Buying a used GM car right now is a good idea even in the middle of what sometimes seems like a catastrophic series of events for the car company. It is important to keep some keys facts in mind and be aware of some of the myths being thrown around.

1. FACT: Sales for GM’s new cars set a high in May (up 18% from April 2009 by core brands: Chevrolet, GMC, Buick and Cadillac) while GM Certified Used Vehicles, the industry’s top-selling certified brand May sales down 28 percent from May 2008.

What this means: As buyers rush to grab new GM cars, the used (but manufacturer certified) models are getting less love and dealers always love sales so negotiating a sweet deal on a 2008 or prior under their Certified program is in season.

2. FACT: Warranties on GM’s Certified Pre-Owned will still be supported by certified dealers and service centers.

What this means: According to Mark LaNeve, VP of GM North America Sales & Service, ” We will honor our warranty commitment given at the time of purchase to owners of current and future General Motors Certified Used and Pre-Owned Vehicles, such as the 12-month/12,000 bumper-to-bumper warranty for Certified Used and Pre-Owned vehicles, and focus on the customers’ needs from their sales to service experience.” Extended warranties are not always backed by the manufacturer and are sold on behalf of third party companies so those companies are responsible for claims.

3. MYTH: Leftover 2008 and previous years models have been sitting on the dealer lots and could suffer from “Lot Rot”.

What this means: Pretty much nothing because it is a bit of an extreme urban myth based on an interesting article about cars decomposing in landfills which states that metal head gaskets can begin to rot after 1 to 3 years. What they really mean is that rot can be accelerated if exposed “…to high moisture content, acidity and dissolved salts in the soil”. In other words, buried in the ground. Moving on.

4. MYTH: Your local GM dealer is closing as part of GM’s restructuring plan (or “reinvention” as GM likes to call it) so you will not be able to get your Certified Pre-Owned car serviced once they close.

What this means: GM vehicles will receive service and warranty work at closing dealers until they shut down. The remaining dealers will continue to provide service and warranty work and so you may have to drive a little further but there will still be twice as many GM service centers as Toyota centers.

5. MYTH: Hummer is going away but you can finally get the biggest vehicle of your dreams for little to no money.

What this means: Hummer is being tentatively being sold to a Chinese company who is expected to maintain Hummer service and sales after the contracts are completed for the brand’s ownership transition and although the perception is that Hummers are rotting on the lots, May sales for Certified Pre-Owned Hummers were the only GM Certified Pre-Owned brand saw an upswing in May (up 16%) Mind you, that was only 222 total vehicles across the country because those suckers still have a dollar sign as big as their carbon footprint.

Which car from GM’s Certified Pre-Owned inventory would I want? Well, I certainly wouldn’t say no to a Cadillac CTS.

A friend of mine alerted me to a radio article by NPR about how some new cars are cheaper than used cars.  I’m always up for a good debate, so let’s have some fun and debunk the claim that “Some New Vehicles Selling For Less Than Used Ones.”

Claim #1: “Some new cars are actually cheaper than used…”

• Truth Meter: Low
• Comment: This is true only under certain conditions. As a used car buyer, you CAN always pay more than a new car but you would only do this if you got tricked into paying too much!
• Reality: Used cars are still much cheaper than new cars. The idea that new car prices are plummeting and therefore making used cars relatively more expensive makes little sense. Car pricing is partly based on the price of similar alternatives. Therefore, if new cars prices come down, used car prices follow suit.

Claim #2: “Honda Civic Hybrid” is an example of a car where the new car is cheaper.

• Truth Meter: Even Lower
• Comment: A new Honda Civic Hybrid will cost you about $21,000 plus tax, title, and license. This is more than $3,000 less than the suggested retail price. However, I just used Carsala to do a price check, and I can buy a 2007 or 2008 for $17K (19% cheaper). Even better, I found the following ad on AutoTrader. It’s a Certified Pre-owned (CPO) car and the asking price is $1,000 less than the new car price. CPO means the warranty will be extended by one year and 12,000 miles so it has the same warranty as a new car.

Claim #3: Used cars are getting more expensive because if you’re “not producing as many new cars, then you’re not producing as many used cars.”

