Does Car Inventory Make A Difference?

Diane and her husband are saving to replace their minivan. She has been told it would be a good idea to buy a new car instead of used due to the inventory levels. Is that true?

QUESTION: Diane in Pennsylvania and her husband are saving to replace their minivan. She has been told it would be a good idea to buy a new car instead of used due to the inventory levels. Is that true? Dave has a few reasons why he says otherwise.

ANSWER: That’s not true. There aren’t any inventory levels. As a matter of fact, inventory is really slack on a lot of brands. They haven’t been producing as many so they don’t have them available so dealers are holding their margins on some brands. I talked to some car dealers the other day and they’re having trouble getting cars. So they don’t have too much inventory. They cut production back when the recession hit and they don’t have inventory.

I don’t know where you’re getting your bad information, but that’s bad information. The bottom line is that a new car is going to lose 60% of its value in the first four years. The average millionaire doesn’t drive a new car. I would not recommend you buy a new car unless you have a million-dollar net worth. I have bought new cars, but I’m in a financial position where it doesn’t really matter. But when I was coming up to that, we always drove used and beat-up stuff.

Your best buy, the sweet spot financially—if you’re not considering anything but the math—is the two-year-old car because it’s lost most of the value that it’s going to lose, and it’s still got a ton of life left.