useful tools as well-if you're financing through a bank or credit union, it may limit your loan to no more than the car's listing price in one of these guides. But the numbers they list are suggested retail prices, and that's just the starting point for negotiation.

Knowing your target price, you can begin looking for cars in your area. The best deal will be the one with the most options and the fewest miles at the lowest price. A recent search on AutoTrader.com for a 2006 Infiniti G35x sedan yielded 35 vehicles within 25 miles of Washington, D.C., that ranged from $13,995 to $27,488. The lowest-priced model was from an independent used-car dealer and had nearly 75,000 miles (more than twice the annual average of 12,000 miles). The highest-priced model was a certified used vehicle at an Infiniti dealership with just 27,000 miles. The average transaction price for a 2006 G35x on Edmunds.com is $20,432, so the best deal is somewhere in the middle.

Most used-car purchases involve some risk, but you can reduce that with a certified pre-owned vehicle. Only later-model cars with low mileage make the cut, and they are subjected to rigorous inspections-such as Ford's 169-point examination or BMW's 195-point check. The certified program also extends the warranty.

The premium on a certified vehicle can run $500 to $1,500 for a nonluxury car and up to $3,000 on a luxury car. But luxury makes tend to offer longer warranties and more perks. For example, Ford's certified used vehicles get a comprehensive warranty that covers three months or 3,000 miles, plus a warranty that covers the powertrain for 100,000 miles or six years from the original in-service date. Certified pre-owned BMWs are covered by a two-year/50,000-mile comprehensive warranty after the original four-year/50,000-mile warranty expires.

To help ease the sting of price premiums for certified vehicles, many makes offer special financing on select models. Acura recently offered 3.9% financing on a handful of certified used models, and GM was offering financing as low as 2.9%. Be sure to buy through a factory certified-used program and not a dealer program-those offers are usually extended warranties in disguise. For more details on certified-used programs, log on to www.intellichoice.com.

If you buy certified, you can dispense with two safeguards you need when you buy without the extra protection: a Carfax report and an independent mechanic's inspection. The Carfax report lists ownership history, odometer readings, and any accident reports or title fraud. The reports are free at thousands of used-car dealers and many online sites. You may also be able to find the vehicle history in a newly launched government database (see www.nmvtis.gov).

If a private-party seller doesn't have a vehicle-history report available, ask him to get one, says Larry Gamache, of Carfax. A Carfax report costs $30 and inspections run $50 to $100. If it's a matter of money, offer to reimburse the seller for the report and inspection if the car comes up clean. Otherwise the seller pays-and you can still walk away.

Going the distance3>

If you expand your search by a few hundred miles or even nationwide, you could bag an even better bargain. Some types of vehicles are in greater supply in certain areas-convertibles in the Sunbelt, SUVs in the mountains, luxury cars in big cities.

Mark Tiernan of Denver knew he wouldn't find too many Lexus sedans in the mountains, where four-wheel-drive vehicles rule. So he bid on a 2005 LS 430 (one of our top picks; see the box on page 75) in Oklahoma on eBay Motors. After negotiating with the dealer on the phone, he purchased the car and had it shipped. For $22,000 plus $450 shipping, Tiernan got a car that originally stickered for $56,875.

By buying outside his area, Tiernan got his pick of models and saved a few thousand dollars-the dealer price on Edmunds is $26,280. It's his sixth eBay car, and he's comfortable with the process now. But he was nervous the first time around and flew to St. Louis for a test drive.

Buying long distance can save from $2,000 to $10,000, depending on the car, even after delivery charges. But the deals involve more risk. To counter a surge in fraudulent listings, eBay offers up to $50,000 in protection, although the collection process can be complex.

The best way to make sure the deal is legit is to hire a middleman. Carfax.com and eBayMotors.com list certified inspectors who can determine the vehicle's condition for as little as $100. An escrow service, such as Escrow.com, can securely transfer the funds and title, typically for $200. Shipping runs $800 to $1,200. But check Transportreviews.com to make sure the shipper, too, is legit.

Deal or No Deal?

Used Hybrids Are Priced Too High. With so many good deals out there, you might be wondering if a used hybrid is one of them. The short answer: Not really. Most hybrid models don't make it to used-car wholesale auctions in large numbers, says Tom Kontos, chief economist for Adesa, a vehicle-auction company, because dealers can make more by selling them retail. Plus, hybrids are sold in low volumes and aren't abundant in rental fleets, so the supply of used hybrids is small. For example, an Edmunds.com study that compared buying new cars with buying one-year-old models found that the 2008 Honda Civic Hybrid sells for an average of $20,167, while the 2009 fetches $21,788-a difference of just $1,621.

Another question mark is battery life. Estimates on how long hybrid batteries will last are in the range of six to eight years. No one knows for sure because the oldest hybrids on the road are just reaching that age. But the idea of buying a used hybrid only to have to replace the batteries a few years down the road is enough to turn many people off.