Sometimes the best new car is a used car
By Olev Edur
Next to a new home or perhaps a cottage, a car is likely the largest purchase a retiree will make. For someone living on a fixed income, this can be a daunting expense, but there is an alternative.
For retirees, who typically drive less than the average commuter and for whom the price of a new car can present a serious challenge, why not buy used? You can buy a used car that’s a few years old and has fewer than 100,000 kilometres on the odometer for half the price of a new car. Additionally, if car-life expectancy is more than 15 years on average, you may not have to buy another vehicle for a long time.
“Cars typically depreciate 20 to 30 per cent in the first year and eight to 12 per cent in each of the following three years, with depreciation rates dropping year by year,” says David Robins, the principal automotive analyst and head of the Canadian vehicle valuations division at Canadian Black Book in Markham, ON.
“Depreciation over the first three or four years is typically in the range of 50 per cent, but it will obviously depend on the vehicle,” Robins adds. “Sports cars, for example, usually have lower depreciation because they tend to be driven less than other types of vehicles, so the resale value tends to be higher. But if they’re driven as much as other cars, they won’t retain their value as much.”
Factors Behind Depreciation
The differences in depreciation rates can vary for a number of reasons, not just because of the particular model or kind of car. Another factor is the vehicle’s track record when it comes to reliability.
Reliability has been improving across the board in Canada in recent years because one of the most widespread problems in the past—rust, aggravated in Canada by the extensive use of salt on winter roads—has largely been overcome. It’s become much more rare to see those rusted bodies that were once commonplace. “Rust is not as large a problem as it was 15 or 20 years ago,” Robins says, “because manufacturers have been using more galvanized steel.” Generally, too, mechanical and electronic technologies have improved dramatically over the past couple of decades.
Improved electronics have resulted in a plethora of new gadgetry. While this hasn’t had a direct and measurable effect on reliability, and while some retirees may not even want a car that talks back to them, for example, some of the newer safety systems such as lane-change assist and automatic braking help prevent accidents that can slice years off the life expectancy and value of any car.
The bottom line is that if you’re careful and do your research before buying, you can save thousands of dollars and still get a perfectly functional car that will provide good service for years to come. But the key is due diligence— otherwise, there can be pitfalls awaiting the unwary used-car buyer.
Where should you begin to look for the best bargains?
There are three basic options: buying from a private seller, buying from a used-car dealer, and buying a manufacturer- certified vehicle from a dealership. Each has pros and cons, but no matter which way you go, you need to be careful.
The upside of buying from a private seller is that you might get the best price. After all, private sellers don’t have to cover dealership-cost overheads and, while they may have access to the same pricing guidelines as do dealers through services such as those available from Canadian Black Book and thus may value their cars according to the same criteria, they also have more room to negotiate in your favour.
When buying privately, however, you have to arrange the financing for yourself—and make sure all the necessary documentation is in order. In addition, you may have less recourse if something goes wrong with the car; at least a dealer will have a fixed business office where you can go to seek remedies.
When buying from a used-car dealer, “the process in any province will be relatively smooth and straightforward— the dealer will take care of all the necessary documentation,” Robins says. “When it comes to private sellers, the process will vary among provinces; it’s more important to consider, among other matters, financial concerns such as liens and to make sure the vehicle is looked over by a mechanic you trust.”
“Licensed dealers must adhere to specific laws and regulations in most provinces, whereas private sales are considered civil matters,” says Shawn Vording, the vice-president of automotive sales at Carfax Canada in London, ON. “Each province and territory has different disclosure regulations, but providing a history report is common practice. We recommend checking with your provincial Ministry of Transportation to understand the specific regulations in your area.”
Still, buying from a used-car dealer is no guarantee of long-term satisfaction. You may get the required disclosures and even a dealer warranty of 90 days or even a year, but the reliability of your vehicle and of the warranty will hinge upon the reliability of the dealer in question. As a result, you should investigate the vehicle’s history to rule out any hidden snags.
The best way to find out all the details of a particular vehicle’s past is to obtain a vehicle-history report such as that provided by Carfax Canada. “Knowledge is power when buying used,” Vording says. “Each used vehicle has a unique history, and that history can greatly affect the safety and value of the vehicle. A tool such as Carfax’s vehicle-history report and lien check can help in negotiating a fair price and help provide peace of mind.
“For instance, your report may identify whether any accidents have occurred, which can lead you to ensure that the vehicle has been repaired properly,” Vording says. “A car that’s been in an accident may still be the perfect car for you, as long as it’s been repaired properly— and you might even get a better price. A history report also helps you understand the maintenance history so that you have a sense of how well the vehicle’s been taken care of and its overall condition.”
Certified Pre-Owned Vehicles
Because carmakers recognize that the trade-ins they acquire often still have many kilometres ahead of them and can therefore represent a significant source of revenue, most have taken to offering certified pre-owned (CPO) vehicles through their dealerships. These cars are screened and thoroughly refurbished; with manufacturers standing behind their own products, they can provide a degree of safety and reliability beyond what may be available from independent used-car dealerships.
“Most certified pre-owned programs offered by the various manufacturers involve age and mileage requirements,” says Domenic Santucci, Mazda Canada’s national manager of incentives and remarketing. “In the case of Mazda, the car must be no more than five years old and must have fewer than 120,000 kilometres on the odometer. Those are the two high-level requirements.
“In addition, all Mazda CPO cars must undergo a 160-point mechanical and safety inspection. This includes everything from the condition of interior trim, headrests, radio and entertainment systems, and heating and cooling systems to exterior features such as lights, glass, and mirrors—everything must meet our standards. And of course, we used trained Mazda technicians to make any repairs and genuine Mazda parts if anything needs replacement.”
Of course, the cost of a CPO vehicle is likely to be higher than that of a non-CPO car; that’s to be expected, given all the added features. But there are constraints—if these vehicles are not competitive in the used-car marketplace, buyers will go elsewhere. “It’s hard to put a dollar figure on the potential savings,” Santucci says. “A lot depends on the manufacturer’s suggested retail price, the age of the vehicle, the mileage, and so on.”
As a result, it still behooves you to shop around. To help, there are now numerous online used-car marketing websites such as Auto Trader to make comparison shopping more convenient. But it’s up to you to do your due diligence, regardless of whether you buy a CPO car, a used car through a regular dealer, or one from a private seller.
“We always recommend the following three things when buying used,” Vording says: “Get a vehicle-history report. It will tell you about the vehicle’s accident history and service history, whether there are any open recalls, and if there’s a lien on the vehicle.
“Take a test drive. Test the brakes, make sure all the accessories are functioning, and see how the car handles with city and highway driving. This is also an opportunity to give the vehicle a good interior and exterior inspection [following all COVID-19 safety protocols, of course].
“Get the vehicle checked by an expert. Bring it to a licensed mechanic you trust and bring the vehicle-history report with you. That way, the mechanic can check to see if there was any serious damage and, if so, whether it was repaired properly.”
Of course, some people will always prefer (and can afford) to trade up to a brand new car every few years, citing rationale such as the lower monthly costs of leasing rather than buying. But the financial reality is that replacing a car every three or four years, whether leasing or buying, is much more expensive than buying a good used car and driving it for the next 15 years—or more.