A Comparative Guide to Purchasing Cheap & Good, Used Cars in the USA
The United States used car market has grown at a tremendous pace since the start of the twentieth century. Reaching an annual sale of over $350 billion, the used car industry represents almost half of the United States auto retail market segment of its economy.
According to Statista.com, in 2017, about 6.3 million used auto vehicles were sold in the United States of America, representing a plunge from the 7.1 million and 7.7 million used cars sold in years 2016 and 2015 also in the United States. Today, the United States prides itself as the second largest manufacturing economy in the world.
A used car, also called a second-hand car is a pre- owned vehicle that has been driven more than the limited mileage, or moved from one site to another or added on consumer test drives. Used cars dealership are vehicle outlets that deal with the sale of only used cars at a retail level. The Used Car Industry is slightly different from the conventional franchise dealership, hence the need for a detailed breakdown of the American used cars industry.
History of The American Automobile Industry
Although the first accepted automobile was seen in Germany and France as early as the year 1800, enormous growth in the industry was seen in the United States at the break of the twentieth century and rapidly evolved into being the widest automobile industry in the world. American automobile companies emerged with Chrysler, General Motors and Ford dominating the market. This followed the mass production and an influx of cars by Ransom Olds and Thomas Jeffery.
By the 1920s the American automobile industry became the backbone of the American economy, producing more than three quarter of the total number of vehicles produced in the world. The American petroleum industry as many other industries were dependent on it for survival. Same was the case with the steel and industrial industries.
The Automobile industry brought rural migration and isolation to a halt as it altered the composition of the urban neighbourhood also freeing homemakers from the confines of their homes, revolutionizing the idea of working. Soon after, American homes had to their name one, two or more vehicles with about 51.5 percent owning more than one vehicle. The growth of the industry has remained unwavering since then.
The Concept of the “Used Car” Industry
The history of the concept of the Used-Car industry dates back to 1898 with the opening on the first American used car outlet called the Empire State Motor Wagon Company. According to Wikipedia, the used vehicle market is substantially larger than other large retail sectors, such as the school and office products market which has an estimate of $206 billion in annual sale and the home improvement market that contributes as much as $291 billion annual rates.
The industry is however said to embody as much as half of the United States auto retail market, into eventually being the largest retail retail segment in the American economy.
The advent of technology has played a major role in the advancement of the Used Car Industry just as in every other business as now dealers can easily can easily make sales online. This was formerly not so when dealers could only reveal prices in daily, weekly or monthly trade publications. The internet has also played a major role in used car pricing, hence, the multiplicity of used car pricing.
Used Car Pricing differ depending on who the buyer is dealing with, revealing pricing details in three different ways namely; Dealer or retail Price, Dealer trade-in price of whole sale price and private party price.
Dealer or retail price is the amount paid if the buyer purchases the car from an authorised used-car seller and Dealer trade in-price is the pricing cost the buyer pays at the wholesale public sale, while Private-party price is the price a buyer pays when purchasing a car from a private individual.
Best & Worst American Cities to Buy Used Cars
According to Thestreet.com, depending on location, the price of a used car on the dealer’s lot can be considerably higher or lesser depending on the level of supply, demand and the overall state of an economy. The research listed Ohio, Stanford, New York City, Cleveland and Miami as the best cities to buy used cars.
New York, according to the report provides a 5.65% discount from the national average cost of a used car. In the same vein, Miami offers a discount of 8%, with “insanely cheap used cars, compared with the rest of the nation”. Cleveland, Stamford and Ohio offering discounts of 5.75%, 5.55% and 4.96% respectively.
On the other hand, the worst cities to buy used cars, the report revealed are Fresno, Seattle, El Paso, Albuquerque and Jackson as they have a premium above the national average price.
A Step by Step Guide to Buying a Used Car in America
With diverse choices and numerous deals, buying a car in America can somewhat be a herculean task. The Bank of America has however lessened the burden of planning with the following tips;
This the stage where an income outline should be mapped out, including the cost of gas, the demands of insurance and the cost of maintaining a vehicle. This determines how much a person can afford to part with for a car.
2. Is buying a used car or any car of necessity?
Whether you are buying a brand new or used car, the next step is the question of whether it is appropriate for you. Most people would rather by a used car because of the decreased cost and more value for their money.
