Dealers frequently use what is called The Black Book when determining the trade value of your vehicle. Or at least reference it I should say. The Black Book is a little pocket book about the size of a calculator and is a weekly publication that dealers frequently subscribe to. Chances are if you look around in a used car manager or general manager's office you may spot one of these tucked away on the desk somewhere. Nowadays in addition to that they will also reference such sources online such as Manheim.com or Ove.com . These are auction sites that the dealers have access to so they can see what vehicles like yours are currently bringing at these mysterious auctions you seem to always be hearing about.
Let me start off by saying you will most likely NEVER get what you really want for your trade in at a dealership. They may be able to "show" you what you are wanting for your trade in if they have you locked in on the right car. Which is one with a substantial markup that is capable of absorbing some of that money you want for your trade. There is a good chance the salesman will even use the word "show" when he is discussing your trade in value. Which since I don't sell cars anymore looking back, I was an idiot to ever say it. Let me explain. When a salesman first appraises your car he is going to typically fill out what is called an appraisal form or ACV form. This form is not meant for your eyes to see after the car has been appraised. The salesman may go over it with you in regards to equipment and any of your personal information they may want to put on it such as names and contact info but after that, you'll probably never see it again. ACV is always going to be abbreviated on any form that refers to it but if that store has any brains they wouldn't put it on any paperwork at all the customer sees. The last store I worked for did but most people don't know what it means or they just assume it doesn't have anything to do with the sales figures. ACV stands for "actual cash value." The number to which your car is actually worth to that store and the actual dollar amount that it will hit the books for after the sale.
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| Is it time to trade in that car? |
So what does ACV have to do with your car deal. It is very simple actually. I am going to use some theoretical numbers and explain this very easily. Lets say you are buying a $25,000 car. In this case we are going to say its used. We will say they own that car for $21,500 . $3,500 markup. You have a trade in that you would be happy getting $12,000 for. However, you did your research and you also think you can buy the car you are wanting for $23,500. So you want $12,000 for yours and want to pay no more than $23,500 for theirs. Salesman then appraises your car and he sits down with the figures. He's gonna low-ball you to test the waters. He may say something like "We're going to show you $10,500 for your trade and we will knock $500 off the car. That what you were thinking?" You say "No , not even close." He then says "Well, what were you hoping for? Is it the price of the car? Is it the trade?" This is where you laugh and say "both." This is where the chess game begins. What you are not seeing at this point is the ACV of your car. Now I wouldn't suggest ever saying "so what's my ACV?" They will just think you're a jerk and be cynical towards you for it most likely. You can keep your eye open or listen for it though and keep is as a silver bullet for later if things don't go as planned. By all rights your ACV card may say $11,000. In this case he is holding back on you. Some guys are incredible at holding back on trade, some rarely if ever do it. They are usually the good guys in the biz. Lets say that your car is worth $11,000 ACV. Based on the numbers he gave you, all he did is discount the car to look like a sweetheart and charged you the discount out of your actual trade in value. That $3,500 markup is still on the table. "What could we do to earn your business today?" he then says. You then say "Well I was hoping for $12,000 for mine and I have seen the same car you are selling for $23,500." He will likely then give you the old "Let me see what I can do" and go to his manager for rehashing. This time he comes back with "The manager said he would put $500 more into your car and sell the car for $24,000 , he's really just trying to put this deal together." Ok so we're getting close. They are truly giving you what ACV (even though you don't know what ACV is) and you are within $500 of where you want to be on the car you are purchasing. However, with the numbers we are using there is still $2,500 on the table. Pretty typical used car profit really. Now I cannot tell you what they are going to own a certain car for. That is impossible. Is it wrong for them to make a profit? Absolutely not. Is it wrong for them to make big profits for overpricing cars and "dragging" (industry term) trades. Hell yes. In this case, with the numbers given you are $1,500 from where you truly want to be. On a five year loan that could be about $30 a month. At this point if you play your cards right. There is probably a good shot you could still get what you want. Most dealers will do a $1000 deal just to roll a unit. Sometimes less if it is an aged unit they are paying interest on and they just want the damn thing gone. If there are tumbleweeds blowing through the showroom that day that can be a big factor too. You just have to decide how much hardball you want to play. They can still "show" you that $12,000 for your trade. It just means they are getting a profit of only $1,500 when selling the car for $24,000 with an ACV of $11,000.
