How much will a dealer give you for your trade in?

How a Dealer determines the value of your trade in

The short answer is car dealer are retailers. All retailers generate revenue buying wholesale and selling retail.

Dealers manipulate trade-in allowances to buy your car at a wholesale price.

 

First a little background

One of the first things a dealer evaluates as they look at your trade in is: Is this vehicle suitable for a retail sale from my lot? If your vehicle is not a potential retail unit (sale) the dealer thinks wholesale. How easily, how quickly can I sell this vehicle at a wholesale price?   Visit a large car dealer or review their web site. Look at the make, model year and mileage of the used vehicles for sale on their lot. We’re all these vehicles trade in's for the new cars they sell? Or did the dealer buy specific used car inventory to retail?  How did the dealer make the decision to “retail” these trade in's?  In many instances, the dealer decision is based on vehicle age and mileage. Although your vehicle may be in perfect shape because it’s 5 years old and has 100,000 miles the dealer would not want to retail it. The dealer does not sell 5 year old high mileage cars period. In this case you know the dealer would never want to retail your car and he will sell it wholesale as quickly as he can.

Franchise dealers make money from manufacturer warranty and service programs. To sell their own make used cars, the dealer will usually refurbish the vehicle to meet the manufacturer warranty standards. We say usually because some dealers with a used vehicle focus take more care in the refurbishing process than others. The cost of this refurbishing is included in the retail price. It's also important to remember with certain mostly import makes with certified pre-owned CPO programs the dealer makes money charging a certification fee. Sometimes this fee is charged to the consumer who is turning in a lease

 

Dealers think wholesale when they appraise a car as a trade-in. They only think wholesale for vehicles that don't measure up in quality or are not their primary brand. With no retail option, the dealer wants to wholesale at a profit to a large vehicle auction or to another dealer.

 

With the wholesale - retail relationship as background, exactly how does a dealer “put a number on your vehicle”?

How do they decide how much to give you as a trade in allowance for your vehicle?

 

There is no simple hard and fast answer. Several factors come into play.

Like any good retailer the most important factor is your future value future revenue potetial as customer. How many more vehicles will you buy from the dealer in the future? Will you use the dealer's service department?

 

Another factor is the relationship inside the dealership of the sales department with the used car department. Most dealers run these two departments as separate profit centers. Some dealers will offer generous trade in allowances because they are making an extra margin at some other place else in the potential new transaction. Many add the extra trade in allownce back into the new car price or they know they are making "back end profit" from financing or a manufacturer incentive.

 

Dealers manipulate 'trade-in allowances' as a new car sales strategy.  They do this to disguise the fact that they are buying your car wholesale. A trade in sales strategy allows a salesman to “tell you what you want to hear” about your car.  The 1^st rule of selling is to get the customer to agree with you. If a salesperson senses your primary interest is a large retail “discount”, the sales person will play your trade in that way.  They will show you a large discount from the sticker MSRP and a smaller trade in allowance. However, if the sales person reads you as a proud car owner. Someone who takes care of your vehicle and knows its condition and what your trade-in is worth. A good sales person will present the discount versus trade in number differently. In this case, you will get more for your trade but less of discount from the sticker. The bottom line is the actual cash difference what you will pay for the new vehicle will be the exact same number. If you are only looking at monthly payments unless you are a math whiz you will never know really know what was the value of your trade in.

 

SelectCar advises consumers to always look at your trade in as if it were a stand-alone cash transaction. Remember that a dealer as a retailer is buying your car at a wholesale price. You can get more if you want to be the retailer. However be sure to calculate the extra sales tax you will pay from not being able to apply the value of your trade

 

You can always get more if you are willing to do the work and sell the vehicle yourself. If you take the time to clean, refurbish and photograph your car. You will then need to advertise it and answer phone calls and emails from both the tire kickers and qualified buyers. Finally you will have to go on test drives and sell it yourself from your own driveway. For doing all this work you deserve a retail price. You will always get the most selling (retailing) the car yourself. You are doing all the work, you are the store and there is no middleman.

However if you are not willing to do all this work, your trade in allowance is essentially a wholesale transaction to car dealer who is a retailer.

 

If you disagree with any of this "trade in" thinking, think through this possible car dealer experience. Think of this as a trade in "experiment"
This is one way to determine the actual cash value of your trade in. We are not recommending that you do this because it is a "make work exercise" for a car salesman. You won't make any friends at a car dealer if you actually do this experiement

Go to dealer and pretend to buy a car with your vehicle as a trade in.

After the deal is written up with a cash difference, tell the dealer that you have changed your mind about buying the new car but you still want to sell your old car for cash. Ask the dealer to write you a check for the trade in allowance price on the transaction. The amount the dealer will pay you in cash at that time is the true value of your vehicle.