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Driving forces: When buying a new car is smarter than buying used

Published: Monday, March 3 2014 12:45 p.m. MST

Financial responsibility gurus often recommend buying used cars, but are there situations when a new car makes more sense?

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Robert Kissell Jr. wasn't planning on buying a car — until he fried his Volvo's electrical components in 2012 by driving through a large puddle. This came after a move to a new state and also after spending $2,000 on a pet's veterinary bills — not to mention monthly student loan bills.

"The repairs outweighed the costs of getting another car," he says. "I didn't have a lot of income."

Kissell, who lives in Nags Head, N.C., and often drives eight hours to visit his family back in Pittsburgh, had to decide which would be the more frugal car to buy — new or used.

It is a decision made every day across the country. Nearly 35.6 million used cars were sold in 2013 versus 15.6 million new cars, according to auto information company Edmunds. Edmunds also found that 43 percent of car shoppers say they would only consider buying a new car, and 24 percent say they would only consider buying a used car, while 30 percent they are open to both. But which is wiser, the used car crowd or the new car crowd?

Old wisdom

"So many people still believe in the old wisdom that it is better financially to buy used than a new car," says LeeAnn Shattuck of Fort Mill, S.C. "It is not. It depends on what car you are looking at."

Part of the reason the old financial advice to buy used no longer applies is because the market and economy have changed, says Shattuck, who is also known as "The Car Chick" and runs a consulting service that helps people buy cars.

For example, she says there was a time when nearly 6,000 to 8,000 cars would go through a car auction in Atlanta in one day.

"Now it is about 2,000," she says. "Dealers are keeping all the good used cars."

The economy made people hold on to their cars longer, Shattuck says, and with the government's Cash For Clunkers program, the supply of used cars went down.

"This tanked the bottom of the market," she says. "What should be a $3,000 car is now a $6,000 car."

When some of her clients ask her to see if she can find a $3,500 car for them, she says, she laughs and says, "Do you want an engine in it?"

Shattuck thinks the used car market is slowly getting better but will still take years to fully recover.

Best deals

Jerry Mason says great deals can still be made buying a used car.

"The best deals and the worst deals come when buying a used car from an owner," he says. "The second-best deals come from buying a used car from new car dealers — if it is a different model than the new cars they sell."

On the other hand, Mason, an associate professor at Utah Valley University in Orem, Utah, who teaches personal finance, says his last two cars were new.

"I got 250,000 miles out of each of them," he says.

The advantages of a new car outweighed some of the financial benefits of buying used. One item on his list was the amount of time it might take to find a good used car and the time that might be lost in potential repairs. Mason commutes to UVU from his home in Cedar City, Utah, and so he needed a reliable car. And with a used car, the greatest risk is not accurately knowing its condition.

Managing risk

Kissell was particularly concerned about the risk of buying a used car and then having expensive repairs, like the $700 repair his wife's Pontiac Grand Am recently needed to fix a transmission line.