Ok. Time to clear some smoke and smash some fun-house mirrors!
If you didn’t read part I of this two part post – I recommend you do, before reading on. You can click here to do so: What is My Trade In Worth Part I
Go ahead… The rest of us will wait…
Now, this is going to be a bit long – so I’ll try to write quickly.
What I didn’t mention in Part I, is that RT bought the xD he was trading in for the tC, from us at Davesellscars. So he already knew about our very simple and straightforward process. However even though he knew that we don’t do business the way the “traditional” style dealerships do, he was still compelled to ask if his trade value would change. Of course his response to my answer was, “I knew that, but I had to ask.”
What we will now try to nail down is: Why!?
Why did RT feel like he needed to ask if the value of his trade-in would change, depending on whether he purchased or leased his new Scion tC?? Why? Because RT (like the rest of us) has been conditioned to think that it will.
Here’s an example of a common trade-in scenario that many have experienced in “traditional” style car dealerships. (and you still can – if you’re into self torture)
Let’s say – You go to your local dealer looking to get out of your old 2 door Jeep Wrangler and into something – BIGGER.
You explain this to the salesperson (the one that wins the foot race to you when you arrive) and without asking very many questions the sales person suggests… a Jeep Grand Cherokee… Oh boy! That’s a lot bigger!
So, you drive the Jeep Grand Cherokee, really like the Jeep Grand Cherokee and want to look at doing a deal. As a part of your transaction, you have the dealer appraise your old Jeep Wrangler. It has 85k miles on it and is in “fair” condition.
Now – Since you are a savvy car buyer and this isn’t your first visit to the circus, you don’t accept the first dollar amount offered for your trade. Nope – you negotiate… And – after some fierce fighting, a long couple of hours and some bitter “back and forth” – you get the dealer to give you $7500 for your old car… And your thinking, “Wow I’m getting $7500 for my Jeep” And because you are a savvy car buyer and did some homework (before going out to play with the clowns), you know that $7500 is very generous (about $2300 generous) according to Kelly Blue Book’s “Trade Value” (KBB.com) and you are super excited!!
Until you see the payment on the new Sequoia.
OOps! The Sequoia payment is more than twice what your payment was when you bought the Celica. Now, being almost as prudent a buyer as you are savvy, you pump the brakes and skid to a halt on the Sequoia idea as you come to the realization that – you need to be looking at a Toyota Rav4.
So, you do a full U-Turn and ask your sales person (who now seems to be running low on energy and patience) to show you the Rav4. Then you drive the Rav4 and [yes!] you like the Rav4 and you’re ready to just get this purchase put together and go home.
You sit down and wait for your sales person to come back (from revisiting with the sales manager) and show you payments that (of course) are going to be much more friendly than those of the Sequoia.
After what seems like an eternity, the sales person comes back and they’re all smiles because the numbers on the piece of paper in their hand show a payment they know you will be happy with.
You look at the paper with the numbers sprawled across it and follow the salesperson’s pen to the new payment. Sure enough – the Rav4 payment is half of what the Sequoia payment was.
You are about to get excited and shake the sales person’s extended hand when you notice something doesn’t seem “just right”. Something has changed. Something other than the name and price of the vehicle you are purchasing… Hmm… Your eyes re-read the chicken scratch that’s been haphazardly splashed across the paper with a Sharpie marker. (Sharpie – is the brand of choice for most number scribbling “desk managers” at “traditional style” dealerships) Then you see discrepancy and think, “What the Heck??!!”
You gaze at the paper for a moment, intentionally blinking several times to see if what you’re looking at will change, but it doesn’t. Slowly, you realize that you’re not mistaking… You are seeing what you think you are seeing…
Some how, while you were checking out the Rav4 – the value of the Celica went down – by $2500. Down – TWENTY FIVE HUNDRED – DOLLARS!! That’s a lot!
But hey, you’re cool… You’re calm… and while you wince to see if you’re eyes can effect some difference in the numbers, you begin to collect your thoughts. A few moments go by and once you complete your internal system check to make sure that you can speak without blowing a gasket, (or worse yet a blood vessel) you ask, “Why are you giving me less for my trade-in?
CRAZY!! But that example is based on true and real events that have and continue to happen at carnivals – I mean dealerships as a regular part of doing business.
While the answer to, “why are you giving me less for my trade?” can vary wildly, (depending how elaborate a story the salesperson and their mangers want to spin) the real answer is simple. The numbers are being played with… and here’s how.
It starts with the price.
Almost every dealer will price their new vehicles at MSRP and many of them have add ons like, “paint sealant” (AKA “Desert Protection” for us in Arizona), window etching, window tint etc… and charge extra for each added item. This makes the listed price even higher than the MSRP! Or worse yet – some will apply a “MARKET ADJUSTMENT” which supposedly takes into consideration the “high demand” or “limited availability” of a vehicle, so a premium is charged in addition to the MSRP…
I know – I know… What’s all this got to do with what we are told our trade is worth?
Well, really? Nothing – AND – Everything.
When a dealer charges for items such as “Paint Sealant” and window etching or makes a “market adjustment” to the price, they are simply adding to their profit potential. The more profit in a vehicle for sale – the more profit available to negotiate or play with when it comes to things like… Oh Yeah, a trade-in.
So how does all this fit together? Here’s the short and simple for the traditional three ring circus – I mean dealership 🙂
- Trade value and Trade allowance are two different things. Dealers buy your trade (from you) with the intent of reselling it. If the establishment you are dealing with has the traditional, “make as much profit as you possibly can on every customer” mentality, you can expect to initially be offered far less than your vehicle’s value and you will need to do the whole “back and forth” thing if you want to come close to getting a fair deal. (I hate that)
- When the vehicle you are buying is priced at MSRP or Higher, the dealer has more profit or “room to move” when it comes to what you get or what it looks like you are getting for your trade-in. For example: A “Traditional” style dealer may buy your trade-in for $1500 more than market value but won’t offer a discount on the vehicle you are purchasing. Or they may offer you a discounted price during the negotiations but in the end the price is returned to MSRP and the difference is added to the “trade-in value”.
- The more expensive the vehicle – the more profit available to play with.
- The less expensive the vehicle – the less profit available to play with. This is why (like in the example above) many folks have been told that their trad-in will be worth “xx” on this vehicle but will only be worth “x” on that one.
- If you are purchasing a used vehicle from a traditional style dealer… Who knows… Better do your homework.
And finally, a simple fix to all this madness.
Find a dealer that gives you a Great Price – Up Front – Every Time, not only for the vehicle you are buying but also for the one you are trading in. I know of one… Please feel free to call or come in and ask for Dave @ Larry H. Miller Chrysler Jeep Tucson 🙂