New Math: Certain New Cars Now Cheaper Than Used Models

A reduced supply of used cars means that it can now be cheaper to buy a brand-new vehicle than to buy a year-old used model. Bloomberg reports that, defying conventional logic, it could be cheaper to buy a new Chevrolet Corvette  or BMW M3 than a used 2010 model.

According to Bloomberg’s research, monthly payments for a 2011 BMW 3 Series or M3 sedan would be only $34 more than for a used 2010 model. A brand-new 2011 Chevrolet Corvette might cost buyers $12 dollars less per month than a year-old used model.

This bizarre turn of events can be blamed on the fact that sales of new cars slumped over the past three years during the economic recession. As a result, there are fewer used cars available today. That means that there is now more competition for ‘good’ used cars, driving prices for them higher — and sometimes higher than for equivalent new cars.

Paul Ballew, an economist and former analyst for General Motors, told Bloomberg that many people who can no longer afford used cars are instead buying brand-new vehicles. Ballew estimates that by the middle of 2012, as many as 500,000 new vehicles will have been purchased by people who would have otherwise bought used.

Further making the case for purchasing new instead of used is the fact that Detroit’s Big Three automakers are expected to start spending more money on incentives and marketing. Chrysler has already announced a “No Payment for 90 Days” program intended to boost new-car sales. GM and Ford are expected to follow with similar incentive programs.

Tom Webb, chief economist at Virginia-based Manheim’s Consulting, told Bloomberg that used car prices have risen steadily since late 2008, and that the current shortage of low-mileage used cars and trucks will last for the foreseeable future. That means prices for used vehicles will also likely stay high for some time.

According to Bloomberg, both GM and Ford expect to see a 10-percent increase in new-car sales thanks to the confluence of increased marketing, price incentives, and the shortage of used cars. GM vice president of U.S. sales Don Johnson told Bloomberg that high used-car prices are encouraging buyers to trade in their current cars for new models. “They can get a great value on their used vehicle, which helps them get into a new vehicle a lot quicker,” Johnson said.

So if you’ve been on the fence lately about buying a new car, it seems like there may be no better time than now to trade in your old ride and splurge for some new wheels.

Source: Bloomberg