The Trade-in - Why You Lose and How To Win

 

 

 

 

 

One aspect of an automobile purchase that is omnipresent the vast majority of the time is the "trade-in" vehicle. The problem is that with the illusive "trade-in allowance", you usually lose the battle, and here's why.

I have bought hundreds upon hundreds of automobiles and trucks from many different sources: auctions, private individuals, wholesale dealers, rental car companies, and through trade vehicles presented at time of purchase. Whereas, the typical American car consumer buys one new or pre-owned vehicle about once every 5-6 years.

I have alluded in the past to the fact that while some of you may be smooth operators and decent negotiators to include automobile purchases (as far as you know) believe me when I tell you that you are in no way, shape, form, or regard going to win the trade-in battle a very high percentage of the time. The reason is because you lack the experience, expertise, and tools with which to arm yourself in order to be effective against a seasoned dealer and buyer. Dealers are armed with integral tools, such as: auction software, wholesale buyers a phone call away, lists of customers looking for specific makes and models, appraisers who can spot prior damage and mechanical issues, Carfax reports, and the resources to negotiate with you. This list can be a definite advantage and intimidating.Like anything else, however, if you are armed with the "insider" information, you stand to make a much more fiscally responsible deal for yourself.

So, I am going to give you some tools and advice that is worth thousands of dollars just for taking the time to read this article!

Allow me to bullet point some very useful tools and fact for your war chest as it makes it much easier to digest:

1) Accept the premise that your trade is worth far more to you than a dealer. Most people have an emotional affinity for their trade vehicle, and that affection can cost you money! Cars and trucks are metal - nothing more - and they are a depreciating asset, which means that they are worth less money tomorrow than they are worth today. Dealers have a nearly endless supply of vehicles at their disposal, so you have to make yours stand out.

2) Trading a vehicle is a business transaction part and parcel separate to purchasing your new car or truck from a dealer. Treat it as such. Car deals become convoluted when you treat the sale of your vehicle as a one-in-the-same purchase of their vehicle, and that is when you begin to lose money.

You are selling your vehicle, and the dealer is the prospective purchaser. Handle this transaction first!

Believe me, the dealer will want to lump both transactions together in a nice little "convenient" package. The manager is going to make it "much easier" for you. Buyer beware! Two transactions and two separate agreements will ensure that you optimize your money.

3) Like any other "dealer", prepare for your vehicle sale in order to maximize your return. Vehicles do not sell for two reasons and two reasons only: price and reconditioning. In the case of selling your vehicle to a dealer, it is highly important to come in with a clean vehicle - not only a clean vehicle, but one that smells pleasant as well. Nothing will devalue a vehicle more than a bad smell. Furthermore, service records pertaining to your vehicle make you money, as do safe tires, operator's manual, an operational inflated spare tire, and a clean engine with clean oil and air filter. In other words, you have become the dealer here, and you are peddling your wares just as the car dealer. It is important to build value in your vehicle for its good merits. This maximizes your profit from your sale.

4) It is important to realize that the market dictates much about your trade-in vehicle. As a used vehicle buyer, I have always classified my inventory into discernable groups. In my case, I classified vehicles simply as A, B, C, and D units. These classifications are based upon a vehicle's retailability, propensity to age in inventory, and condition. As you can readily imagine, the A and B units are going to drive the highest purchase price and return by default.

Let me provide an example: let's say that one of your family members became elderly and had no use for their 2007 BMW 535 because their sight was not keen enough to drive anymore. They leave the car in the garage, it's a desirable color called Alpine White, all equipment works perfectly, all inspections have been performed, and it has incredibly low mileage right at 18,000 miles.

How would you classify this unit?

If you answered, "A", you would be correct! It is in pristine condition, even though it is almost nine model years old, the mileage is fantastic, and it has been garage-kept. Doesn't get much better than that!

For the dealer, he/she sees a unique, one-of-a-kind piece that will turn (sell) quickly and will not likely accrue any carrying fees of note, as well as being a vehicle that is very desirable to their client base. In fact, while the buyer is walking around your vehicle, it is very likely, if not probable, that all of the sales consultants are seething at the mouth and starting to call customers looking for just such a prized unit.

