The Trade In Process

Think twice about trading in your used car at the dealer!

Dealer's never give you fair market value for your car. They offer wholesale value, which is much less. This is so they can sell your trade-in and make a profit. Used car pricing sites list "Market Value" and "Wholesale" or "Trade-In" values, which are much less. Dealers make it appear they are giving you a lot for your trade-in, but don't be fooled. They are shuffling dollars around, charging you MSRP, or higher interest, or piling on wasted extras like rust proofing, paint sealant, and extended warranties.

They cry on your shoulder that they'll get nothing on your trade-in. They'll offer you $1500- $6000 less than market value. If they don't repair the car, it's all profit. As you cry over their "loss", here's how they profit from you and the next owner of your trade-in: They put your trade-in on the lot a week later for $1500 more than fair market value, and stick a "No Haggle" price tag on the windshield. Now, they'll profit $3000 on your trade-in (less their cost to repair it) thanks to the $1500 contribution made by both you and the future buyer.

Always treat your purchase of a car and trade-in as 2 separate deals. A trade-in gives dealers 2 variables in the sales equation. By paying cash with no trade-in, everything is on the table, the dealer has no where to run, nowhere to hide. He can't play cash flow shell games, giving you "A good deal" on your trade-in, but fleecing you in the back end of the deal.

Tell them you are not trading and negotiate a selling price for the new car. Now they have no "shells" for the cash flow shell game. After they agree on the new car selling price, tell them you want to trade in and how much you want. They will either accept it or not, but at least you'll know how low they will really go on the selling price of the new car.

Your Trade-in is worth a fixed amount no matter what you buy, whether you finance through them, whether you buy extended warranties or optional extras. Don't let them condition you into thinking otherwise.

Seasonal Pricing of 4 wheel drive vehicles

If you are trading in a 4 wheel drive vehicle it can be worth more in the fall than in the spring because it can be considered a seasonal vehicle due to the 4 wheel drive. There is a big wholesale market out there for cars which are 3 years or older that will change over the seasons. In the spring and summertime when a 4 wheel drive is not really necessary, you may get less for the vehicle than you would in November when there could be buyers for them.

Even with "book" prices, it's difficult to determine the value of your trade-in, because each car is different. Mileage and wear and tear are the biggest issues. "Trade in buyers" concentrate on the trade in, and fall asleep during the rest of the deal blinded by the cash flow shell game the dealer played on them. The dealer just got their money on the back end, not the front. People brag about getting more than what they asked for their trade in.

By selling the car yourself, you have eliminated one method for the dealer to cheat you out of your money. Besides, don't you want to keep as much profit as possible out of their pockets and in yours? Don't feel guilty, they are trying to keep money out of your pocket. Now you saved 33% of the money you could have lost. You can use that money toward a down payment if you can get transportation until you buy a car. Or, sell the car after you buy the new car and send in the cash as a large "principal" payment. Verify your bank allows you to make extra principal payments.

Trade-in Tax Analysis

Don't veto the idea of a trade-in without analyzing your situation, there's a tax advantage to trade-ins. You usually pay sales tax on the difference between the new car and the trade-in.

If you are buying a $25,000 car and your trade-in is worth $10,000, you'll pay 6% (for example) tax on the difference. Total outlay is ($25,000 - $10,000) + tax on difference = $15,000 + $900 in tax = $15,900.

But supposing you got $12000 for your vehicle selling it yourself. The total cash outlay is $25,000 + tax = $25,000 + $1500 in tax = $26,500. When you sell your old car and receive the $12000, your effective cash outlay will now be $26,500 - $12,000 = $14,500.

You can see in this case that you would save $1500 selling the old car yourself. This was only possible because you were able to sell the car for $2000 more than the dealer would give you for it. If you can't get more than the dealer will offer you, then you are better off trading in the car, because you'll benefit by the savings in sales tax.

"Appraising" your car at the dealership

They put on a good show. The "appraiser" will rub his fingers over every dent and dimple like he's having foreplay with your car. They do this to panic you, setting you up for a low ball quote. They'll say "All these scratches, I don't know how much we can give you. We'll lose money on this trade-in, if we can sell it at all."

So why does he want the trade-in so bad? Tell them it's normal wear for that age. That's why you're not asking $20000 for it. Tell them you are not trading in and watch them try to convince you to trade in a car "they'll lose money on".

Dealers go to auctions to sell acquired trade-ins and hunt for fresh used cars. They use auctions to figure out car values, based on market conditions. One other weapon the dealer has is your maintenance history. If you are trading in a GM at a GM dealership, they can get on the network and pull up your maintenance records. Remember that brake job and transmission motor mount they suggested you get when you brought it in 2 months ago? All those remarks are entered into the network. Any dealer can get that data and use it against you.

We'll Give You Top Dollar For Your new Car!

Beware of dealer TV ads claiming they'll pay you "Top Dollar" for your trade-in. They use psychology to let your brain trick you into thinking you'll strike it rich.

Your definition of top dollar is different from theirs. Your definition of top dollar is fair market value, but their definition is wholesale value. You'll never get fair market. You can't get blood from a stone, and you'll never make money on a trade-in selling it to a dealer.

They may offer more than market value, and you're celebrating but you will most likely fail to see they charged you full MSRP for the car, or added wasted extras. Those who ignore the rules of this game are in for a shock when the dealer makes their offer.

You'll complain it's too low, and that their ad said "Top Dollar", but they'll say "This is top dollar. This is as high as we can go. We have to resell it too, you know. I don't think we'll even make a cent on it". Do you really think these dealers are spending thousands of dollars on TV ads for a loss? They advertise because buying and reselling decent used cars is profitable.

There should be a law banning dealers from using the words "Trade-in" and "Top Dollar" in the same sentence.

Where do the "beater" Trade-ins go?

"We'll give you $4000 for ANY trade-in. If you can drive it in here, we'll give you $4000!"

They get their share of beaters. Dealers have no use for beaters. They can't sell them. They keep the better cars, and sell them for more than market value. Beaters are sent to sleaze ball, buy here pay here, lots.

They spray paint engine wires and engine compartment with black paint to make it look clean. They get cars from wholesale auctions, who get cars that were rejected by real car dealers. If you buy a used car from a dealer instead of a private person, you may have better luck at new car dealers, who keep the better used cars. You'll pay more, but you usually receive a warranty of 3 months, far better than the "30 feet or 30 seconds" warranty some other lots may offer you.