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A used car, a pre-owned vehicle, or a second-hand car, is a vehicle that has previously had one or more retail owners. Used cars are sold through a variety of outlets, including franchise and independent car dealers, rental car companies, leasing offices, auctions, and private party sales. Some car retailers offer "no-haggle prices," "certified" used cars, and extended service plans or warranties.
Used car industry in the US
With annual sales of nearly $370 billion, the used vehicle industry represents almost half of the U.S. auto retail market and is the largest retail segment of the economy.[dated info] In 2005, about 44 million used cars were sold in the U.S., which is more than double that of the nearly 17 million new cars sold.[dated info]
The used vehicle market is substantially larger than other large retail sectors, such as the school and office products market ($206 billion in estimated annual sales) and the home improvement market ($291 billion in estimated annual sales).[dated info]
Used vehicle retailer
The Federal Trade Commission recommends that consumers consider a car retailer’s reputation when deciding where to purchase a used car.
Vehicle history reports
In the United States, an estimated 34% of consumers (in 2006) are buying a vehicle history report for used cars. Vehicle history reports are one way to check the track record of any used vehicle. Vehicle history reports provide customers with a record based on the vehicle's serial number (VIN). These reports will indicate items of public record, such as vehicle title branding, lemon law buybacks, odometer fraud, and product recall. The report may indicate minor/moderate collision damage or improper vehicle maintenance. An attempt to identify vehicles which have been previously owned by hire car rental agencies, police and emergency services or taxi fleets is also made. Consumers should research vehicles carefully, as these reporting services only report the information to which they have access.
In some places the government is a provider of vehicle history, but this is usually a limited service providing information on just one aspect of the history.
Used car pricing
Used car pricing reports typically produce these forms of pricing information.
- Dealer or Retail Price is the price you should expect to pay if buying from a licensed new-car or used-car dealer — retail price.
- Dealer Trade-in Price or wholesale price is the price you should expect to receive from a dealer if you trade in a car. This is also the price that a dealer will typically pay for a car at a dealer wholesale auction.
- Private-Party Price is the price you should expect to pay if you were buying from an individual. A private-party seller is hoping to get more money than they would with a trade-in to a dealer. A private-party buyer is hoping to pay less than the dealer retail price.
- Haggle-Free Price is a price at a dealer or wholesaler that is non-negotiable. The price is typically highly competitive. Some examples are former rental car companies.
The growth of the Internet has fueled the availability of information on the prices of used cars. This information was once only available in trade publications that dealers had access to. There are now numerous sources for used car pricing. Multiple sources of used car pricing means that listed values from different sources may differ. Each pricing guide receives data from different sources and makes different judgments about that data.
Pricing of used cars can be affected by geography. For example, convertibles have a higher demand in warmer climates than in cooler areas. Similarly, pickup trucks may be more in demand in rural than urban settings. The overall condition of the vehicle has a major impact on pricing. Condition is based on appearance, vehicle history, mechanical condition, and mileage. There is much subjectivity in how the condition of a car is evaluated.
There are various theories as to how the market determines the prices of used cars sold by private parties, especially relative to new cars. One theory suggests that new car dealers are able to put more effort into selling a car, and can therefore stimulate stronger demand. Another theory suggests that owners of problematic cars ("lemons") are more likely to want to sell their cars than owners of perfectly functioning vehicles. Therefore, someone buying a used car bears a higher risk of buying a lemon, and the market price tends to adjust downwards to reflect that.
Controlling used car depreciation
Car companies have a vested interest in ensuring that cars do not depreciate too heavily for two main reasons:
- Brand reputation: If a car becomes known for losing a lot of money as a used car, it scares consumers away from buying them new.
- Fleet sales: Car companies survive because of fleet sales, which give manufacturers crucial guaranteed sales that allow them to plan production volumes and achieve economies of scale that make selling cars to consumers more viable. The manufacturers sell cars in large blocks as company cars, or to leasing businesses and these deals are all worked out on the likely value of the cars when they are sold off again (for example in 24 months). Car manufacturers, lease companies and anyone with large stocks (of cars) has a vested interest in ensuring that cars do not lose value too quickly.
They often attempt to manage the depreciation through securing positive media coverage of the cars and managing supply into different sales channels (such as auction, supermarkets and dealers) so that there is no over-supply of any particular model in any geographic area.
This ensures that demand per car stays high and prices do not drop too quickly.
Laws and regulations
Geographically specific laws
In Ontario, Canada, new and used vehicle sales are regulated by the Ontario Motor Vehicle Industry Council (OMVIC).
Used cars have a statutory warranty according to the system of laws of the European Union, the so-called "Liability for defects", which lasts for 12 months.
- Flammang, James M. (1999). 100 Years of the American Auto: Millennium Edition. Publications International. ISBN 978-0-7853-3484-2.
- "J.D. Power and Associates Reports: Vehicle History Reports Are Becoming Increasingly Important to Used-Vehicle Buyers". Theautochannel.com. Retrieved 2010-08-15.
- "Kelley Blue Book - MSN Autos". Autos.msn.com. 2010-02-22. Retrieved 2010-08-15.
- McKenzie, Richard B. (2008). Why Popcorn Costs So Much at the Movies: And Other Pricing Puzzles. Copernicus Books. pp. 9–31. ISBN 978-0-387-76999-8..