What Is My Trade Worth

It is one of the first questions that customers ask, but it is the wrong question. What customers should be asking is, “What is my trade really worth.” Sounds like the same question, but one word can make a huge difference. It can be the difference between a customer getting a truly good deal and a customer being made to believe they are getting a better deal than they are. There are a few keywords and some jargon to listen out for such as “showing” and “ACV (aka: Actual Cash Value).”
 What is meant by “showing” is that the dealer wants to give a certain amount for a trade-in, but they want to show the customer they are giving more. As for actual cash value, it is the price a dealer might actually pay you in cash for your vehicle even if you do not buy anything from them. The difference is that at a best price store actual cash value is something said directly to you. At a negotiable price store, it is just jargon that would only be heard whispered in smoky back rooms.
Here is the math for 2 completely different deals:
Deal 1:
Sticker Price: $20,000
Actual Cash Value of Trade-In: $10,000
Difference: $10,000
Deal 2:
Sticker price: $22,000
Showing Value of Trade-In: $12,000
Difference: $10,000
If you look at only the botton line, these look like virtually the same deal. In each deal the customer is going to pay $10,000 after trading in their vehicle. The second might even look like a better deal, because it seems like the customer is actually getting a more expensive vehicle and getting more for their trade. If the vehicle in Deal 1 and Deal 2 are the same vehicle though, what gives?
There is a difference between sticker price and an actual sales price. In Deal 1, the sticker price is $20,000 and the actual sales price is also $20,000. In Deal 2, the sticker price is $22,000, but the dealer is willing to negotiate the sale price to $20,000. Instead of simply selling a customer the vehicle for $20,000, telling the customer they are getting an actual cash value of $10,000 for their trade, and leaving the difference at $10,000, someone at the dealership realizes that the customer believes their vehicle to be worth more than $10,000.
To mitigate this situation, the dealer continues to state the sale price at $22,000 and shows they are going to give the customer $12,000 for their trade. When a dealer states that all of their vehicles, both new and used, are at their very best price available they cannot show trade value. They can only give actual cash value, because there is a tighter profit margin. A negotiable dealer has a profit margin that fluctuates more due to how much they mark-up they may have in a vehicle above the best price they woud be willing to sell a vehicle at.
As I said in my last blog post, every dealer knows what their best price is. Some just hope you will pay a little more. The same goes for trade-in value. Every dealer knows what your trade is worth. Some just hope you will take a little less. Just one little word can mean a lot. How about you? Have you ever heard a dealer tell you they are “showing” you a value? Leave a comment if you have ever picked up on it.

Why Even a Best Price Can Sometimes Change

One of the comments often heard by both customers and competitors (and remember that I was one of them) is that the “best price” is not really the best because prices can still be lowered. Yes, you will hear that the best price is really the best price today which means that it might not be the best price next week or next month. There are a few reasons for this, none of which debunks the best price strategy. Long story short: things change.

The things that can change can be big or small. A small change can simply be the number of trade-ins on a specific make or model. For instance, Toyota customers are very loyal and trade for the newest version of a make and model with the frequency of a college student and an iPhone. If we get several Rav4’s traded in for new models we will want the oldest stock on the lot moved out to make room for the newer ones.

Another example of a minor change is how long a vehicle stays on the lot. As I mentioned in my last post, there is a random phenomena that occurs that can cause a vehicle to sit on a lot longer than expected. The longer that vehicle sits on the lot, the quicker that dealer will want that vehicle to move. New inventory keeps people excited and intersted. If you come to the lot several Sundays in a row (yeah, we know you’re avoiding us) and keep seeing the same inventory, you would not come back the next Sunday.

An example of a major change is higher rebates. Once the newest model year is released the manufacturer will increase rebates on the previous model year which can make them cheaper and not significantly more expensive than the pre-owned models. If a customer is looking at a pre-owned GMC Terrain and it is $21,500, but they can get a new one for $24,000 (only about $45 a month more) there is a good chance they will go with the newer model, so the only way to keep the pre-owned inventory fluctuating is to lower the price.

There is also this funny little thing called Capitalism. It is all about what the market will bear. If the entire market, and not just a specific dealer, gets flooded with inventory dealers will start lowering their prices to keep their inventory moving to compete with other dealers. The same build up of inventory can occur if you do not keep up with your competitors.

Our dealership is always striving to give you the best price it can offer considering all market conditions. What this means is that even if our price is X amount of dollars lower than our competitors today it may not be that way next week if we are not careful, so we have to keep up with the market to keep offering you a significant discount over everyone else. Conversely, our competitors know their “best price” too. They are just hoping that you pay a little more.

Ultimately then, it is our duty to keep track of the market and continue to keep our promise to our customers; even if it means the best price for you is not the best price for us.