Used-car surplus means bargains for savvy buyers

Looking for an auto bargain?

Think used.

More than 4.1 million cars, trucks and sport utility vehicles were leased in 1999. Many of those vehicles, which include several luxury brands, will be back on dealer lots this year. Throw in trade-ins from new-car sales and it's no wonder so many auto lots are jammed with used vehicles.

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"There's some really great used-car deals out there, some really good cars at some really good prices," says Jim Hossack, a consultant at AutoPacific, an auto marketing and consulting firm.

The large supply of used vehicles has helped push down prices. Widespread incentives on new cars are nudging down the prices of many late-model used cars, trucks and SUVs even further.

"When you lower the price of a new car effectively through an incentive, you lower the price of a used car," says Tom Kontos, vice president of industry relations and analytical services at ADESA Corp.

Here's how it works. Let's say there's a $1,000 rebate on a new 2002 model. The price of a used 2002 or 2001 model would fall by $1,000 as well. The price of a 2-year-old model might drop by $800 and the price of a 3-year-old model could dip by as much as $600.

Trickle-down rebates
The larger the rebate on new models, the more a dealer needs to shave off the prices on used models.

For example, a $2,000 rebate on a new model could shove down the price of a 2-year-old model by as much as $1,200. If you don't see a price break on the used model, be sure to ask for one.

Staying on top of new-car incentives can help you land a lower price on a used car.

Intellichoice, Autoweb.com, Edmund's Automobile Buyers Guide, AutoSite, Autopedia, Kelley Blue Book and CarPrice.com are among the sites offering timely pricing information on new and used cars as well as rebates and discount financing on new cars. Be sure to do your homework.

Visit several Web sites when researching pricing information. Everything from sticker price to customer rebate information may vary. It's wise to cover all the bases. When in doubt, contact an auto manufacturer directly.

Keep in mind the older a model the less its price is affected by incentives on new models. Once a car hits the five-year mark and beyond, new-car incentives have little impact on pricing.

Some of the best deals can be found on used cars and SUVs coming off lease. These vehicles tend to be 3-years-old or newer with low mileage.

Folks looking for a bargain on a used luxury car will like what they see. Thousands of Audi, BMW, Mercedes and Lexus leases signed in 1999 when the stock market was still rolling will be returning to auto lots this year.

Many will end up in a manufacturer's certified used program, where the cars will be subjected to extensive inspections and reconditioning aimed at bringing them up to new-car standards.

Typically, a manufacturer's certification ups the price of a used car, truck or SUV by $1,500 to $2,000. Many experts feel that a car that has been certified by a manufacturer is worth the extra cash.

"They put quite a bit of money into those vehicles to make them look like new," says Eric Anderson, ownership database supervisor at Intellichoice. "Depending on when you purchase the vehicle, you may be getting a 2-year-old vehicle, which is a lot cheaper than a new vehicle, and you may be getting a two- or three-year warranty on it. That's a pretty good deal."

Intellichoice ranks the certification programs of 23 automotive manufacturers on its Web site.

In the past three years, about half of the major automakers have revamped vehicle inspection standards making them more thorough. Several major manufacturers including Honda, Lincoln, Ford, Mercury, Volkswagen, Volvo and Audi have pumped up the warranty protections on certified vehicles.

Most luxury brands offer two years of additional warranty to certified-used-car buyers. The warranties on other brands vary widely. Shop carefully. Not sure what to look for? These tips from Bankrate.com can help.

Be sure to ask for discount financing on a certified car. Some manufacturers offer new-car interest rates on certified, pre-owned vehicles.

Lease deals lacking
People looking for a deal on a lease will have a much harder time landing a bargain.

The days of the rock-bottom-I-can't-believe-how-low-my-monthly-payment-is leasing deals are over. Those bargains ended with the 1990s.

Inflating vehicle residual values and lowering the monthly payments may have attracted customers, but it brought big, big losses at the end of the leasing terms.

Few customers were willing to pay the inflated residual values due at lease end to purchase the car, so they walked away. Leasing companies were left with tons of overpriced vehicles to move.

The heavy losses prompted auto companies to pull the plug on discount lease deals.

"Many people have become burned on the leasing over the last while," Hossack says. "And they're a little scared of them."

The result? A leasing customer returning a 1999 vehicle will have to pay more for a comparable lease in 2002. You can expect payments to be anywhere from $50 to $150 more every month.

"Lease payments are going up compared with three years ago," says Raj Sundaram, vice president at Automotive Lease Guide.

"It could be $50 in some cases, $70 in some cases and $150 in some cases."

You may have to take on a longer leasing term on a new vehicle to get a monthly payment down to your liking. Of course, that will mean you'll pay more to the leasing company for the privilege of driving the car.

If you like the vehicle you leased, you may want to consider buying. There's a good chance you won't have to pay the amped-up residual value to own the vehicle. Remember, the leasing company is going to take a big hit if you turn in the car and walk away. Why not ask for a lower payoff amount?

"You're in a position of strength," Sundaram says.

So act like it. If the leasing company won't lower the payoff amount, go ahead and walk away. It's their loss.

You can always sign on for a lease from someone else. To get the best deal, compare deals from several dealers and manufacturers. Be very upfront that you've contacted other dealers and will go with the one that will give you the best price. That way they'll have to outdo each other to earn your business.

"There's always going to be someone competing for market share," Sundaram says. "So you're always going to be able to find a deal."