Big rebates and financing deals make a new car tempting. But used-car prices have tumbled 18% in a year, leaving consumers stunned when they see what their old wheels will fetch.
By Ron Scherer, Christian Science Monitor
Five years ago, George Simpson paid $34,000 for a Chrysler Town & Country minivan. When he recently decided to trade in the family car, he researched other similar trade-ins and expected to get about $7,000. But the best offer was $5,000, so he tried to play different dealers in Fairfield County, Conn., against one another. It netted only another $500. "I felt like I was hosed," he says.
As Simpson found out, this is a bad time to be trading in a used car -- in large part because it's a good time to be buying a new one. To stimulate car sales, auto manufacturers are offering rebates, 0% financing and other enticements. According to some private estimates, this has reduced the price of used cars by as much as 18% in the past year.
Economists believe this "sale" may have some future ramifications for the economy: Owners may be tempted to hold on to their older cars longer, which could slow down the purchases of new cars. And any problems in the car industry can quickly spill over to the U.S. economy, since auto sales represent 20% of all retail sales in the United States.
Going for the low interest rates
"The auto market is still a big driver of the economy," says Paul Taylor, an economist with Manheim Auctions, the largest private auctioneer of used cars.
If that's the case, then the driver is likely to be moving at a slower speed this year. Auto analysts expect Detroit to sell about 16.5 million vehicles this year, down from 17.1 million last year.
"It's still a very good year in terms of the historic record, but somewhat less positive," says Richard Curtin, director of the University of Michigan's surveys of consumers.
Indeed, most of the auto companies currently have promotions. General Motors, for example, launched a promotion offering a $4,000 rebate or zero-percent financing for five years on some cars, including the Pontiac Grand Am and Buick LeSabre.
Curtin says that in many cases, consumers are attracted to these sales. "When you talk to consumers, they view the zero interest rates and low mortgage rates as unique opportunities," he says.
Many dealers are also offering low interest rates for buyers of used cars. For example, Jim Curley, who owns a Pontiac-Buick-GMC dealership in Lakewood, N.J., says financing of 3.9 to 5.9% "is not unheard of."
Consumers are more than aware of the rates. Bronx resident Peter Castaneda is considering buying a used Chevy Malibu. But at one of the dealers he visited, financing rates were 14.9% -- a rate that sent him walking off the lot. "I was shocked that there was such a big difference between dealers," he says.
Shock and dismay at trade-in
Used-car sellers are the ones facing the largest sticker shocks. Mary Estes knows that feeling. The Tampa, Fla., resident, who recently bought a new BMW, was stunned when the dealer offered her only $5,500 for her 1996 Honda Accord. "I typically take real good care of my cars in anticipation that I'll get a better trade-in when comes time to do it," says Estes, who thought the car was worth several thousand dollars more.
After she turned down the BMW trade-in offer, she took the car to Honda, which offered her $500 less. "I think the sales person could see the shock and dismay on my face and advised me to sell it myself," she says.
Estes ultimately ended up taking the Honda to CarMax, a national chain that buys and sells preowned cars. They offered her an extra $1,500 over the BMW offer. Estes also saved Florida sales tax.
Strategies to net more
Car owners are trying all sorts of tricks to fetch better prices for their vehicles. Online bulletin boards are filled with ads posted by owners selling their own cars. EBay has a thriving auction site -- with a 24% increase in listings in the first quarter.
And some owners just like to match their wiles with the dealers. In Atlanta, Michael McCullough recently traded in his 1992 Honda Accord for a 2003 Acura TL. But he waited until he received a firm price of $27,500 from the dealer. "That way the dealer couldn't hustle us for the value of the old car," he says. Then he persuaded the dealer to raise his offer for the Honda from $1,000 to $2,500. "We got a steal," he crows.
McCullough is probably the exception, says Jesse Toprak, a pricing analyst at Edmunds.com, an auto-ratings service. "I've yet to see one owner who was happy with what they got," says Toprak. "Almost always people feel like they were robbed."
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