|Tuesday, September 23, 2014|
If You Really Need an SUV, Think Used
Even with lower gas prices, the idea of buying gas-thirsty SUVs (sport utility vehicles) puts off many people. But you may be among those who really need a large four-wheel drive vehicle—because you tow a boat or trailer, say, or haul large amounts of gear to go camping, or live in snow country.
If you fit that picture, consider buying a used SUV. Despite some rebound since gas prices fell, SUV resale values remain well below their level two years ago.
New or used, a full-size SUV will use a lot of gas—gas mileage of 15 to 18 mpg is common. But buying used will save you money on other costs.
"From an economic standpoint, buying a two or three-year-old SUV makes sense," says Michael Omotoso, manager of global powertrain forecasting at automotive research firm J.D. Power and Associates, Detroit. "Your upfront costs are lower, you let someone else take the initial big hit on depreciation, and the vehicle likely is still under the original warranty."
Though heavy discounts and cash rebates are producing attractive prices for new SUVs, they carry risks if gas prices rise again. "With higher gas prices, SUV resale values could fall sharply again as they did before and you would take a sizable loss in the trade-in or resale value," notes Juan Flores, director of vehicle valuation for Kelley Blue Book, Irvine, Calif., and its Web site kbb.com. Flores adds that, while the average resale value of used SUVs bounced up 7% in January over the previous month, "It is still more cost-effective to buy used than new."
Your credit union can help with your auto financing needs.
Look for the biggest discount
When SUV resale values plummeted as gas spiked to more than $4 a gallon, vehicles from Ford, General Motors, and Chrysler (which includes the Jeep brand) were hardest hit. Even after a rebound, their resale values remain well below that of competing Japanese and European SUVs.
For instance, a 2007 Ford Explorer XLT four-wheel drive with 25,000 miles and typical options would sell at a dealership for about $17,225, according to kbb.com. (At kbb.com, the "retail value" choice reflects the price dealers charge as opposed to individuals selling their own car). Meanwhile, a new 2009 Explorer of the same model and equipment would have a typical selling price of $26,900. So by choosing the used 2007 vehicle instead of the new one, you have reduced your total ownership cost by $9,675. And, adds Kelley Blue Book's Flores, the six-cylinder engines in the Explorer—once one of the biggest-selling vehicles in the U.S.—"are well-tested and durable. You could reasonably expect to drive that SUV to around 100,000 miles."
Buying a certified vehicle means dealer inspection and you get an extension of the new-car warranty.
Think differently if you plan to resell the SUV
If you need that SUV now but know you'll only need it for a limited time, look for high resale value. Let's say you plan to tow a camping trailer, but want to sell the trailer after the last of your children leaves for college in two years.
So let's say instead of a 2007 Ford SUV, you buy a Honda Pilot. A 2007 Pilot might cost $21,400 in 2009. But when you need to sell it in two years from now, it might still be worth $10,500—or 49% of what you paid. In contrast, a four-year-old Ford Explorer is likely to sell for only $6,150—or 36% of what you paid two years earlier
Consider a certified used vehicle
A certified vehicle will cost you more—ranging from $500 to $2,000 more per vehicle—but it may be worth it for peace of mind. With a certified vehicle, the dealer has done an inspection and you get an extension of the new-car warranty, often for one year.
Look for high resale value.
Make sure, however, that you're getting a manufacturer's certified program that comes with a warranty from the parent company. Some used-car dealers call vehicles certified that have much less quality assurance behind them. Even with a manufacturer's program, ask to see the actual inspection certificate for the car you are considering.
And, as you would for any used vehicle, get the vehicle identification number or VIN and then check online with a company like CarFax to make sure the car has never been in a collision, flood, or other unusual circumstance. (CarFax charges $29.99 for a report on one vehicle or $39.99 for unlimited vehicles).
And look carefully at the warranty. Don't consider one with an extension of less than a year. Make sure that all major repairs are covered and that there are no large deductibles you must pay before coverage starts.
Consider an extended warranty
If you don't buy a certified used car, you can get some similar protection with an extended warranty for about $1,000. While not usually worth the price when buying a new car, such warranties make more sense with used cars—where major, very expensive repairs become more likely.
Although the dealer may be selling the warranty, check to see who is behind it. Make sure it is the manufacturer or a recognizable, financially sound insurance company. As with the certified warranty, check the coverage and the deductibles.
Though discounts and rebates mean attractive prices for new SUVs, they carry risks if gas prices rise again.
Think smaller if you can
If your towing job or the load you haul isn't really all that big, consider a small utility such as the Ford Escape, Honda CRV, or Toyota RAV-4. These smaller vehicles often can get the job done—and they cost less. For example, a 2007 Ford Escape with four-wheel drive and a V-6 engine would sell for around $15,950. Or you might even get a small SUV without sacrificing gas mileage. A 2007 Ford Escape Hybrid, rated at 32 miles per gallon in the city and 29 mpg on the highway, sells for around $16,800.
In a world where gasoline prices go up as quickly as they drop down, cutting your initial costs is the best strategy. With SUVs, that means buying used.
Jerry Edgerton is an automotive writer whose work has appeared in Money and other national magazines. He also is the author of "Car Shopping Made Easy."
Home & Family Finance® Resource Center