New or Used?

New-Car Advantages
Who doesn't want a new car? Shiny paint, up-to-the-minute styling and cutting-edge technology, the promise of smooth, quiet, trouble-free operation, that "new car smell"—all of these things whet the appetite for something new in the driveway.

There's more, too, even from a practical side. "When you buy a new car, one of the things you get is the peace of mind of a decent warranty," Jack Gillis, consumer advocate and author of The Car Book told MSN Autos. "There's also the psychological aspect of having something that's yours that you have the opportunity to maintain from the get-go," he added.

New Means No Surprises
Owning a vehicle from its beginning is important if you are the kind of person who prefers to hang on to a vehicle for more than the usual number of years. By owning a car or truck from the outset, you can make sure it receives the care needed to reach the limits of its intended life span. You also will know the entire history of the vehicle, and so will not likely encounter unpleasant, historical surprises.

Of course, buying new also "gives you more control over choices," said Gillis, meaning used car buyers are limited to what is available at any given time, while new-car buyers can get dealers to obtain different models from other dealers, and can even have cars built to order by the manufacturer.

No Waiting
Charles Vogelheim, editor of Kelley Blue Book vehicle price guides, pointed out to MSN Autos that buying new is practically the only way to obtain a car or truck that is both innovative and popular. With an in-demand vehicle, said Vogelheim, "it will be a long time before any used models hit the market, and with people waiting in line for them the price won't come down much."

The Case for Buying a Used Car
For every new car or truck that's sold in a given year in the U.S., 2.5 used vehicles are sold. Indeed, the used car market—some 44 million used vehicles change hands each year—is far larger than the 17 million new car market.

Price is the primary reason most people consider buying used cars. Studies show a vast majority of people who plan to or would consider purchasing a used vehicle do so because of the price of new vehicles, which has been trending into the mid to upper $20,000s.

But there is still a suspicion among many consumers about buying someone else's used vehicle. Indeed, in a national consumer study, 59 percent of those surveyed said they would rather purchase a $20,000 new vehicle than a used higher-end vehicle whose price had dropped to $20,000 from its original new-car figure.

You Get More for Your Money
"Used cars provide the opportunity for someone to purchase a car of their choice for less money, or to step up to a better model," said Vogelheim. The reason is simple: The original owner has already absorbed the largest depreciation hit, so you don't have to. Jack Gillis agreed: "Our findings are that a used car can cost 50 percent less overall to run compared to a new car."

From the moment you drive away from a dealership your car loses value. The largest drop, often as much as 20 percent of the purchase price, occurs during the first year. After that, the decline is less steep. Depreciation accumulates as "a percentage of a percentage of a percentage, each year" explained Vogelheim; so typically the amount changes by smaller and smaller increments as the car ages. However, the rate of depreciation is not uniform, owing to ungovernable changes in the automobile marketplace. As a result, some cars hold their value better than others, but often for different reasons.

These days, a car bought several years into its life span has stabilized greatly in value but has neither declined significantly in mechanical reliability or appearance nor increased in ownership costs. (In fact, insurance costs and other fees often are considerably less than when the car was new.) Therefore, if your main goal as a vehicle buyer is obtaining reliable transportation for a good price, the used-car market can be the best place to shop.

Used Cars With Peace of Mind
The most promising sources for used vehicles are "off-lease" and "certified used" vehicles. Off-lease vehicles generally are two to four years old and began life as vehicles leased to customers. Because of the stringent mileage restrictions and maintenance requirements that are part of most leases, these vehicles practically qualify as new, even in appearance; and they usually are still covered by their original warranties.

However, starting in 2000 and 2001, the auto industry saw leasing numbers decline from a record high of nearly 25 percent in 1999 to around 20 percent in 2003. This lowered lease rate, plus low- and no-interest rate loans that have enticed consumers to buy their cars in recent years rather than lease them, has resulted in fewer off-lease vehicles coming available as used models.

The lower rate of leasing also affects the availability of certified used vehicles. Typically, these are late-model, low-mileage models that pass a checklist inspection and come with a factory warranty. Pioneered by Mercedes-Benz more than a dozen years ago, certified used vehicles have become increasingly popular with consumers looking to reduce the risk of owning a used car.

For example, Toyota, which is the largest single-brand seller of certified used vehicles, provides a six-year/100,000-mile limited powertrain warranty with each certified used vehicle. The warranty runs from the date the vehicle was sold originally as a new model and covers engine components, the manual or automatic transmission and axle assembly components. Toyota also provides a six-year/100,000-mile roadside assistance program.

Certified used vehicles typically are priced higher than non-certified vehicles — by $500 to $1,500. Still, remember that a certified car does not guarantee a vehicle will be free of problems or will have fewer problems than a non-certified used car would.

Some major used car retailers also provide warranties that are worth looking into. For instance, CarMax includes limited mechanical breakdown coverage for 30 days from the date of purchase on its used models. The company also includes a 5-day money-back guarantee that allows buyers to return their used model within five days for any reason for a refund. The vehicle must be in the same condition as it was when it was sold.

Note it is important to determine whether a used vehicle is dealer-certified or company-certified, since the standards for each may differ. Nevertheless, certified used cars can provide the same peace of mind that traditionally comes only with buying a new car because they often come with manufacturer-backed warranties.

Making the Choice
Deciding whether to buy a new or used car should start with asking yourself what your strongest interests are in owning a vehicle. After that, compare prices and financing opportunities. Whatever you do, warned Vogelheim, "buy from a dealer unless you know the seller well, so you'll have a place to go back to if something goes wrong with the car."

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