His First Used Car... Ever!

I don’t like used cars and I don’t like used women.  Someone very close to me used to say this and although the second half of the statement is rather crass I included it so that you get the idea of how this man perceives used cars.  He has never owned a used car and his reasoning has always been that he’d rather pay more and get something new than save money and get something with problems or issues.

His reasoning has been rather sound but in the last decade or so, used car reliability and reputation has dramatically changed.  In fact, the entire used car industry has changed and as such more and more would-be new car buyers are turning to pre-owned and certified cars.

I am happy to say that I finally convinced him to buy a used car two weeks ago and as it happens his first used car came from eCarOne.  He was in the market for a new E-Class Mercedes and of course he visited Mercedes’ website and built one that ended up having a $67,000 MSRP.  As he was ready to pull the trigger, I said Wait… you can get the same year car (2012) with plenty of warranty remaining and barely any miles for at least $12,000 to $15,000 less.  Why would you buy brand new, especially since you’re building a very standard color combination (silver on black) and this very same car should not be hard to find.  After discussing the economics for a bit, he finally said, ok can you see if your friends at eCarOne can find one for me and how much would it be? 

I called them and put them to the task.  Less than a week later, they had the car at their location, detailed and ready to go.  I picked it up and brought it to him.  He drove it and after realizing that this car has only 8,000 miles, three years of remaining warranty, an MSRP of nearly $70,000 and he can have it for $52,000 it was not long before he had wired the money and owned the car.  I had eCarOne add a bumper to bumper warranty that extends another 2 years beyond the factory warranty for less than $2,000 and for a total of $54,000 he had a “new” E350 Sport Package with Pano roof and almost every available option; not to mention five years of warranty and $16,000 less than he would have paid at the dealer!

I can go into great detail about the economics of buying used vs. new and I’m sure you can read tons of articles and opinions about the same subject… it’s been beaten to death.  Without going into much detail, I can tell you that the current low interest rate environment coupled with a huge US trade deficit is making new foreign cars depreciate like rocks.  With that in mind, why would anyone pay a hefty premium just to be the first owner and walk away with a large loss!  In my humble opinion, I’d rather be the second owner than the first sucker!

Maybe 15 years ago, buying a used car was a hassle.  Interest rates were high, history reports were non-existent, and the whole business had a shady reputation but today you can get sub 2% interest rates for five years on used cars, you can get not one but a handful of history reports and records, and last buy not least, most dealerships are now more focused on the pre-owned cars than they are on new ones!  The buying experience has changed and if you walk into a place like eCarOne or even Park Place, Sewell or any other reputable dealer you’ll find that buying a pre-owned car is every bit as rewarding of an experience as a new one.  Try it out and see for yourself. 

Show me the CarFax...

I went to college at SMU, which is also known as southern millionaire's university. Although my father was by no means a millionaire, he worked hard to pay for my school and I was fortunate enough to own a new Acura Integra. For me that was more than I could imagine owning as a 19 year old… until I went to SMU and took a look around at all the Bimmers, Porsches, and Audis. It was a humbling experience and in many ways affected the way I looked at things for a long time to follow. Needless to say, I no longer wanted to drive my new Acura for much longer and as soon as I graduated I bought a Porsche…. on a $30,000 a year salary. So, it was used; very used. My first Porsche was a 1987 944 Turbo with 80,000 miles for the cool price of $7500. At that time, the market was about $15,000 for that car but of course I got a great deal. It was great till I flew to Miami, picked it up, drove it back to Dallas and found out the title was counterfeit and the car had been rebuilt. Where was CarFax at the time? Well, today we have not only CarFax but others like Autocheck and the all trusted internet. But is that a good thing? Let's see…

This week I had a chance to drive a 2010 Mercedes E350 with only 14,000 miles on the odometer. This particular car had to be one of the most beautiful E-classes I have seen; with a stunning gray over congac leather and panoramic roof and fully loaded with almost every factory option. So, what's my point? This car had a "bad" CarFax report and is listed by eCarOne at roughly 10% below its book value. So, what do you do with something like this? Do you walk away regardless of the discount? Do you have a pre purchase inspection done and take advantage of the price reduction? It's a tough decision and I hope to be able to shed some light here based on my past experience of purchasing and owning over 30 cars… that's right; 30 cars in a little less than 20 years of driving.

Surprisingly, the answer is much more simple than most make it out to be. A car's value is negatively affected by a bad history report much like a person's credit is negatively affected by a previous late payment or collection. Does this mean that car is junk or the person is a deadbeat? Absolutely not. It simply means that there is something in the past that needs further investigation. In the case of this particular Mercedes, the previous owner had an accident that required replacing one of the rear quarter panels. Given that this car had an original MSRP north of $64,000 it makes sense that any accident would have involved an insurance claim and thus would be present on the history report. So, what does this mean? Nothing… it means you would treat it like any other car… you simply have a competent mechanic perform a pre purchase inspection and go from there. To me, so long as the car is cosmetically and mechanically in line with it's age, that is all that counts. Does the car accelerate, handle, and brake like it should? Is it similar to other cars of the same make, year and model? If all is is true, then I thank the dealer for the nice discount and I take it. If not, then it's no different than any other car… I walk and look for a better example.

The problem today is that we have a bit of information overload and this just means we need to spend a bit more time analyzing this information and deciding what's important and what's irrelevant. Would I buy a car with a previous flood history? No, because a flood destroys so much more than you can see. But would I buy a car that had some sheet metal replaced? Why not?

The point of my post is to point out that a blemish on a history report means nothing until you further investigate it and fully understand the why and how of the report. And of course, it goes without saying that buying a car from a reputable dealer like eCarOne is probably more valuable than any history report. This sounds like propaganda but it is actually an economically supported statement. How? A history report on any car has a potential value up to the car's market value. For example, the value of the CarFax on this MB is potentially $50,000 today because that is the market value of this car today. On the other hand, for a reputable dealer to lose his good reputation the COST would be way more than what he could stand to gain in profit on one or two cars.  Thus, buying a car from a reputable dealer is in most cases the best protection you can get.

Good luck and happy test driving.