Buying a new vehicle can be a frustrating and overwhelming experience, especially if you have an old vehicle to trade in. You’re not only trying to negotiate the best price on your new ride, you’re trying to get the best trade-in value for your old one. Arriving at what you think is a fair value and what a dealer decides is a fair value can be as difficult as combining oil and water! There is a very good reason for this: what your vehicle is worth to another consumer is not what it is worth to a dealer. This article will explain why and provide the knowledge you need to assess your vehicle’s true market value. As a result, you’ll walk away from your next deal feeling confident that you got the best price possible for your trade-in.
Valuing Your Vehicle
There are three companies that rate the value of used vehicles: NADA (National Automobile Dealers Association), Black Book, and Kelley Blue Book. There is also ALG (Automotive Lease Guide), which assigns value to leased vehicles. Most consumers visit at least one of these Web sites to get a feel for what their vehicle is worth. These Web sites will give you the private party value, trade-in value, and suggested retail value (dealer value) of your car.
Dealer value is typically $2,000 to $5,000 less than retail value. This is often where the disconnect between consumer and dealer happens: you have one value in mind and the dealer has another. Dealer value takes into account multiple factors that could affect a dealer’s profit, including:
- Reconditioning your vehicle—from cleaning the upholstery to tuning up the engine. Reconditioning can cost a dealer anywhere from $500 to $3,000.
- Resale potential—will your vehicle realistically sell in thirty days or less? If not, the dealer is spending additional money to basically store your vehicle on their lot, eroding potential profit.
- Advertising costs—how much will dealer have to spend to list your vehicle on vehicle selling websites, local newspapers, magazines, etc.?
- Worst case scenarios—if your vehicle does not sell, can the dealer sell it at an auction and recoup their initial investment or do current market conditions and consumer preferences dictate a probable loss?
Due to new sophisticated technology tools, dealers can easily determine the current value of a vehicle based on condition, current consumer preferences ( for example: with ever-rising gas prices the demand for massive SUVs is in a spiraling free-fall), the average number of days it takes a particular make and model to sell, and more. All of these factors will contribute to the dealer value and therefore, the offer you receive for your vehicle.
Tips for Trade-In Negotiations
With a clearer understanding of how trade-in value is assessed, there are a few things you can do to prepare for trade-in negotiations:
- Think like a dealer. Take $4,000 off your car’s retail value for a better view of dealer value.
- Consider seasonality. If you are trading-in a convertible, you will get more for it during the spring and summer. If your vehicle is made for the snow, better to time your trade-in for the fall, not the beginning of warm weather.
- Consider market conditions. As mentioned before, high-gas prices are contributing to record-low SUV values, so you may want to hold on to bigger vehicles until the market changes. On the flip side, small cars are in demand.
- Consider top cars in your area. Take a look at the most popular cars on the road in your area. If your car falls into that category, you may be able to command a better price.
Understanding the differences between retail, trade-in, and dealer value, and conducting some research before bellying up to the negotiation table, can lead to a more positive and lucrative trade-in process. Arm yourself with knowledge and you’ll walk away feeling confident about any deal you make.
By Trina Larson, Automotive Avenues, Denver, CO