Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

The 10-Second Trick To Outsmarting Any Used Car Salesman

Remember those first semesters of college? Life on campus started to seem a bit boring, and the urge to start roaming off campus on weekends grew stronger. That's around the time we'd call our parents, pleading with them to buy us a car.

These days, having a car while in college must seem like an unaffordable luxury for the many students who are going deeper into student loan debt with each passing semester. Yet for some students, having a car isn't a luxury but a necessity -- especially if they seek off-campus, part-time employment to help manage their finances.

The good news: There's never been a better time to buy an old, inexpensive car. The quality of today's used cars is so much better than before, so a 100,000-mile odometer reading means a car is just getting going and is no longer a signal that repair bills will soon spike.

So the question isn't whether to buy a used car -- it's how and where to buy a used car. And for all the bad rep the used car dealer has, there is in fact a way to buy from dealers and come out on top. We'll tell you how.

And it will only take 10 seconds of your time.

Used cars today are a great buy. Owners of Toyotas, Hondas and Subarus will tell you that their cars have been flipping the 200,000-mile odometer reading for quite some time. And that's why these brands have always commanded premium pricing for used cars. And they still do. Expect to pay $9,500 for a 2007 Honda Accord in excellent condition. (If you go to a dealer, that price is $2,000 higher, as I'll discuss in a moment.) Yet a comparably equipped Hyundai Sonata goes for $8,100. Most mechanics will tell you that there isn't a lick of difference between these two cars in terms of reliability and safety.

But then, we're talking about cars made five years ago, which is right around the time when virtually all global automakers began showing strong gains in terms of product quality. Go back five to seven years before that and you're taking on more risk. I can tell you first-hand that my 2000 Ford Taurus wagon was an absolute dud, finding its way into the repair shop with alarming frequency. Yet Ford sharply improved its game from there -- as measured by Consumer Reports magazine and J.D. Power & Associates.

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However, memories linger long, and prices for recently built Fords are still lower than you might think -- at least when compared to rivals -- even though the quality is much improved.

But for all the improvements in the market, buying a used car can be nerve-wracking. You simply can't know if you're inheriting somebody else's imminent big repair job. That's why car dealers typically charge around $2,000 more for a used car than what private sellers look to charge. They are offering peace of mind. But what do you get for that $2,000? A car that has been washed and waxed. If you pay up for a certified pre-owned car from a dealer, expect to pay even more.

Those insulting dealer mark-ups for used cars are even more egregious when you find out that they got the cars for very low prices as trade-ins, sometimes thousands less than what a consumer could have gotten if they bothered to sell the car on their own. So the profit for these used cars for dealers is often well more than the $2,000 noted above.

But you can try to use that knowledge to your benefit -- once you realize that a lot of new car dealers don't really like a lot of used cars sitting on their lots. Why not lowball them?

A sample pitch that only takes 10 seconds of your time: "I realize that you only paid $6,000 for that $9,000 2005 Toyota Camry on your lot, and I'd like to give you a tidy $1,500 profit by paying $7,500." You'd be surprised at how often this works.

Here's how to do it: Find a good-condition used car that seems to hold up well in a leisurely road test, then take it to your trusted mechanic. They'll charge you around $150 to go over the vehicle in very close detail, and if they do spot problems, you can simply walk away from the deal. (If the used car seller balks at a request to have the car inspected, say adios.)

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So now you know how to buy. But what should you buy?

 In effect, to score the best deals, you need to go with the brands that aren't always at the top of a college student's wish list.

The massive economic crisis of 2008 led automakers to do the unthinkable: shut down entire brands. Names like Mercury, Pontiac, Oldsmobile and Plymouth have disappeared from the marketplace, and consumers are mistakenly shunning the used cars of these brands. Many figure it will be hard to find parts for a car that is no longer being supported by a major manufacturer.

That's simply untrue. Mercury and Ford offered virtually identical cars, and the spare parts in a Ford Fusion are the same ones found in a Mercury Montego.  Or what about a Pontiac G6? A 2007 model in perfect condition with 100,000 miles will set you back $6,600. Yet the identical Chevy Malibu from that year goes for $800 more in the used-car market.

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Another tip: Let's say you want to spend less than $5,000 for a car for your student but don't want to saddle them with an unreliable lemon. For starters, assume the car will have at least 100,000 miles and be at least six years old. Here are five cars that you might want to research. They are built to go 200,000 miles -- or more:

  • 2005 Buick Century.  These cars are fairly bland but extremely well-built. The Buick division of GM has consistently produced among the most highly rated cars in terms of long-term durability.
  • 2000 Acura TL. These cars, made by the upscale division of Honda, routinely exceed the 200,000 mile mark and they get high marks in the fun-to-drive category.
  • 2003 Suzuki Grand Vitara. For the undergrads in search of a high-riding SUV, know that Suzuki is a leading brand in many emerging market economies, as its vehicles can soak up bumps on some of the world's roughest roads. Our relatively smoother roadways make these cars virtual cream puffs.
  • 2003 Isuzu Rodeo. Don't let the brand throw you off. This is actually a re-badged Honda Passport, with all of the quality that entails.
  • 2006 Kia Optima. These cars came with 100,000-mile, 10-year warranties, so if anything ever went wrong, it was fixed right away, making these great-condition used cars.

The Investing Answer: Buying a car for your children may send the wrong message -- unless it's tied to them picking up some extra income. With proper maintenance, these cars can last the students for years to come, saving them a big expense in their post-college years when they are getting started in the workforce.