The other day, in my job as an auto journalist, I was driving a new Mercedes-Benz GLA SUV from the brand’s media fleet of test vehicles.

The MSRP (Manufacturer’s Suggested Retail Price) for the vehicle was about $53,000. As is the case with vehicles for media to test drive, there were many add-ons such as a premium package, with its larger touchscreen multimedia display, blind spot assist, downhill speed regulation, Apple CarPlay, interior ambient lighting, and more. It had a Burmester surround sound system and a heated Nappa leather steering wheel. Base price was $42,400.

The vehicle was perfectly fine, but I didn’t feel it was a showstopper by any means. And it got me thinking about value, if I was going to invest in a vehicle. Especially if I had $53,000 to spend.

Would my money be better spent on a used vehicle, with more years and kilometres attached to it, but perhaps more value for my money? Or was there better value in taking the new car route?

What to consider

There are several factors that will go into your decision. Obviously, off the top there’s the budget you have to work with.

AutoTrader recently ran some pricing research with Angus Reid and found that the pandemic has not impacted the majority of Canadians’ car budgets. That said, many Canadians are very price conscious.

There’s the question of depreciation on new versus used cars. A significant portion of the value of a new car is lost when it’s driven off a lot. And that new car will lose most of that value the first years on the road.

Also, car manufacturers are more and more pushing electric vehicles (EVs) to market (although the market isn’t growing as aggressively as you may have thought), so there isn’t really a huge used market for those yet.

Again, according to AutoTrader, as EVs become more popular (their data says searches for electric and hybrid vehicle types increased 19 per cent year-over-year in 2020), more will pop up in the used car marketplace.

That’s another factor for those of us looking to lessen our individual carbon footprint.

Some of the pros and cons of new and used cars

Here are some basic considerations when weighing whether to buy a new of used vehicle.

You will likely pay less for a used car than you would for a new vehicle. A used car can offer better value with lower monthly payments, says Shawn Vording, vice-president of sales at CARFAX Canada, a company that provides full vehicle history reports. CARFAX will provide a report on accidents/damage, service history, open recalls and liens against the vehicle. They also have a tool that provides an estimate of a used vehicle’s value.

“Buying used can also help you avoid many of the additional fees attached to new cars, like extra taxes” depending on where you live, he says. It may also cost you less to insure a used vehicle since that vehicle is older and can be less expensive.

When buying used, without the proper information on its history, there’s uncertainty with what you are buying. How well was the vehicle cared for under previous ownership? Was it ever in an accident?

With a new vehicle, you won’t have to worry about previous wear and tear. You’ll take advantage of manufacturer warranties, which generally speaking you don’t get with used cars, and new technologies, such as the ones that came with the Mercedes I drove. That includes safety technologies, such as forward collision warning, which continue to improve.

There is peace of mind with buying new because it comes with factory warranties, roadside assistance (though you can add that service to your auto insurance policy), plus the customization options such as colours and accessories. Some people also just love that new car smell!

There is one final option. Vording tells people that a great way to combine the benefits of buying new and used is certified pre-owned vehicles. These are typically just a few years old, have manufacturer warranties and often have lower mileage.

Weigh the costs

Of course, you want to be sure you can afford whatever vehicle you decide to buy. Wendy Brookhouse, a Financial Advisor, Money Coach and founder of Black Star Wealth, says she has a new car because she wants to keep those monthly costs more predictable.

“As a planner that focuses a lot on cash flow, I also factor in how tight the spending plan is,” she says. “The expenses around a vehicle – payments, insurance, maintenance – can make the difference between a successful financial plan with a well-funded future and living paycheque to paycheque.”

For example, a $450 per month car payment, $150 per month in gas, $120 per month in insurance, not factoring in mechanical repairs, tire changes and the like, can put the squeeze on a family.

“For a single person making the average Canadian income of $54,630, this means that at least 20 per cent of their after-tax income is going to vehicle costs,” she says. “Can the buyer withstand a major unexpected repair expense? If the answer is no, then the conversation about warranty, how long it is and what it covers will come into play.”
Auto manufacturers often offer low interest rates on new cars. With lease payments on new cars, you should be able to get lower monthly payments than if you finance the car purchase with a loan. Used car leases aren’t as common as new car leases.

On the flip side, keeping monthly payments low by extending the loan term over long periods of time (84 months in one instance, says Brookhouse) means you are financially exposed if interest rates rise. With depreciation, longer loan terms could mean the value of the vehicle drops faster than your payments to reduce the principal, meaning you could owe more than the car is worth.

Overall, there are pluses and minuses to both routes. In the end it’s about getting the right car for your situation.

To read more articles by Mark Keast be sure to read his latest article that reviews the new Mercedes-Benz GLA 250 4MATIC SUV. 

This information and the opinions expressed in this blog are based on research and interviews with the authorities identified, conducted on behalf of Allstate Canada. They have been provided for your convenience only and should not be construed as legal or insurance advice.