Great Used Cars on Sale

As good as the deals are on new cars, they're even sweeter for used cars. As carmakers offer more incentives and new-car dealers trim prices to boost slumping sales, used-car dealers must cut prices to compete.

Used-car shopping has come a long way since answering those 25-word classified ads and praying you wouldn't buy a lemon. With all but a fraction of the used-car universe listed online, it's easy to comparison-shop and spot a good buy (though for added protection, take the car to an independent mechanic for inspection). If you're still uneasy, consider buying a certified pre-owned vehicle, which adds the armor of a factory inspection and an additional warranty.

Because of high gas prices, used pickups and large SUVs are particularly cheap. Also, dealers have a generous supply of two- and three-year-old luxury cars that have come off lease or were traded in. These models have seen their steepest depreciation, and many are still under warranty.

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Getting a Deal

Visits to dealer lots are losing to Internet shopping as the preferred used-car buying strategy. Sites such as AutoTrader.com and Cars.com let you check dealer inventory as well as preview private listings.

The Internet has changed the way dealers do business, too. They know that consumers expect full disclosure. Besides price, Internet listings include mileage, how the vehicle is equipped, the vehicle identification number and photos. Some dealers even let you apply for a loan online.

Dealers still expect haggling, so do your homework to talk a dealer down. "The most important thing to know is where you can get this vehicle for less," says Chip Perry, chief executive officer of AutoTrader.com, which has 2.3 million used-vehicle listings.

And if you're willing to search the entire U.S. for a bargain, you may pay thousands of dollars less. For example, late-model luxury cars are often cheaper in the Southwest and in the Chicago area than on either coast, and convertibles are more plentiful in the Sunbelt. The long-distance strategy has more risk (and you pay delivery charges), but you can hire services that inspect the car and vet the deal.

Recipe for Success

Once you decide on a make and model, check the Internet price guides to see what others are paying for it. Be aware, however, each site uses its own methodology. At Kelley Blue Book, the "dealer retail price" is a suggested retail price, or as Kelley explains, "the starting point for negotiations between the consumer and dealer." Prices at NADA Guides are also suggested prices. But at Edmunds.com, the "dealer retail value" is the average price buyers have paid for the model at dealerships. The "private party price" tracks sales between individuals.

Next, go to the online listings to see what's for sale near you. You're looking for the best combination of mileage, equipment and price. Get details on at least five or six cars before you go to the dealer so you have more bargaining clout. If you're shopping for a popular vehicle in a large metro area, searching a 25-mile radius should give you enough options. If the car you're targeting was a low-production model, you may have to extend your search.

Say you're looking for a 2005 BMW 325Ci convertible. Kelley Blue Book's suggested retail price, assuming no added options, is $29,915. Edmunds.com's actual transaction price at the dealer is $27,580, and the private-party price is $26,080. Also check to see what popular options, such as leather, are worth; on the BMW, a leather interior adds about $200.

A recent search on AutoTrader.com turned up 14 listings within a 25-mile radius of Washington, D.C., ranging from $24,900 at an independent used-car dealer to $35,995 at a BMW dealership. The low-price model is no cream puff: It has 55,000 miles on it and leatherette upholstery. But the high-price model is a certified pre-owned vehicle, fully loaded, with only 20,000 miles. Unless you want a certified model for peace of mind, the best deal is somewhere in the middle.

Before you make an offer, buying a vehicle-history report from Carfax is de rigueur ($30 for unlimited reports within a 30-day period). Each report verifies the odometer reading and ownership history (a single owner is best) and lists accidents reported to insurance companies plus any title fraud. Before you seal the deal, get the vehicle inspected by an independent mechanic. A thorough once-over goes for $50 to $100.

Certified Pre-Owned

You can forgo the mechanic's inspection if you buy through a certified pre-owned program. Carmakers take the crme de la crme of previously owned vehicles -- which means about a third of the universe of vehicles that are less than five years old and have fewer than 60,000 miles -- and put them through a rigorous inspection by a factory-trained technician and offer an extended warranty. This will cost an extra $500 to $1,500 for nonluxury vehicles and as much as $3,000 for luxury vehicles, but the warranties and perks on luxury makes tend to be more generous.

For example, GM's certified used vehicles get a 117-point inspection, a comprehensive warranty good for three months or 3,000 miles, plus a warranty that covers the powertrain for 100,000 miles or five years from the original in-service date. Certified pre-owned BMWs get a 195-point inspection and a comprehensive warranty that extends the original four-year/50,000-mile warranty by two years and 50,000 miles. Both programs offer roadside assistance. For details on all certified pre-owned programs, go to Intellichoice.com. Intellichoice rates Volvo's program best for luxury cars and Volkswagen's program best for nonluxury models.

Another advantage of certified programs is that you may qualify for low-rate financing from the manufacturer. GM was recently offering 2.9% financing on a handful of certified used models, and BMW was offering 3.9% on most 2005 models. One caveat: Make sure you're buying from the factory certified used-car program, not a program offered by the dealer.

From a Distance

Most transactions start on the Internet and end at a dealer. But the success of eBayMotors.com's auctions has led to a cult of car buyers who search the globe for collectible cars, conduct the whole transaction online and have the vehicle shipped. You don't have to be an enthusiast or win an online auction to buy long-distance, either. On AutoTrader.com, searching the entire U.S. for the BMW 325Ci turned up one model for $21,900 at a dealer of pre-owned BMWs in Los Angeles -- $3,000 less than the lowest price offered in Washington, D.C.

Depending on the vehicle, you can save from $2,000 to as much as $10,000 buying online. Unfortunately, a surge in fraud has accompanied the growth in online buying. In one popular scam, a crook posts a fake listing on an auto site. If you answer the ad asking for more information, the "seller" explains why the car is in the U.S. and he is in another country. He promises that a third party with an official-sounding name will ship and insure the car, but first you'll have to make a "refundable" $3,000 deposit via Western Union wire transfer.

In response to thousands of such fraudulent sellers, eBay now offers up to $20,000 in vehicle protection. But the rules to collect can be onerous, including a 30-day deadline for reporting the fraud.

You could buy a one-way ticket to L.A. and drive your new BMW home, but it usually makes more sense to hire a middleman to vet the transaction and ship it to you. For as little as $100, you can verify that the vehicle actually exists and is free of major defects by hiring a certified inspector through Carfax.com (under "featured partners") or eBayMotors.com (under "buyer services"). An escrow service, such as Escrow.com, can securely transfer the funds and title, typically for $200. Then you need to arrange shipping -- at a cost of $800 to $1,200, depending on distance.

But you're not out of the woods yet, explains Chad Pinson, managing director of Buyer Guardian, a service that handles online and out-of-state vehicle transactions. Some Internet escrow services are phony. And the shipping industry is no stranger to fraud, either. In one common scam, brokers who advertise a low rate charge you a nonrefundable deposit, then spike the price later, assuming you will walk away from the deal. (The user reviews of transport companies at Transportreviews.com can help you spot the bad guys.)

If you don't want to do all the legwork, you can hire a firm such as Buyer Guardian to perform the whole range of services: set up a vehicle inspection, verify the title to check ownership and spot any liens, hire an escrow service, and arrange shipping. Buyer Guardian's package price is $497 (not including the cost of shipping). It also sells its services a la carte.