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For the latest addition to our buying advice section, we're talkin' trade-ins. The trade-in is an important part of a new car deal for both the buyer and the dealer. For the buyer, the trade-in often equates to a significant down payment. For the dealer, a trade-in is a potential double shot of profit -- there's money to be made when both when the car is traded and when it's re-sold. Dealers already know how to deal with trades -- do you? This article will walk you through the basics so you'll know what to expect at the dealership and whether you should trade your old car in or take it home and sell it yourself. -- Aaron Gold

Comments
July 30, 2007 at 9:55 am
(1) Chuck Manson says:

Trading in your old car is really quite simple. Car dealers want to buy your car at wholesale or below. Used car managers usually test drive your car and then look at blue book values. Most are very familiar with what they can buy your trade-in at a car auction. They’d be foolish to pay more than their competition is paying. Wholesale minus any needed repairs/maintenance is what you can expect.

If you negotiate your new car purchase down to invoice + 1% don’t expect any more than wholesale for your trade-in. It aint gonna happpen.

Used cars on a lot have a base price and it’s composed of what they actually paid for the vehicle + the pack(dealer prep). Sales Managers try to make about $2K or more above this price. Doesn’t matter if it’s a $8K vehicle or $30K vehicle. $2K-$4K or even more is the goal. Of course, they’re going to make even more money on the financing, especially if you are going to lease a new car.

Sometimes they’ll make exceptions if you are buying a vehicle that has been on their lot for over 6 months or more. Of course, it depends on what you are trading in? If your trade-in is a Ford taurus you’re not going to sway many managers. If it’s a Honda accord, Toyota Camry etc, you might manage a few more dollars out of the manager since he wants to turn his new car inventory and he knows he can turn your desireable trade-in much quicker.

C

July 30, 2007 at 12:17 pm
(2) AndyS says:

If you want to save some money, sell the car yourself. You can look up the value on KBB.com (Kelley Blue Book), price it somewhere competitive (between trade-in and private-party-used value), and you can probably sell it pretty quick. That way you will save (potentially) hundreds to thousands over just trading it in… (how do you think the dealer makes their money? – BUYING LOW, SELLING HIGH) or just let me sell it and we will split the difference!

July 30, 2007 at 1:39 pm
(3) Julie says:

You boys sure know a lot about cars. I have a black Acura with the Gold package. It is hot, but my dad said I should get a new car. I like BMWs! But my dad Jim likes Hondas instead :(

July 30, 2007 at 2:35 pm
(4) Chuck Manson says:

Julie,

If you’re buying used, the Honda will probably be a more reliable vehicle. Cost to repair slightly lower but resale value is good for both cars.

I’m with you though. The BMW 3 series rocks. I’d love a 330XI. The all wheel drive would be good for Colorado climates but the low profile could be difficult for even the lightest snowfall. I’d risk it though. You’re only young once so get it out of your system if you can afford it.

C

July 30, 2007 at 2:40 pm
(5) AndyS says:

Julie,
Get a good warranty either way. Both BMW and Honda/Acura are very reliable vehicles, but can be VERY costly should you have to fix either. Best of luck!

July 30, 2007 at 2:51 pm
(6) Aaron Gold - Cars Guide says:

Chuck, trade-in values aren’t always that simple. Let’s say a car is appraised at $10,000, but the salesman is able to talk the buyer into taking $9,000 for it. He can still show (on paper) that they paid $10,000 for the car, with the extra $1,000 as profit on the new-car deal (which raises his commision). Likewise, let’s say a buyer insists on getting $11,000 for the deal. OK, no problem, says the dealer; he simply finds a way to put another $1,000 in the deal (say, $500 on the car and $500 profit on aftermarket equipment), and shows the car as being bought for $10,000 (so he can sell it at a reasonable cost. Of course, some dealers will put $1,500 more in the deal, show the car being bought at $10k and take an extra $500 for thier troubles. *G*) That’s why I recommend that buyers negotiate the trade-in last — makes it harder to hide the numbers and easier to get a “real” number for the car.

