Used-car market is revving up

When car manufacturers are offering employee pricing and other screaming deals on new cars, it's time to rush out and buy a just-off-the-assembly-line vehicle, right? Not necessarily. While you can get a great buy on a brand-new car, you can get an even better deal on a used one.

"Now, and down the road, consumers can get good prices on used vehicles," says Paul Snider, president and CEO of CIQ, a company that does business under the name CreditIQ.com, which processes telephone credit applications for cars on behalf of banks and other lenders. "Employee pricing has stirred up the market. By the same token, there are great values in pre-owned cars. That's the 30,000-foot overview."

To start with, it's a case of supply and demand. People are flocking to buy new cars and take advantage of the "employee pricing" that General Motors, Ford, DaimerChrysler and other car manufacturers are offering. For almost every new-car buyer, there's a car that's going to be traded in or sold.

"The employee pricing is going to have the side effect of depressing used-car values," says James Bell, publisher of IntelliChoice, a Web site that specializes in automotive ownership cost and value analysis. In other words, as trade-ins flood the market, there will be more used cars for sale, driving prices down.

Bell expected this would affect used-car sales in the fall, but, in fact, it is happening already.

Advantages of used cars
There are several reasons why "new to you" might be better than a brand-new vehicle.

Buy a car that's 3 to 5 years old and the major depreciation has already taken place. That means a lower price tag for you, and it also means the car's value has already taken its biggest dive.

Pre-owned certification programs take a lot of the risk away from buying a used car. Cars sold under such programs are protected by warranty, which can save you money on repairs, depending on the coverage offered. "It gives you the best of both worlds -- a lower purchase price and a warranty -- so if it breaks down, it's covered," says Mark Perleberg, lead automotive expert with NADAGuides.com, the consumer Web site of the National Automobile Dealers Association.

For those of us with less-than-sterling credit, it can be easier than ever to buy a used car with a competitive interest rate.

"Those without perfect credit can buy a late model at a reduced price and get financing through large companies like BankOne," Snider says. Yes, you might get a slightly higher interest rate than if you buy a vehicle new, but the higher loan cost is offset by a lower overall price tag.

"Historically, the interest rate on used cars is higher than for a new car, but it's not significant if you're saving $10,000 on the price," Snider says. "The amount saved offsets the 1 percent higher rate for used cars."