5) Reality check! Speaking of classifications, there are a lot of "C" vehicles on the road, and you may own one. Hey, that's ok! "C" cars are typically what all of the police departments, rental car companies, and transportation services utilize. That means you own a vehicle high on the dependability scale, but the downside is that the supply of these vehicles are through the roof. Thus, a clean "C" vehicle with average miles and no damage brings very average money.

In other words, you (as a consumer and seller) need to be realistic when it comes to your monetary expectations regarding the marketability of the car you are selling. This has everything to do with what will drive your "trade allowance", aside from all of the other aforementioned variables.

6) Try a private party sale first, folks!

If you are going to become "the dealer", even if just for a short time, doesn't it make sense to maximize your return and reduce your overall expenditure?

Autotrader is a wonderful source that will bring a serious buyer, and I recommend it strongly. Facebook and Craigslist are also viable tools. And don't forget a nice "For Sale" sign in a strategic and legal parking spot can bring a ton of activity. Another great option before you say 'oh, that's a pain', is to consider paying a competent friend or relative a selling fee to handle most of the transaction for you. It's worth the effort and eliminates the whole process of you trying to outwit a car dealer who has their sights set on getting your car for the least amount of money while selling their to you for the most amount of money.

7) Speaking of the third-party automotive sites, a little time spent in front of your computer can also translate into making additional hundreds and possibly thousands of dollars selling your vehicle.
Doing your due diligence of research is integral to a positive outcome in this whole process.

First, look for your make and year vehicle out there within a reasonable geographic area. Try using a 100-mile radius and look for the comparable model with comparable miles and equipment. It's kind of like shopping for real estate when you hear a home appraiser mention "comps". In our case, you are seeking out comps to justify what you will settle upon as far as price. You are looking to see what the market dictates on your unit.

Remember, price is a tricky thing.

Having that innate, emotional attachment to that vehicle can skew your pricing judgment. Buyers typically first react to price. Naturally, you know how well your car runs and how good it smells and its history, but buyers - even you - tend to look first at price. Use good judgment. If you find out that your car is a "C" car and there are three full pages of comps pretty much just like yours, you had better excite someone with a very competitive price to garner activity. If not, that car will continue to sit. No lookers, no drivers, no sale.

Conversely, if you legitimately have a one-of-a-kind piece and can justify the value, it is completely fair to ask for a premium price. Keep in mind, dealers are buying and selling the same way, but on a more industrial scale.

Also have a look at Kelley Blue Book for pricing guidelines as it can be of great help and it is an objective third-party source that people generally trust and respect. While not perfect, it can get you into the ballpark.

8) Whether you are selling your vehicle to a private party or to a bona fide car dealer, you or your representative needs to be prepared to present the vehicle to the buyer in an effective manner. This step is very important and can make a definitive difference in your financial return. In other words, you become a salesman.

Let me clue you in to the typical trade-in process: after having a look at the vehicle and maybe taking a drive, the salesperson enquires about "your trade". You advise him that you do have a trade and most salespeople then retort that they "will have their used car manager put a number on it" for you. This seems to be the typical and remedial course of action for most dealerships. It is ill-advised, nut normal.

I can tell you with a great deal of certainty that their "manager" does not want to talk to you or have you present when they appraise the car or truck. Too bad...

Here's how to take control of your destiny and how to proceed with some very simple but effective word tracks:

a) "Yes, I do have a vehicle that I am interested in selling to your dealership. The vehicle is a (year, make, and model) with xxxxx miles, and I have brought the VIN number for you."

At this point, you look like a well-informed consumer and appear armed to take control. If the sales consultant is seasoned, he/she will likely tell you how much they "like an educated customer". If they do, they are being passive-aggressive. They don't want an informed customer that is going to control the situation. They see their commission dwindling.

b) "May I speak wtth your used vehicle buyer to tell him about the vehicle I am selling?"

Now, you look like  a real pro because you have politely taken the subjective sales consultant out of the mix and have gone directly to the source with the money and authority to buy. Sales consultants have virtually no decision-making authority, whatsoever, in the car-selling process unless they are a top performer with some autonomy, and that is rare. At this juncture, you have definitely turned the tide in your direction as the sales manager and sales consultant know you intend to negotiate in an educated fashion.

c) "Hi Mr. Manager, I wanted to speak with you about the vehicle I am selling."

