Yesterday we saw how easy car dealers make the process of trading in a car for their customers. Simply drive up in the car you want to trade, and a few hours later you’re driving home in the new and improved model you’ve hoped to buy. Easy as pie.
But how much does the convenience of trading your vehicle cost you? You probably won’t get as much for your trade at a dealership as you will if you sell it on your own. When I was Internet Manager for a major car dealer, the issue for most people came down to how much they were willing to lose financially before being forced to sell on their own.
Kelly Blue Book
The industry standard for reflecting the actual value of a used car is Kelly Blue Book, located on the Internet at www.kbb.com. Input the particulars of your used car and KBB lets you know three important values: 1) a dealer’s initial selling price, 2) the private party value, and 3) the trade value. The lowest of these is the trade value.
Let’s take the example of a 2006 Ford Taurus with 60,000 miles in the San Francisco Bay Area. KBB offers different prices depending on the condition. For this exercise we’re using “Excellent” condition, even though less than 5 percent of vehicles qualify for this category. We do this because, in estimating retail value, KBB assumes that dealers only sell vehicles that qualify as “Excellent.”
This is how KBB.com breaks out the different values:
- Trade-in value: $5,650
- Private Party value: $7,400
- Suggest Retail value: $9,325
These figures tell us that dealers in my area are allowing $5,650 on average as a trade value for my car. Yet, if you sell the car privately you can expect to sell it for $7,400. The difference--and the cost of trading in your car with a dealer--is $1,750.
Remember that these figures vary depending on the car, the dealer, and the deal. Most dealers will offer you something less than the trade-in value listed above. If you accept this low offer, the price of trading your car with a dealer just went up. However, if you’re a good haggler and can make a better deal, it will cost you less.
Just for fun, let’s see what happens to your car after you trade it in. The dealer will turn around and attempt to sell the same car for $9,325. If they get the full asking price, they expect to make $3,675 less the cost of getting the car ready for sale (mechanical inspection and repairs) and any administrative expenses. The suggested retail value is the initial asking price, not necessarily what the car will actually sell for.
Is it worth giving up cash out of pocket to trade your car? Only you can answer that. Tomorrow we look at a few more examples to see how much it may cost you to trade your vehicle with a dealer.
The author is not only a major contributor to this website, but has written the only comprehensive book on selling your car online: “HELP! I Gotta Sell My Car NOW! New Rules for Selling Your Vehicle Online.” It’s available on Amazon.com.