The trade-in, the anathema of the automotive world. Everything comes back to the trade-in. Consumers and sales representatives square off, staring eye to eye: the former wants 15 000$ for the trade-in, the latter stifles a chuckle who buys junk cars and says it doesn’t even retail that high! This is the scene currently going on in multiple dealerships all over the world.
For example, somewhere in Vermont:
Client: It only has 34k miles on it, and it is a convertible
Sales Rep: It is definitely well maintained, but remember, this is January, not much call for a convertible in the middle of January in Vermont.
Sales Rep: Well, something about the snow. To say nothing about the double digit minus temperatures.
**Sales rep makes a few calls**
Used car manager: I don’t want it.
Lewis Used Cars manager: I don’t want it
Johnnie Donnie Autos manager: hmmm, maybe I can get you 10,000$ but I am doing you a favor
Snowy Mountain Automobiles and Trucks manager: look I ain’t buying now, but I’ll give ya 18,000 if ya still got it in March.
**Sales Rep hangs up**
Sales Rep: We got 10,000$…
Client: What?! You people are crooks! I saw some on the Internet advertised at 35 000$! C’mon honey, we’re leaving.
Who is right here? Is the sales representative right that a convertible in the middle of a Vermont-esque January is a tough sell or did he or she not try hard enough? Is Mr. Smith wrong in thinking his car is worth 35,000$? We can tell you that the most likely scenario is that an indignant M. Smith will go home, take pictures of his car, pay to have it advertised on the internet and in papers and magazines; he will likely have to wake up Sunday morning early to go test-drive the car with a total stranger on more than one occasion a stranger who may not even be that interested in buying M. Smith’s convertible. And what does M. Smith DO when the “stranger” offers to buy the car and offers him a personal check? On the other hand, the sales representative has obviously lost a sale because when M. Smith does sell his car, he certainly is not going to return to that dealership. Worst, M. Smith will tell his friends and co-workers about the experience which may translate into even more lost sales. So again, given that the overall result will have unfortunate consequences for both parties involved, who was right in this situation?
From experience, I can tell you that a convertible indeed loses about 10% in retail value in the winter months of northern states and close to 15% in trade-in value over the same period. It also gains 10% of value in the spring in both retail and trade-in value. So in the fictitious case above, it appears M. Smith is at fault and does not understand the market. But the intent of this article is not to point fingers. It’s a story, after all.
The point is to highlight the important factors that determine the trade-in value of a used car. Most of these variables are self-explanatory.
So here we go, each factor is listed in order of importance. By the time you are done reading through, you should have a clearer idea of what truly affects a trade-in’s value. This will help you plan ahead by taking good care of the car you have now in anticipation for the time where you will want to trade it in. It will also help you buy a new car today that will be a great trade-in candidate in the future. Finally, it will prepare you to negotiate your trade-in’s value if you are currently buying a new car.
Your trade-in’s value is determined by:
1. How well your car’s brand is doing right now.
When SAAB declared bankruptcy, SAAB trade-ins lost at least 40% of their normal trade-in value. Jaguar and Volvo are two brands that are currently struggling (along with many others) in new car sales and this hurts their resale value. Saturn trade-ins are barely worth anything today. It’s simple, if there isn’t a great deal of demand for a manufacturer’s new car, usually there isn’t a great deal of demand for the same manufacturer’s old car. Inversely, BMW, Subaru and Hyundai are on a tear, thereby increasing their resale value and therefore their trade-in value.
Of course, if you live in Florida, the season has less impact than it does in Michigan or Canada. That being said, the net effect percentage wise on a trade-in’s value based on the season is so important we felt it needed to be at number 2. As we mentioned above, the time of year can add or drop between 10 and 20% on a trade’s value. AWD cars and trucks are great trade-ins in the fall, convertibles are horrible trade-ins from August to early-February, Pick-ups usually do well in the spring because home landscaping projects/yard-garage-basement cleanup are on the to-do list. Traditionally, March, April, August, September are prime months in the automotive world for sales. In general, trade-ins fetch higher prices in these periods, though, this varies according to region.
3. Body condition.
Your car’s overall exterior condition needs to look younger or at least not older than it actually is. If you car is 10 years old, it is understandable that there is a little rust and a few scratches, but it is not OK if the bumper is missing! Put yourself in someone else’s shoes and ask yourself ‘would you buy your car?’. Windshields are a value killer. If there is a crack in the windshield, no matter how small it is, you have to figure the price of a new windshield will be deducted from your trade-in price.
Perhaps you like a blue exterior with a red leather interior, but chances are you are part of a select group. Anything Yellow, Pink, Light Blue, Flashy Green, Gold, Bronze… you get the idea, these are tough sells. Beige, Grey, Off-White interiors always look dirty and usually need a good cleaning before they can be resold, so you can expect the cleaning bill to be deducted from your trade-in value.
