The New Realities of Used-Car Shopping - good car deals possible with Internet marketing

Kiplinger's Personal Finance Magazine, June, 1999 by Ed Henry

A flood of fresh vehicles and the explosion of Internet marketing greatly improve your odds of getting a good deal.

When Olga Humblias slips behind the wheel of her silver BMW 740iL, she knows a couple of secrets that no one seeing her sleek driving machine would suspect. One: She bought it used--it's a '97 that started its life with a two-year, 26,000-mile lease. Two: Her monthly payment for the $70,000-plus beauty is just $240.

Not at all surprising is that when she hits the roads around her home in Upper Saddle River, N.J., the 4.4-liter, 32-valve V-8 performs so well that Humblias might as well be driving in the venerable Le Mans auto race. "The car rides and handles so well you have to constantly watch the speedometer," says the real estate agent, smiling. She also has to keep a close eye on her husband, Charles, himself a BMW enthusiast, who jumps at any chance to drive her car.

The couple's satisfaction with the car--the first used vehicle they have ever purchased--symbolizes how the end of the millennium is ushering in the best of times for used-car buyers.

One reason is the phenomenal growth of leasing. Nearly 33% of the 1999 vehicles rolling out of showrooms will be leased, not purchased. When leases end, relatively new, well-cared-for models come back to the market, often with their prices showing more wear and tear than their tires.

That was the case with Humblias's BMW. While a new 740iL would have cost upward of $75,000, she paid $48,000, including a generous trade-in value for an ailing 1992 Mercedes-Benz diesel. She considers the car as good as new, and in at least one way, it's better: As a "certified preowned" BMW, the factory warranty stretches an extra two years or 50,000 miles beyond the standard four-year, 50,000-mile coverage.

The implausible $240 monthly payment is the result of a special financing option that combines a 4.9% interest rate with a $26,485 balloon payment after three years. Olga Humblias jumped at the opportunity to balance today's low payments against the prospect of higher future income. "The deal was incredible," she says.

A flood of not-so-used vehicles

Auto Remarketing, a trade publication for the used-car industry, reports that a record 3.3 million leased vehicles will pour into the used-car market this year, most of them as two- and three-year contracts end. About half of these vehicles--the cream of the crop--return directly to dealerships, which sell them as certified used cars with built-in backing from the manufacturer.

Cars that don't quite make the grade are sent off to a closed auction to be sold to dealers of the same brand. The leftovers--high-mileage or otherwise less-attractive vehicles--are sold at open auction, often winding up at used-car superstores such as AutoNation and CarMax.

"There are so many vehicles, the supply exceeds the demand," says Stuart Angert, CEO of Remarketing Services of America. That's good for buyers.

The soaring popularity of sport utility vehicles (SUVs) translates into a surge of off-lease SUVs on used-car lots. Reliable three-year-old Toyota 4Runners and Nissan Pathfinders generally go for $20,000 to $30,000, about 20% to 30% less than comparable 1999 models. Nissan of Statesville, N.C., for example, was recently asking $22,900 for a loaded 1996 Pathfinder and was willing to dicker. (A similar '99 Pathfinder carries a sticker of about $31,000.)

Keith Purrington of Laguna Niguel, Cal., considers himself a beneficiary of this trend. The 62-year-old computer contracts director for Unisys Corp. needed an SUV to pull his trailer of jet skis and carry his kayaks on top. He considered the behemoth Ford Expedition, but the $40,000 price tag stopped him in his tracks.

That's when he visited Lew Webb's Nissan dealership in Irvine and found a just-off-lease 1998 Pathfinder SE with 2,500 miles. He bought it for $21,000, about $10,000 less than a comparable '99 model, demonstrating Angert's observation: "The sheer number of SUVs on the used market offers consumers a good opportunity to negotiate."

Purrington's white Pathfinder came with the remainder of the manufacturer's bumper-to-bumper, three-year or 36,000-mile warranty, plus Nissan precertified used cars carry a six-year powertrain warranty.

Luxury cars and family sedans

Highly sought-after luxury cars, such as BMWs and Mercedes-Benzes, tend to hold their values very well and sell for the highest prices. But you can still find bargains. A six-year-old Acura, BMW or Lexus can put you in the lap of luxury for half its original price--about $15,000 to $25,000.

For example, Acura of Concord, Cal., was recently asking around $20,000 for a fully equipped 1995 Legend L, a car that originally listed for about $39,000 and whose current replacement in the Acura line (the Legend 3.2RL) goes for $42,355. Similarly, Lexus of Norwood, in East Walpole, Mass., was offering a 1995 LS 400 for around $25,000. Or consider the 1996 Infiniti Q45 offered by Metro Infiniti in Monrovia, Cal., for $25,342--about half the original list price. And that comes with a 72-month or 70,000-mile warranty from the original purchase date.