Actual Cash Value of Trade-In: $10,000
Showing Value of Trade-In: $12,000
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!
For this post, I decided it was important for me to do some research on the subject considering that this is one in which I can see dealers handling the process differently. I was not necessarily surprised to see a lot of misinformation, but I was surprised to see some of the tactics that some dealers use (or have used) in the trade process. Since there is a lot of information to be discussed about this process I have decided to break this topic into separate posts so that I am neither too brief on the subject nor too long winded on it. For today, I am simply going to give you a snapshot of how the trade process should. Then, I will tell you a few things to absolutely not put up with that I found during my research.
The first thing that happens when you bring in your trade is that we will get all of the information off of the vehicle so that we can appraise it accurately. First, we will get the make, model, trim level (please, please, please refer to my blog post “What’s In A Name” about this subject), mileage, and VIN (vehicle identification number) of the vehicle. I will also typically do a quick walk-around of the vehicle myself to both make sure the appraiser sees any visual damage on the vehicle and also to make sure that he notes all of the additional options your vehicle has that adds to the value (large dealerships will usually have someone whose main job is to do the appraisals whereas our Sales Manager does all of ours).
Next, we will use the VIN number to run a vehicle report history. This history tells us multiple things about your vehicle including number of owners, number of accidents, and an odometer check making sure there has been no rollback on mileage. There is other information available such as if there were any hail damage reports, water damage reports, or, more importantly whether there is a salvage title on the vehicle.
As you might expect, an odometer rollback is never a good thing. This means that it is now and forever impossible to tell exactly how many miles a vehicle has on it. This can make a vehicle very hard to sell and therefore will likely decrease the vehicles value. Number of accidents is not as important as the severity of an accident, but if the number is high it can impact value. The importance of the number of owners depends on the age of the vehicle. If the vehicle has 4 owners and is fifteen years old, that is pretty normal, but if a vehicle is only five years old and has 4 owners that can be a sign of trouble. Not to mention that one of the first questions people ask is how many owners a vehicle has. For vehicles that are five years and newer people typically only want to hear that the vehicle has one owner; maybe two.
While the salesperson is running these reports and making sure you are comfortable, the appraiser will be out driving your vehicle. Before they go out they will do a quick walk-around of the vehicle looking for any damage to the vehicle and looking at tire wear. After that, they will make the same trip on every drive taking your vehicle through rough roads to listen for something like bad shocks. Then they will take it on the highway to listen for sounds that a rougher and louder road might cover up like tire noise.
While they are out they will also check to make sure everything works such as the air conditioning, radio, automatic windows, etc. This may seem like ways for the dealer to de-value your vehicle, but it is more so that they will know what they will have to fix. Try thinking about it like this: If you were going to a reputable dealership to buy a pre-owned car would you not expect the air, radio, and windows to work? The dealership will have to fix these little problems which will obviously cost them money.
After all of this, the appraiser will take this information and use several resources to determine the value of your vehicle so that they can make you a trade offer. I will discuss this trade evaluation process in the next blog post so that you know exactly how they will come up with your value and I will give you some tips on how to be ready for this step in the car buying process.
I will end this post with two things I read about in my research of the trade process you should absolutely not put up with. Walk out if these things happen to you at a dealership:
1. DO NOT let the salesperson or the appraiser do a walk-around of the vehicle and invite you to be with them for the purpose of pointing out every ding, dent, or minor blemish to your vehicle. They are merely trying to reduce the value of the vehicle in your eyes. This is just flat-out disrespectful. With the internet age and impact of social media, I think this tactic has likely gone by the wayside since they don’t want people openly sharing this distasteful treatment.
2. DO NOT let a dealership lose or hide your keys. I cannot believe I even had to type that, but apparently some dealerships will purposely lose your keys (I heard of one that openly threw the keys on the roof!) so that you will be at the dealership longer and they can keep negotiating with you and wear you down. Again, I imagine that this has disappeared in the social media age, but the fact that I read it on several current articles absoutely floored me.
Please leave me a comment if either of these things have happened to you.