Is it the year for a new car?

It’s that time of year again – the new cars are rolling off the assembly line and onto a dealer’s lot near you. So how do you negotiate the best car deal or decide if you should buy new or used?

Negotiating the Best Price

Whether you buy new or used you still want to get the lowest price. Before you go to the dealership make sure you have done your research. You should know the following; dealers’ invoice price, available rebates or incentives and what your target price is. Take any printouts you have with you. When you get to the dealer establish right away you are a buyer and not a browser, you know what you are looking for and you will buy from the dealer with the best price. Keep all conversations focused on the dealers’ invoice price, not the list price. When you get their offer if it closely matches your target take it, if not get the best offer and take it to the next dealer. Keep the process going until you get a final offer which matches your target.

New Car Smell – Yes or No?

There is something about buying a new car that cannot be matched. The new shiny paint, the latest features and the new car smell. On an emotional scale new cars win over used cars, but the financial scale yields a completely different result. If you are trying to improve your financial cardio, strength and flexibility your families’ transportation costs are an area where savings can be found. There are four areas to consider when deciding between new versus used; capital cost, depreciation, repairs and insurance (Source: DesRosiers Automotive Consultants Inc.).

Cost: A new car costs more than a used car. Typically the difference is about 18% for a year old car, 33% for a 2 year old car and as high as 60% for a 5 year old car.

In determining the cost of a new versus used car the cost of financing must also be considered. The rate for a new car loan is less than that of a used car, especially when dealer financing is included. Low dealer rates may seem good on the surface but typically dealer financing costs are added in to the price of the car. That being said, new cars are more expensive which means higher payments and more interest.

Depreciation: Cars generally lose 25% of their value in the first year. If the vehicle is being financed, almost immediately the borrower owes more than the car is worth. Certainly some models depreciate slower than others – a great place to compare depreciation rates is the Canadian Black Book (canadianblackbook.com). On the other hand if purchasing a used car the initial drop in value is avoided.

Cost of Repairs: The cost of repairs for any car increases annually for the first 7 or 8 years of usage and then levels off. The myth that a car becomes more expensive to own as it ages is really not true.

Insurance Costs: The cost of insurance declines over the lifetime of a vehicle as the owner takes less coverage and insurance rates drop due to the depreciation of the vehicle.

The Cost of the New Car Smell

What does all this mean? Over the first five years the average total cost per 1,000 km of driving a new car is $1,459.25 (insurance, maintenance/repairs, depreciation, etc). For a year old used car the 5 year total is $1,196.31. Think about your average annual driving habits – that means there is an additional cost of $262.94 for every 1,000 km you drive just to have the new car smell. That is a 22% premium. Overall, the best deal is a year old used vehicle – you save the depreciation and get as close to a new car as possible.