Most car shoppers will quickly notice that low mileage used models are often priced thousands of dollars less than new vehicles. This may seem a little strange considering that most low mileage used cars have essentially the same features as their new counterparts and are still in perfect working order. This leads many to wonder why these low mileage used cars are so much more affordable. Is this price drop a gift worth taking advantage of? Or is it too good to be true?
There are many reasons for the price drop, ranging from the supposed prestige of new cars to the higher supply of used cars. This article will lay out every reason that used cars are often priced lower than new cars so that you can be informed before making a purchase decision. Read on to learn more about why used vehicles are so much more affordable than new vehicles.
Marketing and Advertising
One of the chief reasons that new model lines are more expensive is the huge amount of marketing and advertising that they receive. Both manufacturers and car dealerships spend a lot of money on marketing and advertising their new vehicles. Effective marketing and advertising will greatly drive up the demand for a product, including a new car. Higher demand will serve to raise the price of the new vehicle. Used vehicles certainly do get some advertising, but you don’t see car manufacturers spending millions of dollars on advertising campaigns for the used vehicles they have on their lots.
Lower Overhead for Sellers
Another big reason that new cars are more expensive than used cars is the higher overhead for the sellers. Used car dealers often purchase their inventory at auctions where used vehicles are priced very low. On the other hand, new car dealers have to pay back the vehicle manufacturer for every vehicle in their dealership’s inventory.
Also, new car dealers have to pay for transportation, delivery, and the storage of new vehicles. In addition, new car dealerships have more staff members and larger buildings than used car dealers. The larger buildings mean they have to pay more in mortgages or rent. All this adds up to a significantly higher overhead for new car dealers than for used car dealers. As you might expect, new car dealers pass their high overhead costs on to customers in the price of their inventory.
Another huge reason that used cars are so much more affordable is that even low mileage used vehicles are available from private sellers. Vehicles available from private sellers are more affordable. This has a lot to do with the lower overheads mentioned above.
Try comparing a used vehicle from a dealership that sells new cars with a used vehicle that is available online from a private seller. You will see that the exact same car with the same model year, features, and mileage will be cheaper from a private seller. Of course, new cars are only available through franchised new car dealerships. Private sellers generally cannot sell new cars. A car becomes a used car by definition when it is registered by a private driver or organization after first being registered as a new car.
Used Cars Can Be Purchased From Many Different Places
As previously mentioned, new cars can only be purchased through new car dealerships. Some new car dealerships will make their vehicles available via online services, but this is just an extension of their services. In contrast, used cars are available through many different sources.
While used cars are commonly found in online listings and other services, this is rare for new cars. The increased availability of options means that the prices will be lower for used cars. This goes back to the law of supply and demand.
There Is a Much Greater Supply Of Used Cars
Speaking of the law of supply and demand, it is a simple fact that there are many more used cars available than new cars. You can find used cars from the 90s, 2000s, and 2010s quite easily through an online listing service. However, new cars are generally only available for the current model year. There are some rare exceptions to this.
Sometimes, a new car dealership will not sell all of its new cars before the next model year comes out. However, the fact remains that the supply of used cars on the market is far greater than the supply of new cars on the market. The supply and demand dynamic means that used cars will be quite a bit cheaper because of this massively superior supply.
Another one of the biggest reasons for the price difference comes down to a matter of perception. Because of the aforementioned marketing and advertising campaigns, most people perceive new vehicles to be more prestigious. It may seem that such an intangible shouldn’t have that much of an effect on hard numbers like vehicle prices. However, the perceived prestige that some people hold for new vehicles is certainly a big reason why used vehicles are more affordable. In fact, this principle applies to pre-owned items as a whole, not just to vehicles.
A used vehicle comes with one undeniable caveat: a previous owner. In most cases, it’s impossible to know exactly how the owner treated the vehicle. This so-called uncertainty leads to a price drop. Of course, this is a small trade-off to get a great low-mileage car at a great price.
Used Cars May Have Aftermarket Warranties
Another important reason for the price difference is that new vehicles are often protected with manufacturer warranties. Used vehicles, with the exception of certified pre-owned vehicles, are not protected with a warranty from the manufacturer. Unfortunately, certified pre-owned vehicles are often just as expensive as new vehicles. Many car buyers think that the lack of a warranty is a negative aspect to getting a used vehicle.
However, many used vehicles now come with excellent aftermarket warranties that will cover most parts and service expenses. Many people do not know about these warranties or do not hold them in as high regard as a manufacturer’s warranty, so this is one important factor in used vehicles being considerably cheaper. Nevertheless, these aftermarket warranties can be just as effective as warranties from the manufacturer.
Some Low Mileage Used Cars Are Several Years Old
Yet another reason that low mileage used vehicles may be considerably cheaper is that they are not necessarily from the current model year. If the vehicle was hardly driven, it may be from several years ago.
Of course, it is not hard to find low-mileage used vehicles that are from the last model year or even the current model year. However, it is certainly possible to find vehicles that are four or five years old and still have low mileage. Even if these vehicles have low mileage and have been properly serviced, the fact that they are a few years older means that they’ll be cheaper.
There is always a question of maintenance history with a used vehicle. Of course, new vehicles have never needed any maintenance. However, even low mileage used vehicles have almost certainly needed to be serviced. Some used car buyers may wonder whether a certain vehicle has been maintained properly, and this uncertainty can drive down demand. Although, even low mileage used vehicles with a detailed maintenance history showing timely maintenance may still be more affordable because of perception.
Some Pre-Owned Vehicles May Have Aftermarket Parts
Low mileage used vehicles may have aftermarket parts ranging from brake pads to air filters and more. Aftermarket parts are often just as effective as Original Equipment Manufacturer (OEM) parts at a lower cost. Nonetheless, some people don’t think as highly of aftermarket parts. This is even true for cosmetic parts like wheels or tint. The perception of customized cars can lead to a significant drop in value, even if the aftermarket parts still function just as reliably as OEM parts.
Choosing the Right Used Vehicle
A low mileage used vehicle may be just as reliable and last just as long as a new vehicle. Even so, you should be a smart shopper as you compare your options. When looking for a low mileage used car, it’s important to find a model with a thorough maintenance history.
An aftermarket warranty is also a nice bonus. Consider expanding your search to vehicles from a few years ago that still have low miles on the clock. If the specific model has not been redesigned for a few years, these low mileage vehicles may have exactly the same features at a lesser price.