Buying From A Car Dealer: Getting The Most For Your Trade

October 24, 2010

The world of car sales—private sellers or at a dealership—is like the Wild West. It’s free-wheeling and whoever does the best job negotiating the terms of the deal, wins.

It’s the unpredictable nature of the business that turns off many people to selling vehicles themselves. The results is that many Americans take the easy way out and trade their vehicle with a dealer rather than venture into the realm of selling their car privately.

Trade your vehicle

The simplest way to dispose of a vehicle is to drive onto the sales lot of your local car dealership and loudly proclaim, “I need another car and I’ve got a trade.” Chances are you’ll drive away four or five 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.

However, be prepared to pay a price for the convenience of not having to sell your old car. How much more does it cost to trade your car versus selling it privately? Let’s take the example of a 2006 Ford Taurus SE with standard features. Kelly Blue Book ( says this car in good condition and with 48,000 miles should sell privately for $7,200 in my home turf of the San Francisco Bay Area. (Prices vary depending on the geographical area.) If you trade the same car with a local dealer you can expect to receive $5,825. It just cost you $1,375 for the convenience of trading your Taurus instead of selling it privately.

By the way, Kelly Blue Book says the dealer will turn around and set an initial selling price of $9,450 for this car. This is before negotiations, price mark downs, discounts, and so on. If the dealer was able to sell the car for the full price of $9,450 they would make a gross profit of $3,625. 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.

The wild west of car sales

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 Wild West. In this day and age of the Internet, most customers know the dealer’s invoice cost of 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.

Good luck.

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