Buying Used VS Buying New: The Car Market Explained

February 14, 2017

 

            In the not so distant past, purchasing a car was almost as easy as walking into the grocery store and grabbing a loaf of bread off the aisle.  Finance companies were many, and because of the widespread competition, almost anyone could get a decent car regardless of credit or how much the car cost.  This was, of course, prior to the financial crisis that occurred in 2008-2009.  While the sub-prime used car market stayed mostly on course during those years, the new car market was hit hard.  Many car manufacturers were heading for bankruptcy until the United States government stepped in to bail them out.


            With that in mind, the automotive industry did not actually fully recover until about 2012-2013, when sales began to more closely resemble what they were before the recession.  In the meantime, the used car industry started to have a competitive atmosphere due to a lack of cars coming off-lease from new car markets, as many manufacturers cut leasing programs during the crisis.  With less cars available at auction for competing used car dealerships to bid on, prices for used cars started rising at a rate that had never been seen before.

            Add to that the fact that most car manufacturers started adding more cost to their vehicles in order to pad their profits out of fear of going under, (most vehicles MSRP rose by an average of 5%-10%) and suddenly a three year old car that just came off lease cost way more than you would expect, in most cases up to 20% more than in years prior.  2014 in particular saw the used car market under-saturated to such a degree that new car dealerships were able to undercut used car dealers by using incentives and rebates for leases and financing.


 
The Good News For Used

           
In 2015 the market saw a large increase in used car sales, as the economy started to bounce back and ever-decreasing gas prices gave more people a way to budget for a car loan once again.  As mentioned in this Forbes article, in 2016 it got even better.  Two and three-year old vehicles that were out on lease from new car dealerships would finally come off-lease and go to auction for the used car market to offer up on their respective car lots.  So many cars, in fact, that 2016 saw a 33% increase in off lease units over 2015.  This caused pre-owned vehicles prices to drop to the lowest they had been since before the recession and suddenly car sales records were higher than they had been in fifteen years.

            This price drop means that finance companies that deal in used retail contracts are able to offer more people with limited income better options than in years past.  More sales means more incentives for dealerships to give better pricing and more supporting products such as Extended Warranties and GAP Insurance.
Now, as we enter 2017, buying a low mileage off-lease car has become as good an idea as it’s ever been, with prices continuing to stay low and buying options as ample as ever.  With many manufacturers increasing stock of mid-size and entry-level luxury sedans, it would seem that this trend isn’t going to end any time soon.  While buying a new car will always have its own appeal, the savings that can be had when buying used offers an even greater reward.  After all, money saved is money well spent.



Sources:
Forbes
The Washington Post

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