If you’re like three million other Canadians, the thought of buying a new car is at best a pleasant traipse into fantasyland. Your reality is the used-car market.
For most of you this is all about matching your budget to your needs. Of course, some people with lots of money – perhaps it’s why they have lots of money – simply will not buy a new vehicle on principle. There are good arguments for going used, the first of which is that it’s cheaper.
But not necessarily a major step down. Perhaps the best alternative to a new Chevrolet Malibu/Toyota Camry/Honda Accord is “a used Malibu/Camry/Accord,” suggests auto analyst Dennis DesRosiers of DesRosiers Automotive Consultants.
Some think a nearly new car is actually a better choice. David Champion, senior director of the Consumer Reports Auto Test Center, is one of them – especially if the car of choice is in the first year after being reinvented, restyled and reengineered.
“We have often found that new or revamped models have more problems in their first year than in subsequent model years,” he says. “Ford’s problems illustrate why we recommend to our subscribers to hold off buying a first-year model.”
Ah, Ford. In the latest CR reliability study released late last month, Ford dropped from 10th in the survey to 20th in 2011. Why? Two factors: teething problems with new and redesigned models – the Explorer, Fiesta and Focus – and problems with new technologies. Specifically, Ford owners have complained about problems with the MyFord Touch infotainment system and an automated manual transmission on the Fiesta and Focus.
Ford is racing to address both and has announced major initiatives designed to improve the customer’s experience in learning how to operate MyFord Touch easily and effectively. Ford is also ironing out display glitches and other issues. Meanwhile, shift quality of the automated manual is being improved.
But buyers who wait until a couple of years to buy this year’s new-new thing as a used model are less likely to have any of the worries or frustrations associated with new-model teething problems. They’ll pay a lot less, too.
According to ALG (the former Automotive Lease Guide), luxury vehicles on average hold on to 40.6 per cent of their value after three years; the mainstream average retained value is 34 per cent after four years. However, there are great differences between brands. Indeed, the bottom five mainstream brands retain just 27.5 per cent of their value after four years.
It’s true that the best brands can retain 60-plus per cent of their value after four years of ownership. But that’s unusual, just as it’s not common for brands to retain only about 20 per cent of their value, notes research from Canadian Black Book.
The point is, buyers opting for a three- or four-year-old vehicle will spend at least 40 per cent less on their purchase if not more.
“Year in and year out, approximately one-fifth of Canadians enter the light-vehicle market looking to buy a first car or replace an existing one,” says DesRosiers in a note to clients.
“Over four million light vehicles trade hands annually in this country [4.45 million in 2010], and the shift that has taken place in the composition of that four million is staggering.”
Some numbers to boggle the mind: in 2010, 2.9 million Canadians purchased a used vehicle of some sort. That compares to 1.557 million new-vehicle purchases. To look at it another way, new vehicles accounted for 35 per cent of sales in Canada, while 65 per cent were used.
But there’s more to learn by drilling deeper into those numbers. A decade ago, new-vehicle sales were about the same as they are now, but Canadians bought only about two million used cars. The trend is obvious: used-car sales have exploded.