Roles have reversed. It used to be that customers bought used cars from their neighborhood car dealer. The dealer sells, the customer buys, and everyone is happy.
Now, everything is turned upside down. Car dealers may be desperately trying to buy the very car they previously sold you. So acute is the shortage of good, pre-owned vehicles around the country that car dealers are going to extraordinary measures to boost their used car inventories, including buying them back from their customers.
My friend Louisa
I received a call from a friend tonight. She just received a notice from the dealership where she purchased her Honda Fit two years ago. They are offering 130 percent of the Kelley Blue Book value if she wants to trade it in or sell it outright to the dealership. Initially, Louisa thought it was a good idea. Then, she thought she would check with me before making a decision.
I reminded her that dealers need to buy used cars for a low enough price to allow for some shop expense, sales commission, overhead costs, and profit. I told her if she was willing to sell the vehicle privately she could make an extra thousand or two over-and-above what the dealership was offering. Louisa is thinking about how much work she actually wants to put into getting rid of this vehicle. The dealership is making the process of trading or selling outright very easy for her, and that’s a big selling point.
Offering a percent of Kelley Blue Value is one incentive that dealers use to buy cars from their customers. Other car dealers tell their customers that they’ll pay a certain percent of the original Manufacturer’s Suggested Retail Price (MSRP). Still others simply call all previous customers in their database pleading that they trade or sell their used vehicle.
How did dealers get in such a mess? In truth, it’s really not their fault. The economic downturn drastically reduced the number of new cars being sold. This in turn reduced the number of vehicles that dealers took on trade. Trades are a big source of used car inventories that dealers resell.
A further complication is high gas prices. The existing vehicle shortage was made worse when any vehicle with good fuel economy was in big demand. This put added, upward pressure on prices of small, fuel-efficient vehicles. Now, anything that gets good gas mileage—especially gas-electric hybrid vehicles—are selling for a premium price, if you can get them at all.
What to do
So, if your local car dealer contacts you in hopes of buying back the car they sold you just a few months or years ago, I suggest you go to Kelley Blue Book (kbb.com) and check the trade-in and private sale values. This will help give you an idea if the dealer is being fair. Then, you need to decide if selling privately is worth the extra time and risk.
It may help to remember that an initial offer by a dealer is to be considered an opening gambit. The savvy car owner simply begins negotiating from that point before attempting to reach an agreement on a much higher figure.