The following e-mail conversation regarding retail car prices
and trade-in values highlights the confusion and misconceptions about automobile
price and value.
This conversation occurred between me/Ted, the dealer, and
Rich, the customer...
[Begin Email]
[Ted]
Hi Rich...
Donna loves the 2006 Volvo. It’s a perfect fit!
Again retail value is: $23,800
Here's what Medway Imports can do:
2006 Volvo S40 Price.............$18,995
2001 Chevy Impala Trade-In Value…........$4,000
Thanks Rich!
Note: the Volvo is still under its factory 4-Year 50,000-mile
warranty, free road side assistance…etc.
[Rich]
Hi Ted,
Thanks for the information. The Volvo certainly is a great
price, but isn't my Impala worth $6,000-$7,000?
Kelly Blue Book lists the private party value at approximately
$7,995. I know that does not mean it will sell for that amount. However, most of
the ads that I have been seeing reflect a range of $7,000 to $9,000.
I would guess that based on the retail prices, the actual sale
price would be discounted by $1,000-$1,500. That would mean a reasonable
expectation would place the value at $6,000-$7,000.
[Ted]
You’re right Rich…$6,000-$7,000 is certainly a reasonable
"retail value" for the Impala, but research shows it’s actually only selling for
around $4,000.
Interestingly, based on your math of knocking $1,000-$1,500 off
private party bluebook would put the 2006 Volvo at a "reasonable" price of
$22,800, as it retails for $23,800 to $24,500 depending on which source you
use.
The facts are, however, neither the Impala nor the Volvo will
sell for these retail values—not in today’s market anyway.
[Rich]
I can lease an Infiniti which would probably cost me less on a
monthly basis. My partner just leased a 2007 loaded Infiniti for 39 months,
(78,000 miles) for $558.00 month. Cap reduction was only $595.00.
I'm guessing that I could lease the same car for 3 years with
36,000 miles for no more than $400/month.
They’re also willing to give me $7,000 for my 2001
Impala.
I'd appreciate your thoughts!
[Ted]
Hi Rich…
Your guesses “might” be close; however, this is a classic
example of the confusion surrounding trade-in values and the actual vehicle
worth.
That $7,000 they will pay you is called a "feel good" number.
Dealers use it all the time, and then whack you on the retail sale end of your
new car.
In other words, as a dealer, I will gladly give you $7,000 for
your Impala provided you’re willing to pay $22,800 or more for the 2006
Volvo….as you can see, based on these numbers, you'd spend more.
It’s stunning how often people fall into this trap every single
day based off of blue-book-type retail numbers.
Click the following link for a complete insider discussion on
Car Repair Scams
Also...for an interesting discussion on car values, check out the
article on bluebook pricing @ http://www.repairtrust.com/articles_kelley.html.
It's eye-opening!
The facts are, however, we as a retail dealer are not likely to
get $22,800 for the Volvo even though the book says it's reasonable. Book
values, or the values placed on vehicles by websites are guides based heavily on
opinions and averages. Go to seven different websites and get seven different
values.
If you’d like, I can get you any used car you want at a great
value like the Volvo…but I'd still only be able to pay $4,000 for the
Impala.
Since we don't use manipulative "feel good" numbers to inflate
the trade-in value by increasing the sale price of the Volvo, it appears as if
we're offering too little for the Impala.
In actuality, the numbers are dead on. $4000 is a real
number!
Note...none of this is a sales pitch, but the straight deal on
the "value" of the Impala in the real world. This is not to say that you
couldn't sell it for $7,000, provided you want to do the footwork—advertising,
replace the bald tires, service and recondition it, fix the rear seat...etc.
In short, what makes up the value of a car is incredibly
complex and variable.
What I wouldn't want you to think is that you're being
low-balled on the trade-in price. What is happening, and it’s the only way we’ll
do business, is that you are being given a "real value" and a "fair value" for
your Impala.
The short answer to all this is that you're getting a square
deal on both ends—even though it may not “feel” like it with the Impala.
[Rich]
Hi Ted, if I had to finance approximately $14,000 for the
Volvo, my monthly payment would be around $430/month (3 years @ 7%). I think
that I may be more inclined to lease a 2007 loaded Infiniti, which would
probably cost me less on a monthly basis.
[Ted]
Hi Rich…
Leasing has many positives; however, at the end of 3 years the
value of the Infiniti to you would be $0. The residual value of the 2006 Volvo
S40 is $9625.
One of the major downsides of leasing is that at the end of the
lease…you have NO equity.
I will not in anyway be offended if you choose to lease, or buy
somewhere else. What I know, and what I can do for you is get you a great
"value" for your dollar.
$18,995 for a vehicle that is priced $4805 under the low value
of $23,800 is a great value.
$4,000 for a vehicle that needs $1,000 or more in
reconditioning is a real price.
In short, you can't buy wholesale and expect to trade in for
retail.
Interestingly, the current wholesale price of this vehicle is
in the $19,000 to $20,000 range.
In other words, I couldn’t even buy this car
right now for $18,995.
Those are my thoughts.
I hope this helps in your decision making process.
[End Email]
As you can
tell from this conversation, the perception and the reality of used car
prices is very different. This article illustrates that pricing
used cars must be done in context. An arbitrary number set by a website
or book distorts the real-life values for the car buyer and the seller.
It creates confusion and animosity. These are the last things the
automotive industry needs!
Making Sense of Used Car Prices