July 30, 2007 at 4:32 pm
(7) Chuck Manson says:

Aaron,

You’ve obviously never sold cars. I have. And I did it well.

Your first assertion is true and only reflects what I said(I assume you meant wholesale appraisal?). Your third comment about negotiating the new car price first is also true and agrees with my post(see paragraph 2).

Your second assertion assumes that the buyer doesn’t follow your “negotiate new car price first” advice. This would never happen if the buyer negotiates the new car price first which is the whole point. There is no way to give someone $1K more for their trade and then add it back on the price of the new car via “add-ons” when the price is already negotiated. Wouldn’t any add-ons be part of the price negotiations? The sales manager would never OK such a deal as buying a $10K car for $11K. BTW-Salesmen typically do not have the authority to negotiate and fix prices as they please. To do so would be suicide for any business. Salesmen cannot be trusted to negotiate their own income without oversight.

The bottom line is still wholesale. The dealer will not buy your car for more than it can buy it at auction. If you have a sense as to what wholesale(base price) is, you stand a much better chance of not getting bent over. If not, heaven help you.

C

July 30, 2007 at 4:46 pm
(8) Jeff B says:

Referencing KBB or Cars.com is fine but don’t use that as a bible. The price they show may not nearly reflect what the local market will bear. If you have access to the current “black book” it is much more accurate. Also, don’t consider that your car is in “excellent” condition. Unless it’s just had a complete rotisserie restoration and you have not driven it out of the garage yet, your car is not excellent.
Always remember, when negotiating, the first one who opens his/her mouth…loses!
Good luck.

July 30, 2007 at 5:06 pm
(9) Johnster says:

Besides Kelly Blue Book at KBB.com there is also the website Edmunds.com that lists new and used car prices. Usually the prices quoted by Edumunds are a little different than those on Kelly.

July 30, 2007 at 5:28 pm
(10) Chuck Manson says:

Jeff,

Black book? Never heard of it? Is that the publisher or is it part of NADA? We always used the NADA book. But it was a special version that wasn’t availabe online.

Johnster,

I like Edmunds a lot. I use it as a barometer. I think it’s a little high on the price side but the info on the site is quite good.

C

July 30, 2007 at 6:38 pm
(11) Aaron Gold - Cars Guide says:

Chuck — I haven’t sold cars, but was raised by a many who did. And a sales person can tell you you’re getting anything they want to. You should know the drill — the used car appraiser puts the car at $10k. But the buyer insists on getting $11k. Fine, you tell him he’s getting $11k, and move the profit elsewhere in the deal. But like you said — if you negotiate the price of the new car first, you’re less likely to have this happen.

Add-ons may be part of the negotiations, but didn’t you work with an F&I guy? That’s an excellent place for an unscrupulous dealer to add a few hundred bucks profit into the deal.

July 30, 2007 at 7:54 pm
(12) Chuck Manson says:

From your bio:

“Aaron started out as a computer science major, but soon discovered that he was lousy at math” LOL

Really, I am laughing out loud. I think it only goes to say that when you go to buy a car, know your credit score, have your own financing, be aware of what your car is worth wholesale and retail, shop online and know what invoice will be on the car you want to buy and then, just maybe, you won’t end up in the barrel.

BTW-Usually salesmen and used car managers do not participate in finance commissions. It would be foolish of a sales manager to pay too much for someone’s used car in hopes that the buyer was stupid enough to pay 12% interest in financing. Most people have shopped their credit union or bank and know what the rates are.

Allright, we’ll call it a draw!(in my best monty python accent)

C

July 31, 2007 at 8:04 am
(13) Josh says:

You may not make as money with a tradein as wiht a private sale, but it’s fast convenint and you don’t have to worry about not getting your money. That’s worth quite a bit in itself.

July 31, 2007 at 9:33 am
(14) AndyS says:

Josh,
It all boils down to your own personal decision. For me, I cannot see trading in a $8000 Honda Accord for $4000… Is the convenience worth $4000? (based on a recent experience with the in-laws) It’s like throwing money to a stranger (…and a Dealer of all people). I would rather keep the difference myself. That ‘convenience’ is way too steep for me.

