Purchasing a used car over a new vehicle can save you a significant amount of money since new cars lose as much as 20% of their value in the first year alone. While that initial depreciation is sure to factor into the price of a used car, it's far from the only factor in play. Understanding how dealerships price their vehicles will help you know what to look for while you're on the lot.
Retail Value Guides
Car dealerships typically begin their price evaluation by looking up the vehicle on a site like Kelley Blue Book. Kelley Blue Book pricing is readily available online, so you can start here too. Dealers know that savvy car buyers will do their research, so it's in their best interest to stay as close to the suggested Kelley Blue Book value as possible.
Dealers may also source information from similar places like Edmunds, NADAguides, Manheim Market Report, and Black Book. Comparing multiple price estimates may yield more detailed insights into the car’s value. As a buyer, you can also utilize some of these tools to learn more about what you can expect to pay for a particular vehicle. Edmunds and NADAguides are available to the public. Black Book and Manheim Market Report, however, are not.
Popularity
Vehicle popularity plays a significant role in the price. However, there's no straightforward way to determine something as nebulous as popularity. A vehicle with national popularity may not be as popular in your neighborhood. In rural areas, drivers have more use for rugged vehicles that can stand up to dirt or gravel roads and handle tricky winter conditions. Urban commuters, meanwhile, may prefer a compact car with great gas mileage over a bulky truck that has no purpose for them. The harder a vehicle is to find, the more you'll pay for the few that you locate.
While dealers may tailor their pricing slightly to suit their local audience, it's worth noting that today's dealerships don't only serve customers in the surrounding area. Car buyers will travel an average of 500 miles to get a good deal on a vehicle, so dealerships may have no problem pricing their vehicles for a wide audience. For this, dealerships can turn to online search data to determine what’s the most popular. A whopping 95% of car shoppers look for digital information before visiting a dealership, so following their online tracks can yield ample data.
Miles
The more miles a vehicle has, the lower its price will fall. There are several key milestones in a vehicle's life where its value drops noticeably.
- 36,000 miles: Most car warranties expire at 36,000 miles, which makes this a prime turning point for price. The first major service visit occurs around this time as well, so a vehicle at this age may need some work done to get it in prime condition.
- 60,000 miles: Around this point, vehicles need new tires, brakes, and timing belts. If these parts haven't been replaced yet, you should be able to negotiate a lower price on the car since you'll have to deal with these issues relatively soon.
- 100,000 miles: As car mileage rolls over into six digits, vehicles usually experience a steep drop in value. If you're hoping to trade in your vehicle, you should try and sell it before you hit this milestone.
In general, you can expect a vehicle's value to drop between $3 to $1.50 per mile for the first 3,000 miles and between $0.50 and $0.25 for every mile after that. However, this is just a broad generalization.
Work Invested
When you're shopping for a used car, it's always wise to inquire about the vehicle's maintenance history. If the car recently received new brakes and tires, it will have a significantly higher value than a comparable vehicle that’s just coming up on these maintenance milestones.
A vehicle with a meticulous maintenance history will also serve you better in the long haul. It's not always possible to assess every aspect of the vehicle to determine future complications. However, a car that's treated well and routinely given oil changes, tire rotations, and other routine care will nearly always last longer than one that's neglected.
Though it's tempting to look for the most affordable vehicle on the lot, you should also consider what the car will cost long-term. The cheapest vehicles often need the most maintenance and repairs, making them far more expensive than options with a higher price tag on the lot.
Season
The peak purchasing seasons for vehicles are between March and May and from September to November. During these months, you can expect to pay 10% to 15% more for your vehicle than at other times of the year. The best time to shop for used cars is just after a peak selling time for new vehicles. This means that dealerships are inundated with trade-ins from buyers who just upgraded to the latest model release. You'll tend to find more options around this time.
If you're shopping at the end of the month or the end of the year, you may also encounter salespeople who are striving to hit their sales quotas and are, therefore, especially motivated to make a deal.
Personalization
Aftermarket modifications usually lower the price of a used vehicle. Buyers can't be certain how well this type of work was done, so they'll take a bit of a risk purchasing a modified vehicle. That said, if you're planning to add a rear spoiler or oversized wheels to your vehicle anyway, you may be able to get a great price by purchasing a car that already has these additions.
If you're looking for a great new-to-you vehicle in or around the Sioux Falls area, contact our team at Sioux Falls Ford. We can help you find the perfect fit for your needs.
Porsche Macans in the rain by Tom Nora is licensed with Unsplash License