Making the Trade Buying a new car? Here's how to get the most money for your old one.
(MONEY Magazine) – Like a coach before a big game, I always exhort readers of this column to do price research and negotiate hard for the best deal on a new car. Doing just that has saved many a consumer thousands of dollars. But you may be losing thousands later in the game. More than half of new-car buyers with old cars trade them in to the dealer. By doing so, you could lose at least $2,000 on the deal, or considerably more if your car is in good condition. Here's how to avoid this costly car-buying mistake by selling your car directly--plus advice on getting the most for your trade-in if you prefer sticking with the dealer.
First, some background on why trade-ins can be a lousy deal. Dealers make more money selling used cars than they do selling new ones--no surprise when you consider that their typical used-car markup is 15% to 20% vs. 3% to 8% on a new car. Not only do they pay you well below what your car will sell for, but you're at a disadvantage if you try to negotiate for more. When it comes to calculating your car's value, good information is hard to find.
Used-car values, unlike new-car prices, are far from uniform. A new 2000 Honda Accord LX, for example, has an $18,450 base retail price and a $16,495 dealer's invoice cost, no matter where you shop. But if you're trading in a similar 1997 Accord, you might get anywhere from $8,000 to $12,000 from a dealer, depending on the mileage, the condition, where you live and whom you ask.
You can get estimates of your car's trade-in value from the Kelley Blue Book website (www.kbb.com) and Edmund's Used Car Prices ($9.95 for the book; free estimates at www.edmunds.com). But your dealer will likely refer to a price guide that's not sold to the public, such as his regional National Auto Dealers Association Used Car Guide. NADA has just made those trade-in values available to the public online at www.nadaguides.com. If you don't have Web access, your best shot at seeing the printed guide is to ask your lender or insurance agent. (The consumer edition reveals only the average used-car selling prices.)
NADA calculates trade-in values quite differently than Kelley and Edmund do. Consider this comparison: If that 1997 Accord LX is in good condition and has 45,000 miles on it, NADA awards a trade-in value of $12,450, Kelley $10,725 and Edmund $10,650. NADA's trade-in value assumes the car is ready to sell, which is why a dealer will pay you much less if your car has dents, scratches, stained seats or old tires. Edmund's data is based solely on sale prices at wholesale auctions, where many cars haven't been reconditioned. The Kelley Blue Book mixes auction data with surveys of what dealers pay.
Using the Kelley Blue Book website is the closest you'll come to predicting what a dealer would pay. The site lets you input your car's mileage and condition and your location--factors that can account for huge variations. If that Accord is in excellent condition, the Kelley Blue Book value rises $750 to $11,475. If that same car is sold in Southern California rather than from my home in New York City, its trade-in value goes up another $750 to $12,225--a reflection of the popularity of Hondas in California and the likelihood that the car has been subjected to more bad weather in New York.
Now that you have at least an approximate idea of what a dealer might pay, here's more on your alternatives.
Sell it yourself
Only one in five new-car buyers sell their old cars, but more should. On a car with a $10,000 trade-in value, you could net another $3,000. The challenge is coming up with an asking price. For starters, don't set your sights on getting a dealer's selling price (a number you can find at the NADA and Kelley Blue Book websites and in their consumer guides). Dealers generally recondition cars and supply a 30-day warranty; that adds as much as 10% to the value. What you want to look at is what private sellers are asking for cars like yours. You'll find that information in the classifieds or online at www.autotrader.com. Set your asking price close to the asking price for cars with similar mileage--and then expect to get about 10% less. Remember that 1997 Honda Accord? When I searched a Los Angeles zip code at AutoTrader, I found private sellers asking about $15,500 for similar cars. A price 10% below that would be $13,950, or $2,475 more than the Kelley Blue Book trade-in value for a car in good condition in Southern California.
What if you're uncomfortable selling a car directly? Here are four tips to make it less intimidating: 1) Get a diagnostic report on the car from a shop certified by the American Automobile Association (AAA), which you can show would-be buyers. (For a link to your local AAA site, go to www.aaa.com.) 2) Advertise for free on the Web at Autotrader.com and Yahoo.com; both let you request e-mail responses instead of phone calls. 3) Ask the caller or e-mailer how he will pay for the car; this can eliminate all but serious buyers. 4) Once you get your price, insist on cash or a cashier's check.
Trade it in
Even though I've sold previous cars, I know most people prefer the convenience of a trade-in. According to J.D. Power & Associates surveys, 57% of new-car buyers with old cars traded them in to the dealer. To get the best possible price--the Kelley Blue Book trade-in value for your region and your car's condition--you'll need to do two things.
Start by getting competing offers. Call dealerships for the brand you're selling and ask the used-car manager for an approximate offer. If you live near one of the 40 CarMax used-car superstores in California, Florida, Georgia, Illinois, Maryland, North Carolina, South Carolina, Texas, Virginia and Wisconsin, you have yet another option. (Go to www.carmax.com for store locations.) CarMax appraisers will give you a free on-site estimate, which will likely be below the best price you could get from a dealer, along with a seven-day commitment to buy your car.
Then shop for your new car. Only after you've settled on the price and arranged for financing should you bring up the trade. If you combine the two negotiations, the dealer may give you an above-average allowance for the trade-in to mask a poor deal on the new car.
If you decide to hire a buying service to shop for your new car, the firm will sell your old car as well for an additional fee. AutoAdvisor (800-326-1976; www.autoadvisor.com), which charges $395 for new-car buying, will shop your old car for an extra $63. CarSource (800-517-2277; www.carq.com) adds $100 to its $375 average fee to shop your old car.
Since they're selling the car to dealers or wholesalers, you'll get the best available trade-in value--probably even better than what you'd get yourself from a dealer--but likely not as much as if you sold it yourself.
Senior writer Jerry Edgerton is the author of Car Shopping Made Easy. He can be reached at email@example.com.