Plus if you are smart about it, you never have to worry about ‘not getting your money’. Meet the buyer at your bank, have them wire funds, etc… (ask the bank about their options – they have plenty) Never give anyone the car or title without full payment and confirmation of cleared funds… even if they have to wait a while. If they are honest, they will understand. Then you won’t have to worry about it.

… just my $0.02

July 31, 2007 at 12:44 pm
(15) Matt says:

Also in GA (at least), the amount you are given for your trade is subtracted from the amount that your new car sales tax is calculated on. So by trading in, your out of pocket on tax is reduced.

July 31, 2007 at 7:34 pm
(16) Dan says:

Matt makes a good point– In Idaho tax is 6% and is paid by the buyer on the difference figure, which means that 25K trade-in saves the buyer $1500 in sales tax.

Aaron– If the buyer is educated enough to pay invoice or within 1%, then the dealership won’t have $1000 worth of profit to over-allow on a trade ($50,000 car 1%=$500 over invoice.) This is one area where http://www.edmunds.com can be a great help.

Chuck– The Black Book is a low tech version of the Manheim Market Report. They are both auction reports. I have only ever seen the Pacific Northwest version of the Black Book. I’m sceptical of its accuracy. Manheim is the only way to go for auction info (besides experience).

July 31, 2007 at 8:44 pm
(17) Chuck Manson says:

Dan,

My granddaughter in Nampa just bought a 06 Cobalt LS coupe w/15K miles for $8900. Private party. Good buy?

C

August 2, 2007 at 7:05 pm
(18) hawaiian don says:

I haven’t jumped in on this one cause Chuck’s got it right…I’m in the car biz racket too and he’s on the money…and you never expect an excellent rating on your used car…actually if you bring a printout of kbb.com most dealerships will accept it if you properly qualify your car…and they carefully explain how to qualify its value…but Chuck, how could you not have ever heard of the “black book”. It’s been around forever,but Mannheim on line is the most definitive source…finally unless you’re buying a new model or a really hot model you should never pay more than $1 dollar over invoice…but like they said above, you’ll only get wholesale at best for the trade. As to private sales…beware of people coming to your home to see your car and beware of the angry buyer who knows where you live, if the car fails to live up to your hype!

August 3, 2007 at 1:25 pm
(19) Chuck Manson says:

Don,

Don’t know how I missed the BB? I guess it’s mostly because the two dealerships I was associated with had used car managers who appraised every trade-in prior to the negotiation process. I was simply a spectator in that process but it wasn’t hard to see what was going on. And the managers always just went by the NADA book + experience. My job was to get the buyers in the box and close the deal or bring in the big guns if I couldn’t.

At any rate I still don’t know what it is and since I’ll never go back to the way of life I hope I never do find out.LOL

I also agree with having people come to your house to buy your car. I’ve sold several cars on my own and it’s like they say on the lot, “buyers are liars”. And I have a few other names for people who have tried to buy my cars. You really have to be thick skinned to wade through the creeps and jerks who will try to beat you down below even KBB.

C

ps I know how hard it was to agree with me. One of the topics of discussion between salesmen during slow days(lots of slow time) was always politics and salesmen aren’t shy about how they feel.

August 3, 2007 at 10:05 pm
(20) hawaiian don says:

Chuck it wasn’t hard to agree with you on this one…because this THIS TIME you were right!

August 3, 2009 at 3:28 am
(21) Elizabeth says:

Okay, a question for y’all:
How much of the new car’s value can be covered by the trade in?

August 3, 2009 at 12:32 pm
(22) Aaron Gold - Cars Guide says:

All of it, I suppose. Or more. If you decided to trade in your year-old Mercedes S550 on a Nissan Versa 1.6, you’d have some change coming. — Aaron

May 20, 2013 at 10:07 pm
(23) shawn says:

I have a honda accord it has a lot of miles on it and overheat. should i get it fix before i trade it in

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