• Truth Meter: Very Shaky Grounds
• Comment: The statement if taken entirely literally is true. However, the used cars you want to buy now are two years old (see here for why), and the current decrease in car production will have minimal effect on the used car market. How many people are in the market to specifically buy a used car that is only three months old? Hogwash.

Claim #4: To buy a new car you will have to do some “serious research”, “shop well for financing rates”, and shop for “deals in your area.”

• Truth Meter: Finally something true!
• Comment: Buying a new car is a colossal pain. For me, it ranks with getting ALL my teeth pulled – without a painkiller. Read my past post about The Top 10 Things a Dealer Absolutely Won’t Tell You in case you need to be reminded about what car dealers will do and say to make as much money as possible from you.
• Reality: Buying a used car is much easier. With Carsala, all you need to do is (1) choose the car, model year, features and colors that you prefer, then (2) let Carsala find your cars and negotiate a price of up to 25% off Blue Book, then (3) inspect and drive the car in person, with the option of buying at the Carsala price. It doesn’t get much easier than this…

Walk into a new car dealer and your heart is pumping and thumping.  Adrenaline rushes through your body as you see the beautiful car on the showroom floor that has every feature you want and is in your favorite color!  What should you do now???  Turn around, and walk out because you’re about to waste more than $10,000 on a new car – as if it were a 50 cent piece of candy at the corner store when you were 10 years old.  If you don’t have the courage to walk out, then read my Top 10 Reasons To Buy a Used Car to boost your confidence and help you to understand why buying a used is always in your best interests.

1. Car Dealers Are Hurting

• If you haven’t been following the news, car dealers are having a hard time selling new cars. However, cars manufactures can adjust to this change by producing fewer cars. The problem lies in the used car market. People are turning in their leased cars and not buying them back partly because dealers set the buy-back prices too high and partly because people leased more car than they could afford. You can take advantage of this trend by buying a used car at an incredible discount.

2. Certified Pre-Owned Programs

• Imagine this: you buy a two year old used car in perfect condition with 24,000 miles for $10,000 less than a new car and the warranty is extended from 3 years/36,000 miles to 4 years/48,000 miles. Sound too good to be true? It’s not – you just need to read a little more about Certified Pre-Owned cars to understand why they are an amazing deal.

3. Price

• New Cars are expensive and contrary to what a dealer might tell you, they are NOT a good investment. Tax, title, license and depreciation over the first two years on a $25,000 new car will cost you from $10,000 to $15,000. Ouch! When you buy a used car, you avoid steep depreciation and high taxes on an inflated price. Buying the same $25,000 car, but one that is two years old, will cost you about $11,000 less than its new counterpart. Thinking differently, the cost of owning a new car for two years could even buy you a very nice used car!

4. Used Car History Transparency

• Twenty years ago, we had to believe some stranger about the reliability of a used car. Today, services like CARFAX provide us with complete information about a car’s service, accident, or lemon history. We no longer have to worry about a used car’s history!

5. It’s Environmentally Friendly

• A Toyota Prius is a great car to own if you want to save on gas. However, it takes the equivalent of 1,000 gallons of gas to make a new Prius. When you buy a used car, you aren’t putting another car on the road. Instead, you are trading the energy it took to make your old car, with energy it took to make the used car you just purchased.

6. Depreciation

• Cars depreciate the most during their first two years. By my estimate, a typical new car will depreciate about 40% over the first two years. However, don’t take my word for it. Check out Car.com’s great residual value tool and see how much that new car you are considering will depreciate in two years.

7. More for Less

• Are you thinking about buying a Honda Accord, but really want the Acura TL? Maybe a Ford Taurus is on the top of your new car list, but you really want be seen in a Jaguar X-Type? The great news for you is that you get A LOT more car for less money when you choose to buy a used car.  Check it out for yourself with Carsala’s online price quoting tool.

8. Low Insurance Rates

• Insurance rates are partially based on a car’s value and that car’s safety features. When you an equivalent used car, your comprehensive and collision coverage is lower. If you choose to upgrade your car type when you buy used, there may be other insurance discounts for safety features such as a better anti-theft security system, stability control, or VIN etched windows.

9. Used Cars Have Never Been More Reliable

• I’m not saying that every car on the road is reliable. However, modern cars are incredibly reliable and with cheap services like Consumer Reports, we have easy access to information about the reliability of used cars.

