Mistake #5 – Not Working as Hard On The Trade Value As The Selling Price

February 28, 2011

The Internet has changed how we buy cars. It’s no longer that unusual to buy a vehicle at the dealer’s invoice cost or below. This has resulted in a dealer’s profit margin being reduced from the glory days when margins were high and selling was easy. The Internet and the economic downturn have changed everything, including how we buy cars.

One area that car dealers can make up lost profit is by allowing less for a customer’s trade-in. Don’t go to sleep on the value of your trade. Not doing proper research in this area can literally cost you thousands of dollars more than necessary.

This is the last in a series of articles on the Top 5 Mistakes New Car Buyers Make. Today we learn that the value of your trade is key to making sure that you get more than a good deal when you buy your next vehicle.

Kelly Blue Book, the blue-ribbon standard

I always recommend that buyers pre-negotiate the selling price of the vehicle they want to purchase before they ever step foot into a car dealership. The same is true for your trade. How do you know what value to shoot for? The industry standard for reflecting the actual value of a used car is Kelly Blue Book (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 2008 Ford Taurus SEL with 50,000 miles. 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 for this Taurus:

--  Trade-in value: $11,200

--  Private Party value: $12,805

--  Suggest Retail value: $14,605

These figures tell us that dealers in my area are allowing $11,200 on average as a trade value for my car.  Yet, if you sell the car privately you can expect to sell it for $12,805. The difference--and the cost of trading in your car with a dealer--is $1,605.

Big differences        

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.

Also remember that you’ll make a better deal pre-negotiating the value of your trade via email. Provide the dealer with the Vehicle Identification Number (VIN), the miles and an accurate description of the condition. They’ll resist giving you a figure, but trust me, no matter what they say they know within a few dollars what they will allow as a trade value without ever seeing the vehicle in person. Yes, they need to confirm the condition in person, but don’t believe any sales person when they tell you they can’t give an accurate price range over the telephone. They are trained to say that but it’s simply not true.

You should also use the biggest negotiating advantage you have: you will NOT go into the dealership until you get the information and pricing you need. If this dealer won’t provide it then you’ll work with one who will.

Good luck.

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