The internet is flooded with information on what your vehicle is worth. You can go out to Cars.com Kelly Blue Book, NADA Guides, Edmunds, CarGurus and host of other sites to figure that out. Despite the prevalence of information, there is often wide divide as big as the Grand Canyon when it comes to what you think your vehicle is worth and what you are offered when you actually walk into a car dealership.
Why? Is the dealer trying to screw you? I know it feels that way! Perhaps some are, at times, but not always. There is a little more to it.
To understand, you need to understand how things work. Let’s assume you are walking into a new car dealership. You know the exact car you want. You’ve done your homework on your new car and your trade in.
First and foremost, understand that in most operations, it’s the used car manager who’s putting a number on your car. It’s not the new car salesperson or even the new car sales person’s manager although they will push on the used car manager to get the deal closed. That used car manager’s job is to sell used vehicles and, as part of that, to acquire vehicles to sell through trade-ins such as yours or by buying them at a wholesale auction. That used car manager supports his family based on how much profit he drives for the dealership in terms of the number of cars sold and the profitability of those sales. If he takes in a car that he can’t sell or he loses money on the deal, that directly impacts his wallet.
Factor #1 – If the used car manager does not believe that he can successfully retail your vehicle, you will likely not get top dollar from that dealership.
Dealers will pretty much take in any trade no matter what to get the new car deal done, but that doesn’t mean they’ll give you what you want. If the dealer does bend, it’s likely coming out of the new car margins. The reason being is that the used car manager will need to wholesale your vehicle if they can’t retail it. If the vehicle isn’t in clean condition, that will also impact how much the vehicle will bring at auction. He’s got to factor that in to protect himself from a loss. But here’s the kicker, not every vehicle is going to be viewed the same by every dealer. Some dealers may wholesale your vehicle because it doesn’t fit their brand image (e.g. a Mercedes store will likely not keep your 5 year-old economy car). They could be overstocked in similar vehicles. It could be a wrong fit for the market or bad timing (e.g. turning in your 2WD convertible in a snowy state in winter).
Factor #2 - Your car is only worth what the dealer can sell it for at a profit after reconditioning it.
Dealers need to make money. That’s why they are in business. At a minimum, a dealer is going to consider the following numbers: how much are other similar vehicles retailing for, how fast are they moving, how much money it will cost to fix the car up to be ready to retail and how much they need to make. These days, that last number is surprisingly smaller than you would think. The reality is that if the car you are trading in is being offered up for sale in abundance, the asking price on those competing vehicles will set a ceiling on what a dealer can give you. Say a dealer needs to make $1200 on a vehicle to be profitable. If it costs $1500 to put on new tires, buff out scratches and detail the car and other cars are being listed for $15,000, that dealer will likely offer you $12,300. Keep in mind that the other vehicles you are comparing yours to have likely all been reconditioned. A vehicle, like your trade-in, that hasn’t been reconditioned is worth less.
Factor #3 – There is a lot of guess work in assessing reconditioning costs.
When a dealer is estimating what work needs to be done, it’s just that…an estimate. Remember the last time you went to service your car and they gave you an estimate and then called back a few hours later with a more detailed quote? At the time of appraisal, the used car manager is doing an educated guess on the cost to fix issues with your vehicle. In order to hedge his bets, he needs to buffer in some costs. The more problems your car has that aren’t simple fixes, the more buffer in the reconditioning estimate.
Factor #4 – Timing is everything.
Sorry but your car, and everyone else’s, is a depreciating asset. Your car will be worth less in 45 days than it is today. If a dealer takes in your car today and still hasn’t sold it in 45 days, he’s likely losing money. With that understanding, know that the dealer will be making his decision on what he can do with that vehicle immediately. Even if you think it’s a great car, a dealer will focus on whether it can be sold in the next 45 days and for how much.
What does this mean for me as a consumer?
To really know what your trade-in can bring, you need to shop it. You will not know which dealers actually want your car unless you get quotes from multiple dealers.
Some dealers will want to buy your car, even if you don’t buy a car from them.
Some dealers will actually be able to find the vehicle you are looking to purchase particularly if you are looking for a used vehicle or the dealer sells the brand of vehicle you are searching for. Just because a dealer doesn’t have a car in inventory, doesn’t mean they can’t get it for you. This is important as there are sales tax advantages when trading in at the time of purchase.
Be realistic on the asking price on your trade. It’s fine to want the best price but understand the principles behind reconditioning, competition and dealer profitability. By getting multiple quotes, you can get a better sense of whether an offer is a good one.
Before you enter in to any car deal, check out the all-new VingoTM Car Value Calculator and find out what your car is really worth. It’s free and getting an accurate value takes just two minutes.