According to the Bank, the positives of buying a used car are as follows;
• Less cost prices
• Lower depreciation
• Potential for lower insurance premiums
• Less registration and license fees
On the other hand, the positives of buying a used car are;
• The likelihood of higher maintenance cost e.g. replacement of car parts
• Little or no manufacturer’s warranty
• Potential for reduced reliability
• High chances of increased interest rate on your lease
3. Engage in an in-depth research
The need for a deep research cannot be over emphasised. There is need to compare and contrast deals by visiting dealerships and by surfing the internet.
However, visiting dealerships is of great importance when buying a car as you are granted the chance to test drive before purchase. Surfing the internet also provides the buyer a chance to read an unending list of reviews on safety and reliability.
4. Buying a used car from a dealer vs buying from a private individual
As used cars have either had one of more previous users, it can be gotten either from a registered automobile dealer of a private individual.
Nevertheless, when buying from a private individual, there is no United States of America Federal Trade Commission Used Car Rule backing the purchase unlike the case of buying from a registered dealer. This law demands that a dealer puts a copy of detailed information regarding the car. The likely information to be revealed are as follows;
• The warranty of the car
• The terms and condition backing the warranty offered
• Details on the vehicle systems backed up by the warranty
• The percentage of repair cost the dealer will handle.
5. Examine, text drive and check vehicle history
Buying a used car determines extreme examination, leaving no stones unturned. Be sure to;
• Check or demand to know the car’s history
• Hire a mechanic to examine the vehicle
• Inspect the car using an inspection checklist
• Test drive the car under unfavourable weather conditions, paying close attention to every detail.
The American Consumer Protection Laws Backing the Used-Car Industry
Without adequate laws, rules and regulations there is there would be chaos and no uniformity. It is in view this that the Federal Trade Commission (FTC) of the United States of America have as well as individual states offering legal backing for used-car buyers. These laws include;
1. Federal Used Car Law;
The Federal Used-Car law is binding on any used-car buyer or seller in the United States whom sells up to or more than six cars in a space of one year. However, Wisconsin and Maine are the two states not bound by the Federal Used Car-law as residents of these states have a comprehensive used car purchaser protection. Lawbreakers of the Federal used car law is subject to civil suit. According to the
Federal Used Car law, the following must be adhered to;
• Buyer’s Guide:
The law demands the presentation of the buyer’s guide which is a document containing all warranty and guarantee information and information on the buyer’s guide supersedes any verbal agreement the buyer has with the seller. The buyer’s guide must have the following;
a. Mandatory Disclosure: The mandatory disclosures o me made are as follows;
-The 14 major systems of the car to be sold and their faults, if any.
-A suggestion to the consumer regarding asking the dealer if pre-purchase inspections are allowed.
-A forewarning to the buyer to ensure all agreements are put down in writing.
• Standard Format:
The standard format is a document that must reveal the Vehicle Identification Number (VIN), model and the manufacturing year of the car.
• Warranty Information:
All warranty agreements whether verbal or not must be compiled in the buyer’s guide. It should tell if the manufacturer warranty still covers the vehicle. The following are warranty information that must be divulged;
-The name, address and every information of the person who is in charge of affairs regarding the seller’s warranties.
-The exact system that covers the warranty,
-The kind of warranty that is available.
2. State Used Car Laws:
Under the state laws, some states demand a more detailed warranty that reveals a time on the warranties coverage. Here, the major warranties are;
• “As Is”
An “As Is” warranty is one of the four major state used car warranties use by states that do not have their own consumer protection law. For states where the “As Is” car warranty law is used to prevent consumer abuse if a case of breakdown of the car happens shortly after purchase. Hence, the law demands that the seller provides the buyer with disclosure documents stating the lack of warranty if that is the case. States that do not practice the “As If” warranty law are Washington D.C, Minnesota, Vermont, New York, Massachusetts, Vermont, Maine, Connecticut, Hawaii, Maryland, Rohde Island, West Virginia, Kansas, New Jersey, New Mexico, Mississippi and Maine.
• Implied Warranty
Implied warranty on the other hand is divided into two; Warranty of fitness for particular purpose and Warranty of merchantability.
a. Warranty of Fitness for Particular Purpose
This is a form of implied warranty where the seller gives his word that the vehicle to be bought is right for the purpose that it was purchased for.
b. Warranty of Merchantability
This other type of implied warranty is an assurance by the seller to the buyer that the automobile will be able to perform what is promised.
• Specific Warranty
Warranties can either be full or partial, hence the need to state the kind that is binding. Partial warranty covers certain parts, aspects of the car while full warranty covers every aspect of the vehicle.
