Online used-car pricing: where the haggling begins
If you’re selling or buying a used car, the Internet can be a true blessing.
With a few strokes of the keyboard, you can find out what a 2001 Mustang might be worth if you were trading it in, selling it yourself or buying it from a neighbor or from the corner-used car lot.
But be forewarned: The operative word in the last sentence is “might” — when it comes to determining a specific dollar amount value for a used vehicle, the Web can also be a jungle of conflicting numbers. Depending on which site you use, values can vary by thousands of dollars for seemingly identical cars, in identical condition.
Let’s say you are shopping for a 2002 Ford Explorer XLT with two-wheel-drive, V6, automatic transmission, AM/FM cassette and leather seats with 50,000 miles on the odometer.
Run through the calculator on Edmunds, and the result says the retail price of that Explorer should be $10,774. But surf over to Kelley’s site, and the same vehicle comes up with a retail value of $15,040.
So what’s up?
Blame differing approaches and internal methods of calculation.
Alex Rosten, manager of pricing and market analysis for Edmunds, says his site’s prices are derived from a complex calculation using many sources.
“We use transaction data from dealers, depreciation rates for individual models and historical data,” he says. “There’s also some forecasting involved.”
Robyn Eckard, director of media relations for Kelley Blue Book, says her site, which is an evolution from the printed Kelley Blue Book price guides that dealers have used since 1913, also uses sales data from dealers, wholesale auctions and other sources.
So what explains a difference of more than $4,000 on the retail pricing of our hypothetical 2002 Explorer?
Rosten argues that in addition to building a better computer model for figuring these things, the Edmunds site is not as closely aligned with car dealers as Kelley’s. “Their prices are very dealer-friendly,” he says, implying that by showing consumers higher retail prices and, in some cases, lower trade-in values, it gives a dealer greater leverage.
Eckard flatly denies that. “We are not out there to make dealers happy,” she says, contending that Kelley’s prices are more reflective of the market.
She also contends that there’s no direct comparison possible between Web sites because they use different definitions and start from different assumptions. “It’s an apples-to-oranges situation,” she says.
She says the retail price on
kbb.com is not meant to be a hard number.
“This is the number at which a dealer will price a used vehicle. That’s where negotiations start and then customer and dealer negotiate downward,” she says. And, in fact, that’s just what it says on Kelley’s site.
“Trade-in value” is explained as, “What consumers can expect to receive from a dealer for a trade-in vehicle,” and “private party value” is explained as, “what a buyer can expect to pay when buying a used car from a private party.” But when it comes to “suggested retail value” KBB switches gears and defines it as, “representative of dealers’ asking prices and is the starting point for negotiation between a consumer and a dealer.”
Edmunds says its “true market value” pricing report, “… is our estimate of the current average selling price for this vehicle and is what you need to know to negotiate a fair price.” CarsDirect only says its pricing report, “… shows you the Trade-In, Private Party, and Dealer Retail prices so that you can buy or sell with confidence.”
Rob Gentile, associate director of car pricing products at Consumers Union, publisher of Consumer Reports, says that CU has also found great disparities among Internet used-car pricing guides. “There are big, big variances,” he says.
He contends that to one degree or another all of the major free Web sites depend on a positive relationship with car dealers for advertising and other support that could affect their used-car pricing reports.
“Kelley Blue Book does favor dealers,” he says. “Dealers are actually using the Blue Book to set values. Edmunds probably favors the dealers as well, though likely less than Kelley.”
But even Gentile’s comments need to be viewed as possibly tainted by bias.
Consumer Reports offers its own car-pricing service. For $10, buyers can get a report on the value of a single used vehicle, or for $24, three months of unlimited access to the service.
Gentile argues that because Consumer Union doesn’t take advertising, its information is unbiased.
Regardless of which site consumers use, there are differences in what information the sites will ask for in determining vehicle values.
For example, the information at
CarsDirect.com asks for some specific information on condition, options and mileage to appraise the vehicle’s wholesale price — what you might get in trade — but asks for no such information on another part of its site that gives values for trade-in, private party or retail transactions.
If you’re researching a 1999 Toyota Camry LE, Edmunds will ask about the color of the car and assign a positive or negative price to that one item. On the same car, Kelley lists 17 options beyond standard equipment that could affect value, compared to 14 at Edmunds and four at CarsDirect.
When the sites ask for the condition of the vehicle you’re researching, categories also differ. Edmunds has five categories, while Kelley and CarsDirect have four. And the definitions of what constitutes “poor,” “fair,” “average,” “clean” or “excellent” vary from site to site.
So what’s a car shopper to do?
Information is still power, but in this case it also should be tempered with another bromide — if it seems too good to be true, then it probably isn’t true.
Disappointment is likely if a shopper holds out for only the highest trade value and only the lowest retail price. Also, no two used cars are alike.
Another thing to keep in mind is that on newer vehicles the various sites were closer together in establishing values. That could be because newer vehicles coming off lease contracts have more stable values that can be more easily determined.
Although Rosten defends Edmunds’ prices as the most accurate out there — as does Kelley and CarsDirect — he says, “You’re never going to be 100 percent accurate.”
Consumer Union’s Gentile agrees: “There are a lot of things that go into a used car’s value, including regional differences, supply and demand and what’s happening in the new car market.
“At the end of the day, a used car is only worth what you’re able to command for it.”
So check as many sources as possible to define a range, and work within that.
Three examples of how car-pricing Web sites compare *
1989 Toyota Camry LE
Four-cylinder, automatic transmission, AM-FM cassette, moonroof, anti-theft system, keyless entry, anti-lock brakes, 80,000 miles, average/fair condition.
2002 Ford Explorer XLT
Four-door two-wheel-drive, V6, automatic transmission, AM-FM cassette, leather, 50,000 miles, average/fair condition.
2003 BMW 325i
Six-cylinder, automatic transmission, Harmon-Kardon AM-FM/CD, leather interior, power driver seat with memory, moonroof, navigation system, 30,000 miles, excellent/outstanding condition.
* These were the prices posted on the Web sites on Dec. 2, 2005
** The CarsDirect.com prices came from the site’s used-car prices link and not the trade-in appraisal link, which doesn’t give private sale or retail pricing.
Terry Jackson is the author of six automotive books and has been writing about cars for 25 years. He is the former editor in chief of AMI Auto World Magazine.