Non-Traditional Used-Car Resources
Used Car Superstores: CarMax - Used-car
superstores, with acres of inventory and no-haggle pricing, appeared to be the next big thing in automotive
merchandising in the 1990's. CarMax introduced the concept in 1993 and now, with 22 locations, claims to be in
a good financial position. (See below for the story of AutoNation, the rival firm, which went a different
direction.) The bulk of CarMax's inventory is culled from off-lease vehicles, rental fleets, and new-car
trade-ins from dealers they're associated with. Buyers benefit from a thorough inspection, a solid warranty,
pleasant non-commissioned sales staff, and spacious modern facilities. Upon entering the store, a sales
consultant directs you to a touch-screen computer kiosk, which prompts you for specific information. The
computer brings up the vehicles in inventory that match your make, model, color, and price-range specifications.
You print out your favorites, and your consultant directs you to the inventory lot to inspect your selections.
If you like what you see, the price on the print-out is the price you pay, as all the superstores incorporate
Saturn's no-haggle pricing scheme.
"Buy Here-Pay Here" Used-Car Dealers - "Buy here-pay here" is an arrangement that permits low-income or poor-credit customers to buy cars, paying sub-prime interest rates. The dealers buy less-than-perfect vehicles from auctions and new-car dealers, recondition them, then offer them for sale with a (usually high) down payment. Many go through sub-prime lenders like CAC, or finance the cars themselves. Some dealers lease their vehicles, others offer 0% financing. Successful completion of either plan results in the title transferring to the customer at the end of the contract period. The down payment (capital cost reduction) usually covers the initial cost of the vehicle, while the amount financed (leased) contributes to the dealer's overhead and profit.
A typical buy here-pay here vehicle costs the dealer $1200. Another $500 pays for necessary mechanical repairs (the vehicle must pass state inspection) and a good doll-up. The vehicle goes on the lot with a sign saying $1200 down, $120 per month. Most buy here-pay here contracts require that the buyer bring a paycheck to the dealership every pay period. The dealer deducts the payment and returns the rest of the paycheck to the customer. The term of the sales or lease contract is usually 24 months, so if all the payments are made the dealer realizes a profit of $2380 on a $4080 lease contract. Although this sounds good for the dealer, 50% to 60% of sub-prime customers default on their contracts. They usually can't afford the repairs and insurance necessary to keep the cars on the road, so the buy here-pay here dealers end up repossessing or junking most of the cars they sell. These dealers cater to a difficult market, and since they have to repossess so many vehicles, I feel their profits are justified.
I don't recommend buy here-pay here dealers for anyone. If my financial situation were that bad, I'd be taking a bus or walking. However, if you must buy a car this way, take an extensive test drive and make sure an independent mechanic inspects your prospective purchase.
Rental Car Companies, And Dealers Selling Fleet or Program Cars - Some of the larger rental car companies (Hertz, Avis, and Budget) feature rental car sales divisions at certain locations. New car dealers use program cars to bring customers into their dealerships. You may have seen their come-on ads, absurdly low prices on current or previous year models with a little asterix next to the price and a microscopic explanation at the bottom of the ad.
The term "program car" can apply to a dealer demonstrator, a company executive's car, or an off-lease or former fleet or rental vehicle. Rental cars and former fleet vehicles are the least desirable types of program car. Some though not all have been overworked and under-maintained. It's hard to tell whether the manufacturer's new car break-in and maintenance schedule was adhered to. Unless you can find service records, assume the worst. Don't buy without an independent mechanic's inspection.
At the wholesale level, rental cars are worth at least 10% less than comparable new car trade-ins, because people who rent vehicles often mistreat them, and because of poor maintenance. Make sure the price you negotiate is significantly lower (10%) than a factory-certified model at another dealer.
Dealer Demonstrators - Dealer demonstrators are not available very often, and are rarely a good deal. Consider the vehicle a rental car, because that's exactly what it was. The dealer has been using it for test-drives, in addition to local jaunts (DMV, bank, McDonald's), and week-end excursions. Your salesperson will tell you not to consider it a used vehicle, as it still has the Manufacturer's Certificate of Origin, and has never been titled or registered. Under the law, however, and in the marketplace, a demonstrator is a used vehicle. If a demonstrator with 5,000 miles on it were sold at a dealer auction, it would bring 15% less than a similar vehicle with 100 miles on it. Determine its depreciation based on an average of 10% for every 4,000 miles on the odometer, taking off an additional 10% if it's last year's model. And remember, subtract the 10% off of dealer invoice, not MSRP (list price). The dealer still gets their holdback when the vehicle is sold. People think they're getting a deal on demonstrators, but it's usually the dealer who benefits.
Repossessions - If you've ever defaulted on a car loan, you'll be familiar with the repo man. Most larger financial institutions have repossession units staffed with experienced auto-location detectives. Using information from credit applications, reporting firms, and your friends and relatives, these folks locate vehicles for repossession. Some delinquent customers return their cars to the lender when requested, but most repossessions take place using a tow-truck or an extra set of keys. Most banks unload their repossessed vehicles at dealer auctions, but a few banks still offer them at public auctions. Take my word for it, periodic maintenance stopped months before the car payments, so be extra cautious of repo cars. I don't recommend their purchase, unless you happen to be a mechanic.
Federal Government Auctions (GSA) - The Federal Government's General Services Administration (GSA) holds public auctions whenever a portion of its fleet is replaced with new merchandise. These cars are typically 4 to 5 years old, with 40,000 to 75,000 miles on them. Unfortunately the GSA has poor taste in cars. Most are compact to mid-sized domestic 4-door sedans with 4-cylinder engines, roll-up windows, and no cruise control, although most have AC. They don't sell for much because they're fairly undesirable. However, they are supposedly maintained according to the manufacturer's recommendations. If basic transportation is all you need, contact the GSA office in your area to see when the next auction is scheduled. All GSA auctions require cash or certified checks.
Municipal Auctions - Municipal auctions offer vehicles left in impound lots: impounded for excess parking tickets, confiscated from criminals, or left over from the previous year's snow emergencies. These vehicles rarely have a certificate of title, and are usually abandoned for a good reason. Unless you're looking for a parts car, stay away from them.
Municipal Fleet Sales - Municipalities usually trade in their old police and public utility vehicles, but a few auction them off to the public. Some people consider retired police cars to be great used-car bargains. I don't; most police departments retire their vehicles when they are all used up.
Dealer Auctions - Auctions are where dealers and manufacturers dispose of their lease turn-ins, slow-moving inventories, rental cars, and high-mileage fleet vehicles. Ten years ago it was easy to find dealers willing to take their retail customers to wholesale auctions, but in the past few years the major auction companies, Manheim, ADT, and Adesa, cracked down. Today the dealer auctions are 100% closed to the public. I include them here mainly for historical reasons. You could still conceivably buy auction cars from used car wholesalers and brokers, communicating with them via cell-phone during the auction process. You can find a good deal, but you're bidding against dealers who know the value of the cars, and you won't wind up with any real steals. The full price must be paid on the spot (including dealer's fees and commission), and there is no warranty or promise of condition unless an original manufacturer's warranty still applies.