The Car Buying Decision: New or Used for Millennials?
You wouldn’t be caught dead using a four year old smartphone, and car dealerships know that. But don’t translate that hard-to-dispute fact into your car purchasing mentality! With the economic downturn, the reality is that many millennials coming out of college are choosing more economical options for their transportation. While Time Magazine reports that 40 percent of projected car buyers fall into the millennial demographic, high gas prices, an increasing interest in urban living, and frustration with the car buying process has stopped a car purchase from being an automatic assumption.
For millennials living outside of urban centers, a car may be a necessity, but a sluggish job market leads them away from flashy new cars, and rather, to pre-owned and used cars. Although growth is present, a positive job growth market still takes time to recover to pre-2008 numbers. For example, Businessweek reports that Memphis, Tennessee, is seeing a 21.7 percent rise in jobs over the past year, but the job market shifted from construction to assembly, distribution, education, and retail trade. Until the job market shows steady growth, Nashville used cars are a safer option on price alone, along with the other benefits used cars bring.
Slow Advances in Technology
Edmunds reports that 9.3 million used vehicles sold in 2013. You might want a new car because of all of the shiny bells and whistles, but you won’t see a massive technological difference between a 2014 model and a 2012 model. When you look at used cars within the past few years, you get all of the tech benefits of newer models without the hassle of early adoption. After a few years, you probably won’t deal with recalls and major mechanical issues.
One of the biggest downsides of purchasing a new car is the instant deprecation when you drive it off the lot. You may get trade-in value bonuses and other dealer incentives when you purchase new instead of used, but Edmunds reports that the average car loses 11 percent of its value when you take it home. Over a five year period, the average car loses up to 25 percent of its value per year. If you wait out that period, you avoid the deprecation period and sunk cost that is associated with new car sales.
Certified Pre-Owned Programs
Two major draws for new cars are the full warranties and lower mechanical and maintenance expenses. You might not get the full length warranty when you purchase a used car, but certified pre-owned programs are the next best thing when you want to take the economical route. These programs typically allow you to transfer the warranty from the previous owner. Certified pre-owned dealers also have quality standards to meet for their vehicles, so you’re getting the next best thing to a new car. The cars that go to these programs are often commercial fleet vehicles no longer in use, or off-lease cars.
Michael Brady is a financial consultant and three-time state chess champion. He is married with two girls.