10. You Can Use Carsala

• Buying a used car is suddenly easy. Choose the car, model year, features, and colors you prefer and then let Carsala find the car and negotiate the price for you. They will save you up to 25% off of Kelley Blue Book and you still get to inspect and drive the car before deciding to buy it. The car industry is filled with schemes to trick you into paying too much for a car. Carsala is different because what you pay for their service is based on how much you save, not how much you spend like every other car buying service.

Do you think I missed something?  Let me know by leaving a comment!

I must confess, I absolutely LOVE car warranties.  It’s not because I love warranties themselves, it’s because I hate, despise, (any other negative word here), paying for car repairs.  After I spend $15-$40 thousand dollars on a car, I don’t want to pay for anything except gas and maintenance.  Did I mention that I loath paying for car repairs?

So what does a Certified Preowned car (CPO) do for people that like warranties?  CPO refers to cars that are offered for sale with the support of the vehicle’s original manufacturer, with warranties that extend beyond the initial warranty.

The original manufacturer (Ford, Toyota, BMW, for example) uses their network to first inspect the car, and then certify the car and extend the original warranty if it’s in great condition.  I’m highlighting original manufacturer because used cars sold with warranties not from the original manufacturer (a.k.a. “third party”) are not truly CPO cars because there is no extension of the original warranty.  This matters because third party warranties vary extensively and require a lot of research and work to fully understand.

Here’s a four page article about understanding third party warranties.  Reading this article is only the first step.  You have to actually do what the author says if you want to avoid getting cheated into buying an overpriced and insufficient warranty.  My suggestion is only work with dealers that can extend original warranties.

There are other good things that come with CPO cars too.  You will often become eligible for other benefits that come with new cars purchases such as shuttle service, loaner cars, and emergency assistance.  Here is a nice site from Edmunds that explains what CPO means for different manufacturers.

The verdict for me, and probably for you, is Big Benefit rather than Big Bellyache.  Original car warranty extensions, detailed car inspections, and extra services are all things that people like in used cars.

A common question for me is, “What are the best value cars and what cars will give me the best bang for my buck?”  It seems like a simple question, but this question is complicated by three factors:

• The car world is so diverse, general rules are difficult to make
• Current buying trends, not trends of car makers, ultimately determine which cars are a huge success or a miserable failure
• The meaning of “value” can be a personal choice and opinion

In an attempt to help you (and me when I buy my next car), I tried to do some analysis to figure out general answers to this question.  Most websites subjectively claim that you should buy a used car when it is one or two year old.  However, based on data, there is only one glaring rule that holds for almost any used car you might consider:

• Buy a car when it is two years young

The following graph best represents what happens after two years.  This graph was generated using an automobile residual value tool such as the online tool from cars.com.  This particular chart is for a mix of American, Asian, and European mid-sized sedans, but the data trends look similar for almost any car type.

You should notice the “knee” at the two year mark circled in red.  This knee is created by a disproportionate amount of depreciation during the two years after a new car is purchased,  followed by three years of relatively steady depreciation.  Therefore, buy a used car when it is two years old.

But wait -  there’s more!  A perk of used cars is that when you buy one from a dealer, you have an opportunity to get a 12,000 mile extension on the warranty.  Many dealers will offer this extension to their certified pre-owned cars (CPO).  I used to believe this was a not-so-savvy way to try to charge more for a used car.  As it turns out, CPO means the car has been inspected, cleaned, and has the warranty extended.

I also wrote a blog recently about buying your child’s first car.  In that post, I made some recommendations for cars that are safe, reliable, and don’t cost a lot because they come from car manufacturers that don’t command a premium.  Those cars are:

• 2006-2007 Hyundai Sonata, 4 cyl. engine (FWD)
• 2006 Kia New Optima 4-DR with Side Air Bags (FWD)
• 2004,2005,2007 Subaru Forester (AWD)
• 2004-2006 Mitsubishi Endeavor (FWD or AWD)
• 2004-2005 Lincoln Town Car (RWD)

But what if you don’t want any of those cars?  Well, go back to what I said earlier.  The final word — and you read it here first — is that you should buy a used car when it is two years old, still has some of the original warranty remaining, possibly has the original warranty extended, and has already suffered the biggest losses in value.

Do you think there are other rules for buying value cars?  Leave a comment and share your thoughts!