O.K., here is where it can get tricky.

You have done a great job surpassing the non-decision makers, but now you are in front of someone that truly does not want to talk with you.

In a perfect world (for the dealership) the used car manager wants the sales manager to toss him the keys to your vehicle so he can discreetly ask him "what vehicle you they trying to buy, how much does he want for the trade, do they owe anything on the vehicle, who's the salesman, and how does the wife look?" All of these variables are irrelevant. In fact, the less they know, the better. It will influence their decision and be detrimental to you.

Don't allow this to happen! You are now the salesman. Once you meet the appraiser, have a seat and tell him a bit about the vehicle. Mention the year, miles, service records, previous owner(s), dependability, upkeep, repairs, etc. Then, invite him/her to accompany you to the vehicle. When you arrive, walk around the vehicle and point out the pluses and obvious minuses. Being overtly honest tends to make most people feel obligated to fairness.

Next, invite him/her to drive the vehicle and volunteer the keys. If they invite you along, great. If not, allow them the space to evaluate and appraise the vehicle. This is fair. (As a side note, if you are attempting to sell the vehicle to a private party, always accompany them on a test drive. Letting a dealership manager drive is fine. They are insured.)

d) "So, how did you like the vehicle? Is it everything that I described? Do you have any further questions about it that I can answer?"

At this point, the used vehicle manager has already looked at his auction software, knows his inventory needs and wants, has possibly spoken to a vehicle wholesaler, and has run a Carfax to see a history. In other words, he has arrived at a figure that is referred to as ACV (Actual Cash Value), and he is trying to make a beeline back to not being bothered. However, on his way, he will stop by the sales manager's office and give him that ACV figure in order that he be prepared to work his/her car deal. Also be advised that as confident as your sales consultant may be about the great "allowance" they are giving you, an informed manager will not allow the salesperson to know the ACV. The manager's first goal is profit and subsequent goal of moving a unit.

An allowance and ACV are two entirely different measures. The allowance figure, especially when you convolute the two transactions, is the amount of money that the dealer is allowing for your vehicle and should be the trade figure recorded on your buyer's order or purchase agreement. In other words, the dealer may be allowing $15,000 for your trade, but the ACV is actually $12,000.

I know, I know! You are saying, "how can they do that?" We will address that later in another article, but just know that the number you seek is the ACV - how much they are paying for your vehicle in real dollars. Discounts, rebates, dealer cash, participation, trunk money, blah, blah are immaterial for our purposes right now.

9) I am not a fan of clichés, but this is absolutely true in the marketplace: a vehicle is only worth what someone is willing to pay. What you perceive to be the vehicle's worth is somewhat immaterial. Prices are subjective. While all sources say that your vehicle is worth $15,000, maybe you live in a depressed area and the demographic market will only bear $13,000 real money. Remember, there is no sale until you have cash in hand.

THIS is why it is so incredibly advantageous for an amateur car buyer (which you are) to separate their transactions as it were. In fact, were I you, I might suggest this approach when you decide on your next probable vehicle: give the dealership a call or introduce yourself to a personable sales consultant of your choice. Once you have a contact person, let them know that before you can proceed, you need to sell your existing vehicle.

In this process, do yourself a favor and do not volunteer any more information than possible. Knowledge is power, and when you give a slick salesperson information, they can readily use it in their favor. You are not sure of your payoff amount; you are not sure exactly which model you are considering. Your only goal is taking the first step in the process, and that is to get the best offer on your vehicle as possible, and the dealership is not the only shopper out there.

In conclusion, keep in mind that time is on your side. I have always told my customers that they will achieve the best deal possible if they are not in a hurry and certainly not unprepared. When time is short and you are desperate, your chances of a preferred outcome reduce exponentially.

Thus, make an appointment with a local dealer and do as I described. You should walk away with an offer on your existing vehicle that will likely be good for 30 days. If you have not already, take that opportunity to get the best offer possible from all your sources. It may literally pay you an extra $2000 to do so, and that is substantial considering the nominal fees required to advertise.

You don't have to be an expert to play in the dealer's sandbox, but being armed with the insider information certainly helps when put into practice.

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