On any car, there is almost always a higher percentage of buyers opting for one transmission over another. For example, Mercedes-Benz offered a standard transmission on its C-Class series, but over 90% of buyers chose the automatic transmission. Well if you are looking to trade-in a Mercedes C-Class with a manual transmission, you will find that its value is significantly decreased versus the same exact car with an automatic. This can also work the other way around. A Subaru Impreza WRX attracts manual transmission users and will fetch a higher trade-in price if equipped as such.
6. Popularity within its segment.
By segment, we mean for example full size sedans, intermediaries, full-size sport-utility vehicles, full-size pick-ups and so forth. You can think of segments as categories. In each segment, there are always cars that sell well and others that do not sell as well. In the intermediary segment, Toyota Camry and Honda Accord are the leaders, while the Chevrolet Malibu and Kia Magentis sell less than half the number of cars as the leaders (2011 data). What this means is that even if you paid your Kia Magentis the same price as you would have paid a Honda Accord, you will still get less in trade-in value for the Kia despite having identical mileage and model year.
The gap in pricing between a fully loaded model and the same model with basic equipment tends to decrease with time. So even if you put 5000$ dollars worth of options, the difference in pricing in 4 years between each model will more likely be 1500$. Because of this, it is a lot easier to sell a used car with a lot of options and features than a basic model. Features such as A/C, CD player, automatic windows and locks, and alloy wheels are almost a necessity, while a sunroof, leather seats, xenon lights, AWD (when the model also comes in FWD), 7 passenger option on SUVs, dual zone climate and so forth always add to your car’s trade-in value.
8. Price it retails for today.
The last few years have been very difficult for manufacturers and dealerships. Car companies have begun offering significant incentives and rebates on new cars. This was not necessarily the case 3 or 4 years ago. Therefore, it is quite possible you bought a new car 3 years ago when it had just come out and paid full retail for it, while today, the same car has 5000$ in manufacturers’ rebates deducted from its starting price. It would be understandable for you to assume that your car followed standard 3 year depreciation, but unfortunately you now also have to take into account rebates on new cars and tack on that amount to the normal depreciation.
9. APR offered on used cars.
If you trade-in your used car at a new car dealership representing a brand that offers competitive rates on used cars, this will be a positive for your trade-in value. The reality today is that manufacturers are offering very low APR’s for good credit customers on new car purchases. Sometimes, the difference between a new car costing 22 000$ with a 1.9% APR and a used car costing 15000 $ with a 6.9% APR is not enough to justify buying a used car. If the APR is high on used cars, they are harder to sell and therefore your trade-in value is negatively affected.
10.Model has changed or been discontinued.
Anytime you trade-in a previous generation model, or a model that no longer exists, your trade-in value will fall. Every 4 years or so, companies completely overhaul their model lines and newer generation models usually have more luxuries, more powerful engines, better fuel efficiency, and a completely different look. If your car is from the previous generation, your trade-in value suffers. Same thing applies if the manufacturer no longer makes that particular model. Inversely, having for example a 2006 car that looks the same as a 2011 because the manufacturer has yet to update the vehicle will be beneficial to the price you can expect to receive for your trade.
11.Dealership has a used car lot.
We discussed this subject in Can You Negotiate the Price of Your New Car. Dealerships with a used car lot will likely keep the trade-in on the lot and assuredly sell it for a profit. This profit becomes your trade-in’s value negotiation leeway. In other words, you may be able to convince the dealership to take less profit on your used car (i.e. give you more money for your trade-in) in return for buying a new car there. If the dealership does not have a used car lot, then your sales representative will have to call independent used car dealerships in your area and ask them how much they are willing to pay for the trade-in. In that case, only the items listed in points 1 to 10 become a factor and you are not likely to get more than market value for your trade-in.
12. Dealership represents the same manufacturer as your trade-in.
We covered this topic numerous times on our website. To put it simply, if you are trading a used Honda for a new Honda at a Honda dealership, you may get more for your trade-in; especially if you bought your Honda at that specific dealership. The important thing to remember here is that you can substitute Honda for any other manufacturer and that anytime your trade-in was built by the same company as the new car you wish to buy, you have a better chance of seeing your trade-in value increase.
With this information in mind, we hope you will be able to set yourself up to get the best value for your trade-in, now or in the future. If you are buying a new car now, try and think ahead to the time you will be trading it in. If you are hesitating to get leather seats because you feel they are too pricy, remember they can easily add at least 500$ to your trade-in value and 1000$ to your resale value. Same goes for color and everything else listed above.
On the flip side, there are often times price reductions for ‘uncommon’ cars at the dealership. These are new cars that haven’t sold for months or even years because they have unusual features or colors. I used to work at a dealership that had a mustard color model that normally retails above 40k. We held the car for 17 months and ended up selling it for 35 000$. Although the client did get a great deal, and was one of the few who liked that particular color, this person must realize that when the time comes to trade-in the car they will get a significant reduction on its trade-in value.
Also keep in mind that as time moves along, the factors listed above begin to become less relevant. If your trade-in is less than 6 years old, the list applies to you. If you trade-in is more than 6 years old (give or take a year depending on the model), than this list becomes less relevant.