There are two schools of thought to approaching a dealer about your trade. Some say to clue the dealer in that you plan on trading a vehicle early on in the process. The other side says to keep that fact from the dealer as long as possible. There are advantages to both, but I believe that the advantages for holding out outweigh the benefits of cluing the dealer in early.
I would love to have a paragraph here explaining to you why some folks think that you should be up front about the fact that you plan on trading in a vehicle. Unfortunately for both of us, none of the people that say you should seem to give a good reason for it. Maybe the thinking is that it gives you a better relationship with the sales team or specifically your salesperson or maybe they do not believe you will get any extra value for it, but that is not the point.
The main reason for keeping this information out is to extract the exact price the dealer is willing to sell you the vehicle you want that way you can get an accurate idea of what they are giving you for your trade later. This is true with both new vehicles and pre-owned ones, though for most dealers it will be most or only beneficial with pre-owened ones. As far as new vehicles go, as I have mentioned before most dealers sell their new vehicles for about as low as they can sell them right from the start. Some of them still keep a little bit though.
For instance, some dealers will hold onto certain rebates or they will not give you all of the difference between the MSRP price and the invoice price. As I have mentioned in a previoius blog posts, most dealers now sell new vehicles at Invoice Price minus the Rebate. If you go to a dealers web site and they say “Get your E-price” for instance, the dealer is probably holding onto one of those amounts. They just want your contact info before giving it to you.
If they hold onto that initially, they can add that value to your trade-in to show they are giving more to you than they actually are (we call this “blue sky”). Here is the key: Always ask to see the invoice and always ask to see the rebates. You can also find the rebates that are available online. I would make sure to compare what you found to what the dealer shows you. You may have missed some. Be aware that rebates do change regularly (usually monthly). Here is an example of how numbers can be manipulated:
Your trade-in is worth $10,000
The MSRP of the vehicle is $38,920 (and some change)
The invoice price is: $36,873
Rebates are: $3,800
Sale Price: $33,073 (36,873 – $3,800)
So if the sale price is $33,073 and your trade is worth $10,000 you should be able to trade for $23,073. The dealer might show their online price using MSRP minus rebate which is $35,120 initially ($38,920 – $3,800), but once you come in they go ahead and give you the invoice minus rebate cost, but tell you that your trade is worth $12,047. The price to trade is still $23,073 ($35,120 – $12,047), but the value for your trade is still only really $10,000. They just took the difference between MSRP and Invoice which was $2,047 ($38,920-$36,873). That’s not confusing at all is it….
Now you can see why you might want to negotiate the price of the vehicle by itself without the trade initially. Get the actual sale price of the vehicle first and then you will know exactly what they are giving you for your trade. To see if your dealer or salesperson is being honest with you then you could also include the trade early on, get the price after your trade-in, and THEN ask for the invoice and rebates to see if the numbers match up. It just comes down to your preference.
Ultimately, the purpose of either approach is so that you can compare dealers offers accurately. If you go to one dealer that puts the invoice minus rebates price right up front like we do (click here for the example I used above: http://golovegreen.com/Mobile#/Mobile/Vehicle), but another only gives you MSRP minus rebates you might think that dealer is giving you more for your trade then the first dealer when in reality the offers end up the same. In some instances you can get “more” for your trade, but end up paying more!
It can all be pretty confusing so feel free to ask me any questions in the comments and always feel free to ask to see my invoice and all of the rebates available if you come into my dealership!