3. Specific State Consumer Protection Laws:
These are laws by states have their own consumer state laws. Their consumer laws are different from the law general State Consumer Protection Laws. In this category, some states practice what is called “Lemon Law”. However, Lemon laws are only used when a brand-new car is being purchased. Lemon law is binding in states such as New York, Connecticut, New Jersey, Massachusetts, New Mexico and Minnesota.
4. Usury Laws
Also of importance when purchasing a used-car in the United States is the agreement on the interest rate the buyer will be charged by the seller. Usury limits are the highest amount of interest that a finance house can charge to a loan. However. Usury limits differ state by state.
American Used-Car Dealers- How Do They Work?
Used-Car dealers operate slightly differently from the conventional automobile dealers. Most times, brand new car dealers are affiliated with automobile manufacturers, giving their outlet an indirect connection with the manufacturer, hence having a universally accepted price, hence, giving the public an idea of what the cost of a car should be.
Meanwhile, Used-car dealers do not have an affiliation with any automobile manufacturers and obtain their inventory from used car auctions and from wholesalers. This gives the Used-Car dealer the right to put a price tag on a car depending on how they deem it. However, there are many variables at play that does it make is easy to for properly gauge the cost of the vehicle.
In the same vein, most used-car dealers are reluctant to reveal the initial cost paid for a car while automobile dealers of brand new cars might have no issues with disclosing the invoice for a new car. This is regarding the fact that invoice prices of brand new cars are publicly available online, made available by the automobile manufacturers. Hence, the cost of a used-car is known only by the used-car dealer and the dealership he acquired the vehicle from; the former owner, giving the seller an upper hand over the buyer.
Furthermore, Used-car dealers often times than not advertise their special deals on the pages of the local newspaper or on their individual websites. The special deals have attractive prices, less than the regular price the car would be sold for. Because used-car dealership cannot depend on factory bonuses for selling cars, they would want to still make all th profit they can from the individual sales. Hence, Used-car dealers are more interested about their market returns other than the selling price. However, these days, used-car dealership are to a large extent trustworthy with the binding of the United States of America Consumer protection laws.
The 21st Century Reality of The American Used-Car Industry
Research by the Automotive News Data Centre has proven that in recent times, the demand for used car grow stronger among American nationals as the rate of demand for brand new cars appears to be dropping.
Revenue generated from used vehicle retail sales hit $57.79 billion at the largest dealership groups in 2016, up 6.6 percent from $54.23 billion in 2015. These gains in the used vehicle industry at the largest dealership groups mirror larger market trends.
For over eight consecutive years, since the global financial crisis of 2009, the industry grew by 68% with the demand for used cars increasing. Used vehicles have metamorphosed into having better quality, off-lease vehicles are sold, giving consumers a more affordable deal, compared with the total cost of a brand-new car and has its average price for a used car stood between $18,838 and $20,000.
New Car vs Used car- A Comparison
According to the American National Automobile Dealers Association, a person owns as many aa 13 cars in a lifetime with each costing as high as $30,000. It further added that if those cars were probably three years older, the buyer could have saved as much as $130,000 in his lifetime. Based on the aforementioned, the following comparisons were arrived at;
It is often said that a car loses as much as 20% of its value immediately after purchase. Buying a new car at $30,000 and probably selling it three years later for $15,000, the used car depreciation would cost the owner $15,000. On the other hand, buying a used car at $15,000 and selling it for $10,000 after three years, the used car deprecation would cost the owner only $5,000.
If a new car breaks down, the owner can have it fixed without as it comes as a part of the warranty which covers it for as long as the first 36,000 miles i.e. for about three years. On the other hand, this might not be the case with a used car.
A new car will probably be more reliable than a used one although used cars are definitely more dependable as registry payments are cheaper, insurance rates are lower and used cars are cost effective leading to increased savings.
4. Advanced Technology
Automobile manufacturers put in extra efforts to incorporating newer features in their newer productions. These newer features could enhance safety, total performance as well as comfort the buyer gets to have. This is definitely enjoyed in new cars rather than used ones.
5. Stress level
Shopping and maintaining a new car is easier than doing a used car. This is so because psychologically, new cars are seen as problem free and perfect and therefore making a choice of the car to buy might not be as energy and time consuming as buying a used car would.
6. Financing options
Automakers and dealers of new cars make available a high level of mouth-watering incentives to increase buyers. These incentives include offers such as attractive interest rates, cash rebates and the likes. This is not exactly common with dealers of used cars.
It is not uncommon to a person brag over or show off a new car. This is seldom the case with buying a used car.
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