Here at Edmunds.com, we get a lot of questions about buying cars from three sources:
- "Program cars" also known as finance, factory or executive cars
- Used cars from rental car lots
- Used cars with salvage titles
In our eternal quest for deals on wheels, we decided to take a closer look at these cars. Can you get a good deal from these sources? Will they make solid, dependable transportation?
For the inside scoop, we talked with two executives from Automobile Consumer Services Corp. (ACS), Larry Lovejoy, chief operating officer, and Tarry Shebesta, president. Together, these two gentlemen have several decades of experience buying and selling cars. For an additional perspective, we also talked with John Mallette, owner of Face Lift Inc., an auto body shop in Long Beach, Calif.
Program cars have been owned by the manufacturer and given to employees for a short time to use for company business. The idea is to have a Ford employee, for example, drive a late-model Ford to advertise the company's product. These cars are maintained by the factory and usually sent to auction before the odometer turns 10,000 miles. The cars are sold to Ford dealers at closed auctions and then put up for sale on the car lot advertised as "program cars."
"Dealers like these cars because they can get them at low prices and then sell them at a good profit," Lovejoy said. "Besides that, they always get the service they need because they can work on them in their own shops."
Lovejoy said these cars can be a great deal for the average buyer. They have been well-maintained, so in essence you are buying a nearly new car with no worries about mechanical problems. Furthermore, some dealers might extend the warranty for the full term or you can drive it under the balance of the warranty.
So how would the average consumer go about buying a program car? Just call used car dealers or check the ads. "Dealers are proud to advertise program cars."
However, knowing what to pay for the car is a problem because "You have no idea what the dealer paid for it," Lovejoy said. However, he added, you should never pay more than invoice for such a car. Or you could consider assigning a certain value per mile the car was driven and deducting that amount from the invoice price. For example, lease cars that are over mileage are charged 15 cents a mile.
"The deals are there," Shebesta said. He bought a finance car from a dealer he knew. It was a BMW with 3,740 miles on it, and got it for $1,400 below invoice.
Bob Sykes, a video producer who lives in the Los Angeles area, wanted to buy an Infiniti SUV, but didn't want to pay the $36,000 sticker price. Instead, he was shown an executive car, with 14,000 miles on it, by the salesman at the dealership. He was able to buy the one-year-old car for $25,000.
"I looked up the price on Edmunds.com to get an idea what they were going for," Sykes said. "I feel I got a great deal. But there were a few negatives: They had let the registration expire so I had to get it reregistered after only three months and that was a $700 hit. Also, it needed new brakes. But still, I'm going to look for a similar deal my next time buying a car."
Former rental cars sometimes turn up on used car lots advertised as "program cars." This will be revealed if you check the vehicle identification number through a vehicle history report company such as AutoCheck or Carfax. For less than $50, you can run the VINs of cars you are considering buying. A vehicle history report will tell you who the previous owner was, whether the car has a salvage title and if there are any outstanding recalls on the vehicle.
Rental Used Car Lots
Both Lovejoy and Shebesta see nothing wrong with buying used vehicles that have been used as rental cars.
The oft-cited criticism of former rental cars is that the drivers who rent them abuse them. That might be true in a few cases, Lovejoy said. But there are other benefits to offset that argument.
"Those (rental) companies take good care of the cars," Lovejoy said. "And the rental car agencies buy them right to begin with at net, net, net numbers (invoice price minus the hold back, minus the advertising costs and the like). But for peace of mind, you would probably like to have a third-party inspection because not all rental cars are alike there are some plums and some peaches."
In an Edmunds.com story, two editors went used car shopping. One of their stops was a rental agency used car lot. They found the prices to be competitive. Furthermore, the vehicles are only one year old, so the balance of the warranty is still in effect.
Salvage Title Cars
Mention to a prospective buyer that the car has a salvage title, and they run in terror. Still, others have owned these cars and driven them for years. What is a salvage title and can these cars ever be a smart buy?
When a car has been severely damaged (either in an accident, or because of a flood or theft) the insurance company estimates how much it will cost to fix. At some point, the cost of repairs is more than the car is worth. Therefore, the car is often sold to a salvage company and used for parts. To protect future buyers, the car is given a salvage title.
In some cases, the salvage company, or an enterprising body shop, might fix up the car and try to sell it. Naturally, the price of the car will be below similar models' because it has a salvage title. The danger is that the car was improperly repaired. The biggest problem is with the alignment of the wheels if the frame has been bent, it is difficult and expensive to straighten. A bent frame will cause abnormal tire wear and improper handling characteristics.
"Some states require (totaled) vehicles to be branded as salvage cars," Lovejoy said. "But if it is sold in another state, and re-titled, it can be sold to Mrs. Jones as a straight-up used car. She doesn't know it has been cut together from pieces of different cars."
Both Lovejoy and Shebesta advised extreme caution when considering the purchase of a car with a salvage title.
"I know of some cars that have gone through body shops and been made into drivable cars," Lovejoy said. "But keep in mind that if you buy a salvage title car, the chances of selling it to someone else and recouping your money are very slim. If you buy a salvage title car, you might want to count on keeping it until the wheels fall off."
John Mallette, from Face Lift Inc., also advised buyers to be cautious. However, he added, "sometimes it works when you're dealing with a theft recovery where there was little damage. You might save $3,000, $4,000, $5,000. But you will lose that right off the top when you go to sell it."
If you are looking for savings, Lovejoy and Shebesta said buyers might save big-time by going to a repossession or donation auction. You can't test-drive a car there, but you can start it up and shift through the gears to make sure the transmission is working. If you go this route, Lovejoy advised that you bring a mechanically inclined friend to look it over.
Mallette said his best buys have come from spotting cars with "For Sale" signs in the window. "I like cars that people are trying to get out of," he said. "Like if a kid is going off to college, I might be able to get that car cheap. And chances are, it's a little Toyota Corolla or something. People are always looking for a car in that price range."
When buying an older used car, Mallette always takes the car to a mechanic for an inspection. "I still spend the $50 to take it to a mechanic. Not because this person might be trying to get over with me. He might say it's in great shape but he might not know that something's wrong with it."
Before taking it to a mechanic, Mallette pre-examines the car himself. He looks at the transmission fluid (does it smell burned and look brown rather than pink?) the engine oil (beware of a car whose oil has a metallic look) the color of the antifreeze (it should be green) and the fan and timing belt. Finally, he checks to see how much gunk is built up on the inside of the exhaust pipe a heavy deposit might indicate worn valves or piston rings.
As a closing note, Shebesta steered prospective buyers back to the old favorite: buying from a private party. When you buy a very old car, the most important factor is how it has been serviced. Only the previous owner can tell you the car's recent history.
To find a dealership that knows how to treat shoppers right, please visit Edmunds.com's Dealer Ratings and Reviews.