New cars may be a better deal than used

I had to start saying it last year. And I have to say it this year again. Because of some unique factors, new cars may be a better deal than used cars. This marks a departure from what I’ve told you for years about used cars being the better buy.

Among the circumstances that created this weird anomaly were a couple of recessionary trends: A lack of leasing and the Cash for Clunkers initiative.

When the recession hit, the automakers that were used to building in an automatic future demand by doing short-term leases couldn’t afford to be in the leasing business anymore. So there was no normal cycle of leased vehicles coming back to auctions and dealer lots, creating an extreme shortage of those newer used vehicles. In addition, the supply of older used cars was soaked up by Cash for Clunkers as a lot of cars were taken off lots when the government crushed them.

Now the price of used cars is at an all-time record high!

In the new car market, even at a time of constrained supplies in the worldwide auto parts distribution chain because of the Japanese earthquake and tsunami, it’s so easy to comparison shop for vehicles. The used car market is tougher to comparison shop because no 2 used cars are the same. And on a used car lot, dealers have a set markup that they expect to make on a used car.

So right now, with the market so disrupted in terms of traditional supply patterns, the new car is a better deal than the used car for many brands. The more shopping you do, the better of a deal you will get.

But if you’re still looking to buy a used car, look for cars that are 4-7 years old as a general guideline. With that window, you’re outside of the cycle of market disruptions and newer enough that your supply won’t have been eaten up by Cash for Clunkers. But even those cars in the 4-7 year window have risen in price because the general supply is so shrunken right now.