Clovis News

Which is cheaper, new car or used?

Something unusual is happening on auto lots: Used car values have climbed so much that in some cases, it's cheaper to buy new.

The phenomenon is good news for some shoppers, whose trade-ins suddenly are worth more and who can get more bang for their buck when buying new.

But for shoppers looking for less expensive, older used cars, it's an especially tough time to buy, as prices are higher and lending restrictions are tighter. The situation may be even worse in the central San Joaquin Valley as residents struggle with higher-than-average unemployment rates and credit marred by foreclosures, experts say.

Simple supply-and-demand economics are behind the rise in prices. There is a lack of used cars on the market for several reasons.

Pair that with new cars dropping prices, better interest rates and a flurry of dealer incentives, and suddenly a new car can make more financial sense, said Ivan Drury, an industry analyst at Santa Monica-based Edmunds.com.

"Especially if you're looking for a luxury vehicle like a large SUV, that's going to save you thousands of dollars in the long run," he said.

Edmunds compared new cars to their 1-year-old used and certified pre-owned counterparts, assuming a 60-month loan and no down payment. It looked at rebates and the differences between typical interest rates for both used and new cars, including dealer incentives like no-interest loans.

For example, a 2009 all-wheel-drive Toyota Highlander hybrid SUV costs $619 a month new, but $679 a month for a certified pre-owned version. That's $3,600 saved over the life of the loan.

The unusual inversion in prices is a boon for new-car shoppers, said Lithia Dodge of Fresno general manager Michael W. Coble. "It allows them to get into a new vehicle for a used-car price."

And used cars are harder to find these days, he said.

The economy has driven an extreme drop in new car sales, inspiring people to hang on to their cars longer or give them to relatives, said Clawson Honda of Fresno used car manager Fred Noori. That means fewer trade-ins coming into dealerships.

The flow of used rental cars appearing for sale also has dried up.

Rental companies normally turn over their cars within a year or two, their castoffs often ending up as certified pre-owned cars for sale on dealer lots, said Tom Webb, chief economist at Atlanta-based Manheim, a national wholesale auto auction business.

But the recession slowed that down drastically.

"Rental companies are sticking with what they have," Webb said. "They can maintain the current fleet size."

A decrease in leasing also contributed to the decrease in used cars. Some companies -- including GMAC and Chrysler -- stopped financing leases in recent years because it became less profitable.

And many drivers of luxury brands like BMW who once leased switched to buying the cars when special deals like 0.9% interest made it more attractive and affordable to buy, said Weber BMW general manager Jerry Pajouh.

While the situation is good news for buyers and sellers of new cars, things at the older-car end of the spectrum aren't as rosy.

Used-car dealers say they've been particularly affected by the government's Cash for Clunkers program.

"That took a lot of nice used cars that could have come on the market for resale," said Sean Ravaei, owner of Safeway Motors at the corner of Olive and Blackstone avenues.

He estimates the program decreased the number of used cars available for sale by 15% to 20%, which in turn raised prices.

But dealers can't always pass those price increases along to customers, said Jim L. Hamby, who acts as a broker and runs the used-car business We Buy Cars with his father in Clovis.

"We can't really raise the prices a whole lot, because nobody has any money right now," he said.

Used car prices typically dip a bit around Christmas as shoppers get busy with other things, but are expected to climb back up again in early January.

Dealers who buy cars at auction in the Central Valley may have an extra disadvantage, said Drury of Edmunds.

They are competing with dealers in Southern and Northern California who likely have more money to play with because their customers have higher employment rates and incomes, he said. Such customers can afford the nicer cars, he said.

Local dealers tight on cash are "going to have to get a cheaper vehicle, maybe an older one," Drury said.

And banks that once financed just about anyone have tightened their standards so that buyers with poor credit don't qualify, Hamby said.

That has hit the Valley particularly hard, he said.

"We have a higher unemployment rate, which makes it tougher," he said. And the foreclosure crisis "really messed with people's credit. A lot of people want to buy a car, but they just can't."

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