Car dealers have a bad reputation for good reason. After working as Internet Manager for a major car dealer, I liken the business to a shark tank where only the strongest survive. This leads to an approach where car dealers and their sales staff use tricks to get more money out of customers than they want to pay.
The specific trick we’ve been investigating is the Independent Trade Value. Dealers provide, via their website, figures from an independent authority offering the value you can expect for your trade. It’s an actual company, but the values they provide are wholesale values, or what a dealer can expect to sell the car for at a wholesale auction. The dealer does not tell you that this price is well below the generally accepted standard you can expect to get for a car in good condition when you trade it in at any other dealership.
Never begin the process of establishing a value for your trade at a dealership or on their website. Instead, go to Kelly Blue Book (www.kbb.com), which provides the actual used car values for each geographic area. Let’s take the example of a 2006 Honda Civic EX sedan with automatic transmission and 50,000 miles.This is how KBB.com breaks out the different values for this car:
- Trade-in value: $11,300
- Private Party value: $13,580
- Suggest Retail value: $15,780
The Trade-in value is the amount car buyers can expect to receive from a dealer for a trade-in vehicle in your area. Why would you accept less than someone else is getting for a similar car? If you want to do the extra work and sell it privately, expect to receive the Private Party value and be rewarded with a larger return. In this case, selling your car privately will net you $2,280 more than trading it in.
The final figure, the Suggested Retail value, is the price a car dealer initially sets as the selling price for a comparable car. It’s interesting to note that if a dealer allows $11,300 for a trade and turns around and sells the same car for $15,780, they’ll make a gross profit of $4,480. Reality is usually not so generous. That profit is reduced by the cost of getting a car ready for sale, negotiations, normal price reductions, special sale events,and administrative costs.
The Independent Trade Value Trick
Problems arise when dealers try to trick customers into trading their car in for less than the going rate to increase their profit margin. For example, I just went online and pulled off figures from a dealer who uses an independent source to value trades. The trade value they gave me for the example we’re using--a 2006 Honda Civic sedan, auto, and 50k miles--was a range between $6,860 and $9,695.
The price quoted may be fine if I’m bringing in a clunker the dealer won’t be able to resell on their sales lot. These cars are taken straight to wholesale auctions and dealers get what another dealer or wholesaler is willing to pay. In this case, somewhere in the range quoted.
However, if I don’t do my homework and accept this auction price for my pristine Honda Civic, I’m leaving thousands of dollars on the table. At the high end of this range I’m losing over $1,600, or 14 percent compared to what I should get. If I were to accept this website’s lowest value (and some people do), I can expect to lose over four thousand dollars, a whopping 39 percent less than the going rate for this car.
Be Prepared--Do Your Research
It’s up to car buyers to be prepared when buying or selling cars. This means researching the price of the vehicle you want to buy--and your trade--prior to walking in the front door of your local dealer.Here at BestCarBuyingAdvice.com, we’ll do our best to help. Stay tuned in the coming weeks for a series of articles on Car Dealer Tricks. To be forewarned is to be forearmed.