I want to clear up a bit of what I think is a misconception about trading cars in. At least depending on what state you are in. I heard people say to me a lot in regards to trades "well, my neighbor said he would give me $15,000 for my car and you are only giving me $14,500." Now bear in mind, I sold in Illinois. Which means at a rate of 6.25% you won't pay that tax on the $14,500 going toward your purchase. This is a tax savings of $906.25. So at this point you are actually, in theory getting $406.25 more for your car than Joe down the street wants to give you. People overlook this all to often and it can usually be to a persons benefit to trade if it is worth a substantial amount and the tax savings is high. There are a few states that do not offer trade credit. At this time I know what they are but this post will be up for years and that could change so see if your state offers it before you head in. Also, same thing with tax in general. Some states don't collect on car deals period so please do your research on this.
Does that car of yours need some work? Maybye you cracked a bumper skin at the supermarket or you have not gotten around to change that pesky 02 sensor keeping your check engine light on. Check to see what the dealer will give you for it and see how much they are penalizing your vehicle before you go dumping a bunch of money into it. All dealers will take any mechanical or superficial repairs into consideration when taking your vehicle on trade. Dealers have their resources for making all of these repairs. Internally within the store or not. In the end they get repairs made for as little money out of their pocket as they can. Don't rack your brain over small issues with your trade-in. There is a good chance that dealer can bring it up to par cheaper than you or I could go have it done for. Just don't put $3000 into your car to see a higher return when you trade it in. It most likely will not happen this way.
The best I can say is do your research on NADA.com and KBB.com and decide before you go in what you are willing to pay for their car or receive for your trade. Averages between the two are reasonable expectations from what I saw over the years. Also, remember these salesman low-ball you. So when they ask what you want for your car, HIGH-ball them! If you really want $12,000, say $12,500 or $13,000. Low-ball them on their car too. Sure maybe they will chuckle or perhaps you may offend them a bit. Salesman have pretty tough skin so it isn't likely. The bottom line is it doesn't hurt to ask. They make their big money on people who don't ask. The absolute worst that is going to happen is they will say no. If the money is there and they want the deal, they'll do it. Period. Below is a list of general pointers that I hope you also find helpful. Also, if I lost you in the figures at all on this lay it out on some paper to perhaps help you to understand it better. Gosh, I LOVE giving this stuff away. Please pass it on.
- Best times to put a good deal together are when business is slow. Store owners hate to have a "no sale" day. If you are the only one there you are in the spotlight and that manager is hungry for a deal no matter how small.
- If you cannot reach an agreement in regards to trade, this will blow their mind. Ask them if they call other stores for "buy bids." Car dealerships have relationships with each other and another store that carries "your model" of car may put more into the ACV. In this case the store you are buying from is still taking your car in on trade but they have another store lined up to buy it for the "buy bid" amount. The fact that you know what a "buy bid" is will send warning shot over the store that this isn't your first rodeo. Chances are they may just cave in and step it up on your car even if they do get "buy bids" from other stores.
- That car you have had your eye on has been there for months. Ask for a carfax and make sure people aren't afraid of it for some reason. Dealers usually don't want cars on their lot for more than 60 days especially when they are floor planned. Floor planned is when the dealer's bank owns the car and they pay interest on them everyday. Trading in towards an "aged unit" could get you a really good deal.
- Last days of the month or even last day of the year could get stores to step it up on trade. Dealers live by the month and they want as many units on the books as possible at the end of those months.
- Trades are seasonal. Don't trade in your convertibles in the winter. They will bring below book values. Same with 4X4 bringing all the money with a foot of snow on the ground. You get the picture.
- They're just cars. Unless it is something really rare that is bringing good money. Don't let anyone push you into a deal that doesn't feel good. There are plenty of Camrys, Tauruses, and Impalas to go around.
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