Are used cars a good deal again?
(MoneyWatch) Used car prices are falling. For bargain hunters, that means a one-year old used car suddenly may be a better buy again than a comparable new model.
In recent years, I have pointed out that used car prices had risen so high that it often made more sense to buy a new car if you found the right rebate or low-interest loan. Now the soaring of used car prices -- caused partly by a shortage of trade-ins -- is reversing as new car sales boom.
Values for used cars sold at wholesale auctions hit a three-year low in April, according to Kelley Blue Book. The price of an average one-year old used car has dropped to 81.5 percent of the list price of that same model new car, says Kelley analyst Alec Gutierrez. That translates to a $110 per month savings vs. a new car with a five-year loan, he calculates.
Different segments of the used car market performed differently. Subcompacts showed a small gain (0.7 percent) for this year through April and mid-size pickup sales were up 0.8 percent as increasing construction activity stimulated demand. But values are down 12 percent for used gas-electric hybrids as recent falling gas prices curbed interest in these high-mileage cars.
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Here's a closer look at three 2012 models that illustrate good deals among used cars:
Ford Fusion The biggest bargains often lurk where a car has just undergone major redesign. The 2013 Fusion has won praise from critics. But if price is your passion, you can get a 2012 Fusion for nearly 30 percent off the new car price. According to Kelley Blue Book's kbb.com, a typical 2012 Fusion SE with 22,500 miles on the odometer is selling for $16,187. For a comparable new Fusion, Kelley's target price known as "fair purchase price," is $23,088.
Of course, you can save even more with a two-year-old 2011 version of the Fusion. A 2011, typically with 31,500 miles, averages $15,427 for a one-third savings over the new car price, according to kbb.com.
Volkswagen Jetta Even among compact used cars -- down only 1.2 percent year to date -- the 2012 Jetta offers good value. Volkswagen's biggest seller in this country, averages $14,453 as a 2012 2.0L model. That is a 16 percent savings over the new 2013 Jetta's Kelley target price of $17,229. With a year-older 2011 model you would save nearly 25 percent with a $12,948 average price.
BMW 7 Series "High-end luxury cars present the most affordable buying opportunity used," says Kelley analyst Alec Gutierrez. If you have the bankroll for a BMW, the 2012 740i with 22,500 miles averages $57,538. That is a $12,393 or 18 percent savings over a new model at $69,929. By looking for a $43,356 2011 model, you could save $24,573 or 35 percent vs. a new 2013.
Whether you are looking for a luxury used car or a frugal subcompact, here are some tips that will help you find a bargain:
-- Consider a brand that does not hold its value particularly well. In the annual ALG ranking of brands with the best used-car values, Volkswagen is ninth and Ford 11th of 15 mainstream brands. Our other example, BMW, ranks sixth among luxury brand. Look at the contrast with a model from the top-ranked brand, Honda. A new Honda Civic has a target price of $18,210 while a 2012 model averages $16,500. That works out to an average difference of only $20 a month on a five-year loan, points out analyst Alec Gutierrez.
-- Check over new car rebates and low-interest loans before you firmly decide on a used car. These deals are not as widespread as a year ago, but some are still offered. For instance, General Motors is offering a $4,000 rebate on the 2013 Chevrolet Impala with a 2014 model about to debut.
-- Consider a certified used cars. These cars undergo rigorous inspection and carry an extra warranty of at least one year backed by the manufacturer. And the price premium can be as little as five percent.
As new car sales boom toward 15 million for this year, used cars are returning to their traditional status as a bargain buy.
