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What Does It Cost To Trade Your Car With A Dealer?



The simplest way to dispose of a vehicle is to drive onto the sales lot of your local car dealership and proclaim, “I need another car and I’ve got a trade.” Chances are you’ll drive away a few hours later in your new vehicle, leaving behind your old car for the dealer to take care of. It can’t get much simpler than that.

The cost of doing business

Be prepared to pay a price for the convenience of not having to sell your old car yourself. How much more does it cost to trade your car versus selling it privately? Let’s take the example of a 2008 Ford Escape XLT with a V-6 and four-wheel drive. With just 45,000 miles, this Escape is in excellent condition. Because prices vary depending on the geographical region, let’s use a ZIP of 77001, Houston, Texas, and see what this top-of-the-line small SUV is worth in the Lone Star State.

We’re going to use Kelly Blue Book (kbb.com) to determine valuations. Both dealers and private sellers use KBB to determine used vehicle prices. Kelly Blue Book says this Escape in excellent condition should sell privately for $18,085. If you trade the same SUV with a dealer you can expect to receive $15,925. It just cost you $2,160 for the convenience of trading your Escape instead of selling it privately.

By the way, Kelly Blue Book says the dealer will turn around and set an initial selling price of $20,085 for this same vehicle. This is before negotiations, price markdowns, discounts, and so on. If the dealer was able to sell the car for $20,085 they would make a gross profit of $4,160. It’s not uncommon for a major dealer to spend $500 to $1,500 inspecting and repairing this kind of vehicle prior to putting it up for sale. These costs come directly out of the gross profit the dealer receives.

It’s also interesting to note that a Ford dealer has the option of certifying this Escape prior to offering it for sale. To be certified, it first has to pass a rigorous inspection with all problems fixed. Then, the dealer pays Ford a fee. This makes sense because the extended warranty is provided by the manufacturer and not the dealer. KBB says this same Escape sold as a Ford certified vehicle will be priced at $20,585, or just $500 more than one that is not certified.

Remember that these prices vary depending upon how prices are negotiated. Someone who is skilled at negotiating price will get a better deal.

Finally…

A final note on trades: car dealers work very hard to get your trade for as little as possible. That’s the nature of the business. In this day and age of the Internet, most customers know what a dealer pays for a new car before they walk onto their sales lot. This kind of knowledge has significantly reduced new car profit margins for most dealers. They need to make up that lost profit somewhere. Trade-ins are one area they can most easily increase their profit on any car deal. It’s why savvy car buyers have their ducks in a row and research trade-in values as much as new car prices before they talk to a dealer in person.

Kelly Blue Book is a website that’s worth its weight in gold for anyone wanting to trade a vehicle with a dealer. And remember to shop around for the best deal on your trade in exactly the same way you shop around for the best selling price of that new or pre-owned car you want to buy.

 
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