Hey, buddy…have I got a deal for you. How about a clean Mercedes for under ten grand? Sounds crazy, doesn’t it?
Trying to find a decent ride these days is more than a little challenging. Continued hangover from the chip shortage limits the number of new cars being delivered. A recent discussion with a new car store manager indicated the wait could easily be five months if ordering something new.
Additionally, there is the issue of affordability. According to car-shopping site, Edmunds, more than 12% of new-car buyers have a monthly payment of at least $1,000. That leads many to search the used car market. Edmunds data indicates that used car payments now average $554 per month.
Given how important a car is to our daily lives, the challenge is significant. However, with a bit of creativity and patience, there are opportunities to put a nice car in your driveway.
First, think like a value investor and go where others don’t look. Don’t chase the asset everyone else covets. Be an independent contrarian.
My college friend, John, recently dealt with the dilemma of finding a decent car. His budget-conscious solution was interesting.
John is now the proud owner of a fully loaded four door Mercedes E320. He bought it from the original owner with a mere 49,000 miles on it. John did enough research to know this model ranks high for safety and is used throughout much of the world for reliable taxi services. As such, he is confident, with proper maintenance, he can put another 150,000 miles on his new ride.
The best part of all? He paid a bargain $8,400.
That’s pretty amazing given today’s world. However, there are valuable lessons to take from John’s car shopping adventure.
First, he looked for several months, compiling research along the way. The larger the transaction price, the more patient you need to be.
Focus on safety, reliability and comfort. John knew his wife would frequently drive this car. Additionally, John finally concluded he is neither an Indy Car racer nor Monster Truck specialist. Emphasize the things that really matter.
Shop nationwide. Some cars sell better in different areas. John’s car would have sold for several thousand more on the west coast. Additionally, he wanted a high-end car purchased from the original owner. Wealthy people often pay top dollar for a very nice ride, but use them gently and sparingly. This keeps miles down and offers lots of remaining life.
Avoid the popularity contest. Everyone wants an SUV or pickup these days. That leaves an opportunity to buy a sedan or station wagon at a relative bargain.
Wealthy people usually do required maintenance. As such, there should be a set of records detailing all maintenance, oil changes, etc.
Brandon Chaney, Wholesale Manager at Chaney Motors in New Braunfels, suggests taking a car to a dealer or trusted independent shop to do a pre-purchase inspection. This decreases the odds of buying a junker. Additionally, confirm the car has a clean title and identify any liens against it.
John’s Mercedes adventure is not unique. One of my favorite bargains is an LS model Lexus sedan. The flagship model Lexus has been on the market more than thirty years. When new, they sold for $60,000 to $100,000, depending upon the year. They are made by Toyota. As such, they are extremely reliable and getting service is easy. You can routinely put 250,000 miles on a top-line Lexus.
Sharp-eyed shoppers can frequently find a Lexus LS with less than 100,000 miles selling around $15,000. Amazingly, you can even find these under ten grand.
Similarly, top end Volvo’s will routinely sell down in the used market. A client recently acquired a 2001 Volvo XC70 wagon. The tank-like crossover had high marks for safety. It also offered tons of room, only 45,000 miles and sold for $9,800.
Lastly, Brandon Chaney often sees older people who no longer drive or have an extra car. Chaney says now may be the opportunity of a lifetime to sell a used car for a nice profit.
Dave Sather is a Certified Financial Planner and the CEO of the Sather Financial Group, a fee-only strategic planning and investment management firm.